Desire by many investors for sustainable responsible investing and companies’ focus on corporate social responsibility.
From the stockholder to the stakeholder
Arabseque Asset Management and Oxford University, September 2014
There has been a growing focus in recent years on sustainability through the integration of environmental, social and governance (ESG) issues. This includes the desire by many investors for sustainable responsible investing and companies’ focus on corporate social responsibility.
“From the Stockholder to the Stakeholder” reviews existing research on ESG. It is a meta-study of over 190 different sources and considers whether there is a business case for corporate sustainability.
Sustainability and economic performance
The authors identify a strong correlation between sustainability and economic performance. For example:
- 90% of relevant studies show that sound sustainability standards lower the cost of capital;
- 88% of relevant studies show a positive correlation between sustainability and operational performance;
- 80% of relevant studies show a positive correlation between sustainbility and financial market performance.
The authors observe that to translate superior ESG quality into competitive advantage, sustainability must be deeply rooted in an organisation’s culture and values. Particular mechanisms to do this include: responsibility at the board level, clear sustainability goals that are measurable in quantity and time, and an incentive structure for employees to innovate.
It is concluded that it is in the best economic interests of corporate managers and investors to incorporate sustainability considerations into decision-making processes. This is a powerful conclusion and it will be interesting to see how companies and investors respond. The report is likely to give further impetus and support to the ESG movement.
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