Businesses today have a great impact on the communities and natural environments that house them. Many of these impacts are positive, but some businesses produce negative effects on their communities and on society at large. While governments are often needed to counteract these negative impacts through regulation, many businesses willingly mitigate them by implementing sustainable management practices within their business plan. Sustainable management has positive impacts on the people and the environment, and it can be a successful long-term economic strategy.
In a recent study, researchers from Harvard Business School and London Business School discovered a positive relationship between sustainable management and financial success. They conducted an experiment with a sample of 90 high-sustainability U.S.-based companies and 90 low-sustainability U.S.-based companies. Since the early 1990s, the 90 high-sustainability companies adopted 40% of all environmental, social, and governance policies in the business world, whereas the low-sustainable companies only adopted 10%. These policies include carbon emission reduction policies, water reduction strategies, green supply chain policies, and the like. The researchers concluded that over the course of 18 years since the study began, the high sustainability companies outperformed the low sustainability companies in stock market and accounting measures; the annual above-market return for the high-sustainability sample was 4.8% higher and had lower volatility than their counterparts. The high-sustainability companies also performed much better as measured by return on equity and return on assets. This study is only one example of a robust pool of evidence that furthers the social, environmental, and economic validity of sustainable management practices.
While the evidence for sustainable management is clear, many companies are still not convinced, and thus many challenges in making the business world more sustainable remain. Company leaders are often skeptical of sustainable management because it requires a degree of creativity, uncertainty, and risk. Furthermore, the main pushback to sustainable management is its perceived cost, which has caused a widespread shortfall of commitment within the sector. While initially sustainable management may seem less profitable because of added upfront costs, this investment often pays off through improved customer loyalty, attracting long-term investors, improved trust between businesses and communities, and more committed and motivated employees. Although there are many important ways to create a sustainable future for our society, positive change within the business world has the potential for the largest impact. If businesses receive adequate education about the benefits of sustainable management, and consumers put pressure on companies to make the shift to more responsible business practices, positive change within the business world can be achieved, and that will benefit us all.
This article was written by Sarah Greenberg and Nick Annin, the Student Associates on our Green Office Team. Read their bios or learn more about Green Offices.
