Ethical Performance
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sustainability ‘raises share price’

July 1999

Sustainability strategies can boost the stock market value of companies by up to 15 per cent, according to the results of a two-year study by seven international companies.

The investigation, by a consortium of one US and six European companies, has concluded that the financial benefits of sustainability policies are now so strong that sustainability will become ‘the dominant business paradigm of the future’ and ‘an inevitable investment for the company that wishes to be still in business in 15-25 years’ time’.

ICI, Volvo, Unilever, Deutsche Bank, Electrolux, German insurer Gerling and Monsanto comprised the consortium, which asked Oslo-based The Performance Group to compile the Sustainable Strategies for Value Creation study.

It found large companies actively pursuing sustainable strategies may have up to 15 per cent higher shareholder values than those that do not. It predicts capital in the investment market may shift irrevocably towards sustainable companies because they will be seen as more viable.

The study says companies are now being driven towards sustainability more by the potential business benefits than other factors. It identifies four ways in which sustainability strategies produce financial advantages: by encouraging the development of new products and services; by improving cost efficiency; by increasing shareholder value, and by boosting corporate reputation.

It warns firms must act now or face the consequences. ‘All the research shows playing the catch-up game can be very costly,’ it argues. ‘Global companies such as 3M have already reaped benefits from their institutionalised sustainable strategies and if competitors want to keep up they need to adapt’.

Several previous studies have concluded stock market value is enhanced by sustainability policies, but the consortium’s estimate is the most bullish yet. A survey last year by the Alliance for Environmental Innovation suggested that US companies outperforming their peers environmentally also outperform them on the stock market by around two per cent.

The consortium, set up in 1997 to explore the link between sustainable strategies and shareholder value, took evidence from major companies including NatWest, BP Amoco, DaimlerChrysler, Swiss Bank Corporation and 3M, and from investment firms such as Morgan Stanley and Merrill Lynch.

Leif Johansson, chief executive of Volvo and chairman of the consortium, said large companies with no sustainability strategy are being left behind. ‘It is better to anticipate and be prepared than to be forced into providing more sustainable products, processes and services,’ he said.


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