Corporate Sustainability and Financial Performance

This chapter looks at the links between financial performance of companies and their commitment to a corporate sustainability agenda. The chapter challenges the traditional view that there is a trade-off between environmental and financial performance, that corporate sustainability conflicts with shareholder wealth maximization. Instead, the chapter highlights a body of research that suggests companies with strong sustainability focus can outperform comparable companies with poor sustainability performance. The chapter once again explores the impacts (materiality) of corporate sustainability and the environmental, social, and governance (ESG) factors, first introduced in Chapter 3, with a particular focus on the environmental. The chapter also provides an overview of sustainability-related risks and opportunities for business and investment. The chapter then analyzes the impact that sustainability can have on companies’ financial performance, considering both profitability and market valuation indicators. It reviews key methodological indicators of financial performance and highlights how sustainability can have an impact on each of them. These indicators involve revenues (demand, innovation, etc.), costs (risks, productivity, savings, cost of capital, etc.), and market performance (share price, market risk, impact on investors, and access to investors) but also competitiveness, intangible assets, and reputation. Finally, the chapter investigates how a company can improve its positive financial outcomes from sustainability initiatives. In this respect, the chapter concludes that the financial stakes of corporate sustainability are rising and that there is growing evidence of links to a company’s financial performance and investment returns. These links are observed both at the profitability level, with growing demand for sustainable products, and at the market valuation level.