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Home > By DEPARTMENTS > Leadership and Governance for Sustainability > Sustainable Development Strategies at Governance Level

Companies Can Become More Competitive with Sustainable Practices

The economic interests of shareholders and the drivers of sustainable performance are becoming increasingly aligned.Sustainable practices are more competitive and create long term economic value.

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Corporate Sustainability Pressures and Opportunities

By and large, companies are a long way from taking sustainability seriously and fail to grasp the opportunities it presents, according to a new report. Corporate behaviour is superficially induced by demands of stakeholders and customers and to fulfil the basic requirements of legislative CSR reporting.

Regulatory and Consumer pressures have not pushed corporations toward sustainability beyond superficial measures

The "Sustainable Performance" report from Arthur D. Little argues that regulatory and consumer pressures have not pushed corporations toward sustainability beyond superficial measures. International investors, however, are proving to be a driving force in nudging corporations to embrace the concept.

Value-Driven Sustainable Practices Out-Perform!

“Our research has shown that there are clear signs that a powerful force that does have the ability to effect a rapid and deep-rooted change in corporate behaviour is emerging and the international investor community now recognises that those companies that are able to derive value from sustainability will outperform their peers financially in the long run,” said Annette Malmberg, a senior manager in Arthur D. Little's Energy, Utilities, Strategy and Organization Practice.

Shareholder Economic Interest Aligning with Sustainability Drivers

The result is that sustainable performance drivers and shareholder economic interest are aligning, she said.

Competitiveness is the Bottom Green Line for Long Term Success

“Also, sustainable performance and effective carbon management allow companies to create economic value by enabling them to demonstrate superior management skills and become more competitive by offering environmentally superior products and services,” she said.

The authors argue that by continuing to focus on traditional business objectives and paying little more than lip service to environmental issues, many companies risk losing out on the opportunities presented by sustainability - not least the opportunity to run a more competitive business and attract the attention of investors who increasingly recognize environmental performance as an indicator of long-term success.

Even Nordic companies -- often perceived as being ahead of the curve in terms of environmental issues -- fail to take advantage of the opportunities presented by sustainability.

According to the report, legislation, regulation and consumer demand have failed to influence corporate behaviour other than superficially.

Legislation and regulations have been too laxly formulated to have the desired effect. Only where they have a direct effect on businesses' costs do they bring about change. Similarly, consumers, while having the potential to influence through purchasing behaviour, will not generally read CSR reports or follow the business activities of the companies they buy from. They are influenced, if at all, by media reports and remain, at present, a very weak force driving corporate sustainability. And, of course, companies do not have an adequate incentive to be good corporate citizens per se; their prime objective remains to satisfy the economic interests of shareholders.

Deep Rooted Corporate Behavior is Changing

"Our research has shown that there are clear signs that a powerful force that does have the ability to effect a rapid and deep-rooted change in corporate behaviour is emerging and the international investor community now recognises that those companies that are able to derive value from sustainability will outperform their peers financially in the long run," reflects Annette Malmberg, a Senior Manager in Arthur D. Little's Energy, Utilities, Strategy and Organisation Practice.

Economic Value Demonstrates Superior Management and Companies Can Become More Competitive

"As a result, the economic interests of shareholders and the drivers of sustainable performance are becoming increasingly aligned. Also, sustainable performance and effective carbon management allow companies to create economic value by enabling them to demonstrate superior management skills and become more competitive by offering environmentally superior products and services."

Overall, the report said, companies pay attention to sustainability issues only when they impact the bottom line.

However, companies listed on several sustainability indices tend to outperform their peers.

SOURCE: Arthur D Little
June 5, 2008



Edited by Carolyn Allen, owner/editor of California Green Solutions
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