The Financial Case for Embedding Sustainability Core into Business Strategy

This chapter makes a financial case for embedding sustainability at the center of a company’s business strategy. A growing number of studies are finding a strong correlation between positive ESG performance and better stock and operational performance as well as lower cost of capital. However, it is challenging to demonstrate causality, partially because most firms do not have metrics and accounting systems in place to assess the comprehensive return on sustainability investment (ROSI). The chapter notes that most of the Fortune 500 firms have sustainability strategies and report on environmental, social, and governance (ESG) issues. Corporate managers across many industries — from manufacturing to mining, to apparel to electronics — are facing a wide range of ESG issues. These issues are highlighted by the radical transparency that social media provides, the growing expectation among millennials across the world that corporations be good citizens, and the abdication by the government of their responsibility of taking care of societal goods. The chapter presents various initiatives which have begun to tackle this problem. Some have found that cost savings, revenue enhancement, and risk reduction accompany positive ESG/sustainability performance. This chapter closely examines the methodology developed by the NYU Stern Center for Sustainable Business, along with its first case study. The chapter concludes that corporate commitments to sustainable policies and practices have outstripped their ability to track the financial impact of those practices. In some cases, establishing the financial case may not be necessary or may even be unnecessarily complex. Markets increasingly force corporate managers to increase margins by reducing costs. Companies need to be better able to demonstrate the financial case for sustainability.