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Net worth of sustainability


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A research project evaluating the linkages between a corporation's environmental and social performance and their financial performance.

Published in: Business, Economy & Finance
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Net worth of sustainability

  1. 1. THE NET WORTH OF SUSTAINABILITY:AN EMPIRICAL INVESTIGATION OF 17 COMPANIES Hannah McKee, Duncan Clauson, RobbSchmitt, Christopher Burgess, Catherine Carter, Lydia Caudill, Hans Minea, Kendra Schaaf, Christine Scheele, and Dorothy Paun
  2. 2. RESEARCH PROBLEM Sustainability is defined as meeting societys present needs without compromising the ability of future generations to meet their own needs. Some people consider this the best chance for society to advance into the 21st century without sacrificing economic progress or our planet. Because public opinion has shifted toward a deeper sustainability awareness and ethic, managers have become increasingly concerned about how to enhance sustainability performance without compromising financial performance.
  3. 3. RESEARCH IMPORTANCEThe heart of business analysis, formanagement, investing, or other externalassessment, is the ability to analyzeinformation. Stakeholders are demandingthat businesses become more transparentand share information relating toperformance and business operations. Thisresearch contributes to the shifting of anorm toward more disclosure.
  4. 4. RESEARCH GOALS To explore relationships among corporate financial, social responsibility, and environmental performance, also known as the TRIPLE BOTTOM LINE. The commonly used phrase “bottom line” refers to net income, or profits, which is the last or “bottom” line on an income statement. To uncover information that may be useful to corporate managers for decision making and planning. To contribute to the conversation that addresses whether or not businesses can be financially successful while attending to social responsibility and environmental sustainability.
  5. 5. METHODS: SAMPLE COMPANIES: 17 corporations were studied INDUSTRIES: Consumer goods, energy, food/beverage, natural resources, technology, and transportation DATA COLLECTION: Data were collected from 2008 financial reports and 2008 sustainability reports Target Sustainability Report Marathon Sustainability Report Safeway Sustainability ReportCliff Natural Resources Financial Report GE Financial Report UPS Financial Report
  6. 6. METHODS: DATA VARIABLES & ANALYSIS FINANCIAL VARIABLES: (growth means change between 2007 and 2008 financial data)  Owners equity growth: Amount of the business that belonged to owners minus liabilities owed by the business  Revenues growth: Amount of money received for selling goods and services  Net income growth: Profits (revenues less costs/expenses, interest, taxes)  Return on equity: Profit earned for each dollar invested by owners SUSTAINABILITY VARIABLES:  Environmental Intent: information about the firms vision, policies, and management of environmental components  Environmental Performance: various environmental indicators like energy use, water use, recycling, waste produced, air emissions, etc.  Social Intent: information about the firms vision, policies, and management of social responsibility components  Social Performance: social indicators like community investments, volunteerism, customer and employee health and safety, management diversity, human rights DESCRIPTIVE STATISTICS (mean, median, range, and Pearson correlations) were run using SPSS software
  7. 7. RESEARCH FINDINGS 1/3 Actions speak louder than words, but words are seeds of environmental stewardship and social responsibility  Overall, when comparing means, environmental and social intent mean scores were higher than environmental and social performance mean scores  Social performance mean scores were higher than environmental performance mean scores Percent Difference Social Responsibility Environmental (Social-Environmental)Intent 65 72 - 11%Performance 41 31 24%Percent Difference 59% 132%(Intent-Performance)
  8. 8. RESEARCH FINDINGS 1/3What goes around comes around Using Pearson correlations, we discovered significant (< 0.05) correlations among environmental, social responsibility, and financial performance metrics. Said another way, companies that participate in environmental initiatives and social investment reap the benefits of increased profitability. Leverage : Env. Perf : Env. Intent : Env. Perf. : Social Intent : Return on Equity % Env. Intent Social Intent Social Intent Social PerformancePearson -0.935 0.617 0.547 0.651 0.665CorrelationSignificance 0.000 0.008 0.023 0.005 0.004
  9. 9. RESEARCH FINDINGS 3/3 Doing well by doing good UPS: industry innovator, leader in volunteerism  UPS’s growth in profitability was 686%, compared to -3% (median for our sample of companies)  UPS maintains the most fuel-efficient fleet in the packaging industry and was the first to report a global CO2 footprint  UPS’ Neighbor to Neighbor employee volunteer program donated over one million volunteer hours in 2008 Chevron: more energy, smaller footprint  Chevron’s growth in profitability was 28% (-3% median)  Chevron donated $160 million in community engagement initiatives in 2008 and is the first Corporate Champion of the Global Fund to Fight AIDS, Tuberculosis and Malaria  Chevron decreased overall energy use 28% since 1992 and has met its own CO2 reduction goals every year since 2004
  10. 10. CONCLUSIONTriple bottom line analysis addresses the shiftin public discourse toward greater corporatetransparencyThis type of analysis captures both a firm’sorganizational and societal successwell as their organizational and societalimpacts. Our study indicates that companieswith highly sustainable performance are ableto reap financial rewards through responsibleenvironmental and social stewardship.