Which Corporate Sustainability Activities are Associated with Greater Financial Payoffs?

Abstract:

While many company managers and academic researchers have argued that businesses that develop a sustainability focus also may improve their financial performance, little information is known about whether firms’ different types of sustainability activities are related to varying degrees of financial gain. This paper assesses the economic relationship between two types of sustainability activities – lower- and higher-order – derived from the sustainability value framework of Hart and Milstein (2003). Our analysis reveals that both types of sustainability activities are similarly associated with firms’ financial performance in terms of direction and trend. However, the average level of financial benefits related to firms’ higher-order sustainabil- ity activities (which develop new products and processes) is greater than the average level of financial benefits related to firms’ lower-order sustainability activities (which modify existing products and processes). These findings offer initial evidence that companies that reach fur- ther by developing higher-order sustainability activities may reap greater financial benefits, while improving the natural environment to a greater degree.