Wednesday, February 18, 2009

Sustainability rewards investors

Companies strongly committed to sustainability practices achieved above-average performance during last year’s financial meltdown, according to a study from A.T. Kearney.

The findings suggest that companies geared towards sustainability, including focusing on long-term health rather than short-term gains, strong corporate governance, sound risk management practices and a history of investing in green innovation appear to outperform their peers in the financial markets.

The U.S. study looked at 99 companies listed on either the Dow Jones Sustainability Index or the Goldman Sachs SUSTAIN focus list over a three-month (September to November) and six-month (May to November) period.

Over three months, the performance differential (defined by comparing the percentage point difference of average sustainability companies’ indexed performance to the market indexed performance) was 10 percentage points; over six months, 15 percentage points.

The report does sound a note of caution, suggesting that companies showing a “true” commitment (defined above) to sustainability practices are reaping the benefits. Defining that commitment requires research.

“The primary takeaway is to examine all sustainability practices and determine how genuinely committed the firm is to them,” the study notes. “If the commitment is less than complete and there is little payback, it might make sense to reduce or eliminate sustainability investments.”

However, if sustainability is transforming the business, it makes sense to maintain this commitment, the report concludes. “The most sustainability-focused companies may well emerge from the current crisis stronger than ever – recognized by investors who appreciate the true long-term value of sustainability.”

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