Green Companies Do Better During Downturn: Study
Washington D.C., USA – Thinking of curbing or curtailing sustainability efforts because of the troubled economy? Think again, says a new study by global management consulting firm A.T. Kearney, whose research indicates that firms with "true commitment to sustainability" outperform industry peers in the financial markets.
"The most sustainability focused companies may well emerge from the current crisis stronger than ever," said the authors of the analysis, "Green Winners: The Performance of Sustainability-Focused Companies in the Financial Crisis," A.T. Kearney released Monday.
The report is the latest that backs the assertion that green products and services as well as the firms that produce them will show resilience through the economic downtown. The new research goes a step further and provides data on market performance for firms whose business approach emphasizes sustainability.
The authors of the A.T. Kearney analysis are four partners of the firm — the company’s global coordinator for sustainability practices and the heads of the sustainability practices in Australia, France and Germany.
Their analysis looked at 99 firms on the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list of green companies and tracked stock price performance for six months through November last year.
In 16 of 18 industries included in the review, businesses deemed "sustainability focused" outperformed industry peers over three- and six-month periods and were "well protected from value erosion," the paper’s authors said.
During the three-month period, September through November, the performance differential across the 99 firms tracked was 10 percent; over six months, it was 15 percent. "This performance differential translates to an average of $650 million in market capitalization per company," the report said.
This chart shows the performance of sustainability focused companies in comparison with that of their peers in each industry.
The authors stressed throughout their report the distinction between companies that consider sustainability as fundamental to their business strategy and firms whose commitments and practices are not as deeply engrained.
"Our findings suggest," the authors said, "investors may reward ‘true’ sustainability focused companies" that demonstrate an emphasis on "long-term health rather than short-term gains, strong corporate governance, sound risk management practices (and) a history of investing in green innovations."
The report cited as an example a global consumer packaged goods company that began its sustainability efforts more than 10 years ago and has since changed its business model so that it incorporates sustainability practices in every link of the value chain.
The firm has increased production volume by 76 percent since 1998, and over the same period reduced greenhouse gas emissions by 16 percent, water consumption by 28 percent and energy use by 3 percent, according to the report. In 2007, improvements in energy efficiency led to a $30 million savings. Over a 16-year period, the company saved more than $500 million by optimizing packaging volume.
The report acknowledged that many corporate drives to reduce waste and emissions, use renewable energy and produce goods that have less of an impact on the environment have seemingly become "me too" efforts in recent years. "Yet companies with a history in green innovations have reaped the most benefits," the authors wrote. "And those that continue to make meaningful investments will continue to prosper, both in terms of business results achieved and public perception."
The report recommended that firms review their sustainability practices, the corporate commitment to them and the apparent payback resulting from those efforts. If commitments are largely exercises to improve image, or play catch up, and the returns are slim, "it might make sense to reduce or eliminate sustainability investments and redeploy this capital to area that will help the company weather the current crisis," report said.
By GreenBiz Staff
"The most sustainability focused companies may well emerge from the current crisis stronger than ever," said the authors of the analysis, "Green Winners: The Performance of Sustainability-Focused Companies in the Financial Crisis," A.T. Kearney released Monday.
The report is the latest that backs the assertion that green products and services as well as the firms that produce them will show resilience through the economic downtown. The new research goes a step further and provides data on market performance for firms whose business approach emphasizes sustainability.
The authors of the A.T. Kearney analysis are four partners of the firm — the company’s global coordinator for sustainability practices and the heads of the sustainability practices in Australia, France and Germany.
Their analysis looked at 99 firms on the Dow Jones Sustainability Index and the Goldman Sachs SUSTAIN focus list of green companies and tracked stock price performance for six months through November last year.
In 16 of 18 industries included in the review, businesses deemed "sustainability focused" outperformed industry peers over three- and six-month periods and were "well protected from value erosion," the paper’s authors said.
During the three-month period, September through November, the performance differential across the 99 firms tracked was 10 percent; over six months, it was 15 percent. "This performance differential translates to an average of $650 million in market capitalization per company," the report said.
This chart shows the performance of sustainability focused companies in comparison with that of their peers in each industry.
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The authors stressed throughout their report the distinction between companies that consider sustainability as fundamental to their business strategy and firms whose commitments and practices are not as deeply engrained.
"Our findings suggest," the authors said, "investors may reward ‘true’ sustainability focused companies" that demonstrate an emphasis on "long-term health rather than short-term gains, strong corporate governance, sound risk management practices (and) a history of investing in green innovations."
The report cited as an example a global consumer packaged goods company that began its sustainability efforts more than 10 years ago and has since changed its business model so that it incorporates sustainability practices in every link of the value chain.
The firm has increased production volume by 76 percent since 1998, and over the same period reduced greenhouse gas emissions by 16 percent, water consumption by 28 percent and energy use by 3 percent, according to the report. In 2007, improvements in energy efficiency led to a $30 million savings. Over a 16-year period, the company saved more than $500 million by optimizing packaging volume.
The report acknowledged that many corporate drives to reduce waste and emissions, use renewable energy and produce goods that have less of an impact on the environment have seemingly become "me too" efforts in recent years. "Yet companies with a history in green innovations have reaped the most benefits," the authors wrote. "And those that continue to make meaningful investments will continue to prosper, both in terms of business results achieved and public perception."
The report recommended that firms review their sustainability practices, the corporate commitment to them and the apparent payback resulting from those efforts. If commitments are largely exercises to improve image, or play catch up, and the returns are slim, "it might make sense to reduce or eliminate sustainability investments and redeploy this capital to area that will help the company weather the current crisis," report said.
By GreenBiz Staff
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