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Success for the Long Run: Sustainable Companies Are the Winners

Strong sustainability strategies pay off. A recent study that compared companies that adopted environmental and social policies with companies that didn’t showed that the “high sustainability” companies performed better than the other companies over an 18 year time period in the stock market, return on assets and return on equity. Given these results, what company wouldn’t want to explore how sustainability strategies can support their long-term success? Yet we hear daily of companies that are either ignoring the trends or struggling to address them. Our recent global study How to Become a Sustainable Companypublished in the summer issue of the Sloan Management Review answers some of the questions that companies are asking about what they can do to succeed in becoming sustainable organizations. Based on our research that compared sustainable companies with traditional companies, we have found some specific organizational factors that differentiate the two groups.

First, the sustainable companies tend to reframe their identities through leaders at the top who are truly committed to drive the process. They take long-term views for building company success and they are willing to tolerate more risk in pursuit of sustainability than are the traditional companies. They have a strong business case for pursuing sustainable strategies and they integrate sustainability considerations into their decision-making.

A second way that these companies build a new identity is by reaching out across traditional boundaries to external stakeholders such as competitors, customers, NGOs and suppliers. In the words of Rob Frederick, V.P. of Corporate Responsibility at Brown-Forman, one of the largest American-owned companies in the spirits and wine industry, “We embrace the unusual suspects.”  Rather than selecting suppliers solely based on cost considerations and then holding them at arm’s length, companies such as PepsiCo and Wal-Mart work closely with their strategic suppliers. David Walker, former senior director of beverage productivity at PepsiCo, said that they bring suppliers together to share best practices and engage in joint planning sessions. David Basson, the former CEO of organic apparel manufacturer Greensource Organic Clothing Company, says that they have supplied organic cotton products to big-box stores like Wal-Mart for the past 17 years. Basson says his customers want to achieve their sustainability goals without price increases that will affect the consumer. To achieve the price point its customers expect, Greensource must work closely and creatively across the supply chain to increase efficiencies, collaborating with its big-box customers as well as its own suppliers, such as the farm cooperatives. To be successful, Basson notes that players across the supply chain must plan together for the long term.

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7 thoughts on “Success for the Long Run: Sustainable Companies Are the Winners

  1. An excellent article, a strong, clear argument for sustainable practices. Often the sustainability message is murky. Not here. This is an important look at an exciting (and profitable) trend.

  2. Outstanding Article Dr. Perkins. The ‘Mavericks’ taking the risk are realizing the reward through their sustainability actions. It is our responsibility to continually produce value without charging for it. Bottom line, show the savings backed by empirical data and gently educate them right out of indecision and into decreased energy spend. Indeed, those that do are the winners.

  3. Seems like the author is financially tied to promoting her previous clients. I would like to know her criticisms of their sustainable practices – lessons her company has learned through coaching them. Rather she seems to be using this opportunity to secure future business for companies she’s repped for. Brown-Forman and Pepsi are not companies that first come to mind when I think of sustainability. Companies like Patagonia seem a better fit..right?

  4. I am a fan of sustainability and corporate social responsibility. Yet I see no cause and effect data in the article. Do financially successful companies have a target on their back that forces them to engage in responsible activities? Do struggling companies lack the resources to implement aggressive environmental or socially responsible policies? It would be interesting to see analysis of financials on individual companies before & after they change their policies.

  5. Thanks for the comment Christine. I can see why you might think that these are our clients. However, with the exception of Brown-Forman, none of the companies that we have included in this work are paying clients. Instead the work is related to a research program that we are carrying out at no cost to the participating companies with Bob Eccles and George Serafeim from the Harvard Business School. We are using a rigorous approach to inviting the companies that we want to participate in our studies. The most recent study referenced in this article was published in the Sloan Management Review. We selected our sample by examining the sustainability performance of 3000+ companies worldwide with data provided by the Thomson Reuters’ ASSET4. We isolated the top 20% and the bottom 20% and invited them to participate so that we could compare the leadership and other organizational factors that might differentiate the two groups. You can find more detail on the following link http://sloanreview.mit.edu/the-magazine/2012-summer/53415/how-to-become-a-sustainable-company/

    The Sloan article does talk about ‘lessons learned’ . However, I really like the idea of writing an article for EL that focuses squarely on lessons learned. I appreciate the suggestion and will act on it for one of my future columns. In our research, we are very interested in those companies that are doing well with sustainability and would like to ramp up and do even better. We want to examine what it takes. Thanks for the suggestions and our research team will act on them.

  6. Griffin — good points. You are absolutely right. We have not done cause and effect studies. To date we have looked at the differentiators only. We are attempting to do more cause and effect research as our research program progresses. We have built a model based on our data to date on how we think companies approach becoming leaders in sustainability (not necessarily exactly why however). Now we are in the process of testing the model. Stay tuned.

  7. In response to the posed article questions on long-term perspective and sustainable business as well as comments regarding funding for CSR, an important part of business sustainability involves impact investing in responsible and promising social business for a triple bottom line. This week at the NESsT Social Enterprise World Forum 2012 in Rio de Janeiro, Brazil, professionals are gathering around the importance of impact investing in development so as to empower individuals and communities to make important decisions toward their own futures hopefully contributing to responsible development projects and success in various circumstances!
    Follow it live on Facebook:http://www.facebook.com/nesstorg
    Or on Twitter:https://twitter.com/nesstorg

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