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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Citation:

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.

Working Paper | HBS Working Paper Series | 2018

Corporate Sustainability: A Strategy?

Ioannis Ioannou and George Serafeim

We explore the extent of adoption of sustainability practices over time and the implications for firm performance. We find that for almost all industries, sustainability practices converge within an industry over time, implying that they spread as common practices. We also find that the extent of convergence across industries is associated with the adoption of sustainability by the industry’s market leaders and the relative importance of environmental and social issues compared to governance issues. Further, we distinguish between a set of sustainability practices on which companies converge within an industry, which we term “common practices,” and a set on which they do not, which we term “strategic.” We subsequently explore performance implications and find that the adoption of strategic sustainability practices is significantly and positively associated with both return on capital and expectations of future performance as reflected in price to book valuation multiples, whereas the adoption of common sustainability practices is reliably correlated only with expectations of future performance. Overall, we provide evidence about the role of sustainability as a long-term corporate strategy and as a common practice.

Keywords: sustainability; Corporate performance; industry analysis; Corporate Social Responsibility and Impact; Environmental Sustainability; Strategy; Performance; Corporate Strategy;

Citation:

Ioannou, Ioannis, and George Serafeim. "Corporate Sustainability: A Strategy?" Harvard Business School Working Paper, No. 19-065, January 2019. View Details

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The Impact of Corporate Sustainability on Organizational Processes and Performance

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