The Impact of Corporate Sustainability on Organizational Processes and Performance

Robert G. Eccles; Ioannis  Ioannou; George  Serafeim

Article | Management Science | November 2014

The Impact of Corporate Sustainability on Organizational Processes and Performance

by Robert G. Eccles, Ioannis Ioannou and George Serafeim

Abstract

We investigate the effect of corporate sustainability on organizational processes and performance. Using a matched sample of 180 U.S. companies, we find that corporations that voluntarily adopted sustainability policies by 1993—termed as High Sustainability companies—exhibit by 2009 distinct organizational processes compared to a matched sample of companies that adopted almost none of these policies—termed as Low Sustainability companies. The boards of directors of High Sustainability companies are more likely to be formally responsible for sustainability, and top executive compensation incentives are more likely to be a function of sustainability metrics. High Sustainability companies are more likely to have established processes for stakeholder engagement, to be more long-term oriented, and to exhibit higher measurement and disclosure of nonfinancial information. Finally, High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance.

Keywords: sustainability; Sustainability Management; Sustainability Research; sustainability reporting; sustainability targets; corporate social responsibility; corporate accountability; reporting; corporate governance; investor clientele; investor communication; stock market; Corporate Social Responsibility and Impact; Environmental Sustainability; Performance; United States;

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Eccles, Robert G., Ioannis Ioannou, and George Serafeim. "The Impact of Corporate Sustainability on Organizational Processes and Performance." Management Science 60, no. 11 (November 2014): 2835–2857.

Aperture Investors is a startup investment firm that seeks to disrupt the asset management industry through competitive differentiation by charging investors primarily when its portfolio managers outperform the marketplace. Headed by Wall Street veteran Peter Kraus and backed with substantial and patient seed capital, Aperture seeks to attract both star portfolio managers and assets from mutual funds and hedge funds. Kraus believes that his innovative business model addresses the current dysfunctional fee and incentive structures in the industry, which have led to long-term market underperformance, and that Aperture will address the reasons that are motivating investors to shift to cheaper, passively-managed index and exchange-traded funds.

Despite efforts to crack down on illegal activity, crimes like fraud, bribery, embezzlement, and money laundering are rampant in corporations. What steps can leaders take to fix this growing problem?

Article | Management Science | July 2019

Market Reaction to Mandatory Nonfinancial Disclosure

Jody Grewal, Edward J. Riedl and George Serafeim

We examine the equity market reaction to events associated with the passage of a directive in the European Union (EU) mandating increased nonfinancial disclosure. These disclosures relate to firms’ environmental, social, and governance (ESG) performance and would be applicable to firms listed on EU exchanges or with significant operations in the EU. We predict and find (i) an on average negative market reaction, (ii) a less negative market reaction for firms having higher pre-directive nonfinancial performance, and (iii) a less negative reaction for firms having higher pre-directive nonfinancial disclosure levels. Results are accentuated for firms having the most material ESG issues, as well as investors anticipating proprietary and political costs as a result of the mandated disclosures. Overall, the results are consistent with the equity market perceiving that this disclosure regulation of nonfinancial information would lead to net costs (benefits) for firms with weak (strong) nonfinancial performance and disclosure.

Keywords: nonfinancial information; nonfinancial performance; ESG; ＂ESG (environmental, social, governance) performance; investor behavior; disclosure; disclosure regulation; regulation; sustainability; Corporate performance; Information; Corporate Disclosure; Governing Rules, Regulations, and Reforms; Performance; Environmental Sustainability; Corporate Governance; Outcome or Result;

Citation:

Grewal, Jody, Edward J. Riedl, and George Serafeim. "Market Reaction to Mandatory Nonfinancial Disclosure." Management Science 65, no. 7 (July 2019): 3061–3084. View Details

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The Impact of Corporate Sustainability on Organizational Processes and Performance

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