Corporate Sustainability: A Strategy?

by Ioannis Ioannou and George Serafeim

Between 2012 and 2017, companies within most industries adopted an

increasingly similar set of sustainability practices. This study examines the
interplay between common and strategic practices. This dynamic
distinction helps for understanding whether and how sustainability
practices can help companies establish a competitive advantage over
time.

Author Abstract

We explore the extent of adopting 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.

Paper Information

Full Working Paper Text (pdf)

Working Paper Publication Date: January 2019

HBS Working Paper Number: HBS Working Paper #19-065

Faculty Unit(s): Accounting and Management