Sustainability drives profitability, finds report

Companies that better prioritise the environment often reap higher financial rewards, a new report from the University of South Australia has found.

The study, published in the International Review of Financial Analysis, analysed nearly 25,000 firms worldwide, found that businesses that adopt environmentally sustainable practices (ESP) face fewer financial restraints and in turn become more profitable.

This is the first study to map this emerging global trend across such a wide range of nations and industries, and lead author, Dr Rajabrata Banerjee, says the overall pattern is quite clear – doing the right thing by the planet is good for business.

“Different industries are more environmentally intensive, and different countries have different regulations and markets, so the impact of ESPs varies somewhat from situation to situation, but when we look at the pattern as a whole, it is very consistent,” Dr Banerjee says.

“If a business tries to be more environmentally friendly, it will benefit financially.”

Co-author of the study, Associate Professor Kartick Gupta, says over the past decade, we have witnessed a social shift whereby investors and consumers increasingly understand an environmentally unsustainable enterprise is also, ultimately, economically unsustainable.

“Previously there was not so much attention on what the firm was doing, only on profitability,” Assoc Prof Gupta says.

“But now, there is so much focus from all stakeholders – investors, the government, the public – they all want to know that not only are you making profit, but you are also contributing to a positive society.”

The improved performance was measured across a range of factors including mitigating risk, higher profit, return on assets, average sales, growth and lower cost of capital, as influenced by ESPs in three categories: emission reduction, product innovation, and resource reduction.

The full report can be found here

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