Businesses urged to protect market cap with sustainability investments

Companies considering scaling back their sustainability initiatives in response to the economic downturn have today been urged to "think twice" after research released yesterday by consultancy giant AT Kearney showed that those businesses with the most effective green strategies tend to outperform their rivals financially.

The new study, entitled Green Winners: The Performance of Sustainability-focused Companies in the Financial Crisis, looked at 99 companies that feature on the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list of green companies, and assessed their stock price performance over the six months up to November last year.

It found that in 16 of the 18 industries studied, the stock price of those companies committed to sustainability outperformed the industry average by 15 per cent, averaging out to $650m (£436m) of protected market capitalisation per company.

Speaking to BusinessGreen.com, report author Dr Daniel Mahler said the report provided ample evidence that there is a link between successful sustainability strategies and financial performance.

"It is not easy to prove cause and effect, but this report suggests the link [sustainability and stock market performance] is stronger and clearer than expected," he said.

The report found that those firms featuring on the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list tended to be characterised by strong corporate governance, a willingness to develop long-term strategies, sound risk management processes and a history of investment in green innovations – all of which are attractive to investors in an investment climate dominated by risk aversion.

Those companies operating in the auto, chemicals, media and financial service s industries with sophisticated sustainability policies outperformed their peers by the greatest amount, with each sector showing an average premium over conventional rivals of at least 25 per cent.

Mahler attributed their strong performance to the fact that investors in those sectors are particularly attracted to firms with strong corporate governance and long term strategies. "If you look at financial services it is now an area where investors are hungry for companies with clear and good corporate governance policies," he said. "While if you look at the auto companies that are outperforming the market, like VW and Toyota, they have made a long term commitment to fuel efficiency which means they are much better positioned for the future than our freinds in Detroit."

The only two exceptions to the rule were the construction and materials sector and household and personal goods sector, where companies focused on sustainability were shown to perform fractionally worse than the industry average over the period studied.

Mahler said that their poor performance was likely to be the result last summer's financial crisis disproportionately affecting the construction and consumer goods sectors and effectively "skewing the figures".

The study concluded that while most firms are focusing on green measures that also cut costs, such as reduced levels of corporate travel, there is a strong case for continuing to invest in longer-term sustainability initiatives as the "best way to protect a company's value through the months – and years – ahead".