Tuesday, February 10, 2009

Green companies win: companies with a commitment to sustainability tend to outperform their peers during the financial crisis

A study released yesterday by  A.T. Kearney, Inc, titled Green Winners:  The Performance of Sustainability-focused Companies in  the Financial Crisis, found that in 16 out of 18 industries companies with a commitment to sustainability were the clear leaders in the financial markets.  The study examined 99 companies identified by the Dow Jones Sustainability Index and the Goldman Sachs Sustain Focus List as having a strong commitment to sustainability and compared their performance with industry averages.   In 16 of the 18 industries studied, companies committed to sustainability outperformed industry averages by 15% over the six months from May through November 2008.  From a market capitalization perspective, this superior performance averages out to $650 million in protected market capitalization per company. 

“Our study indicates that the market rewards specific companies,” said Dr. Daniel Mahler, author of the study.  “We find common characteristics among the leading companies that show that sustainability goes far beyond the narrow definition of being environmentally friendly.”  These characteristics include:

  • A focus on long-term strategy, not just short-term gains
  • Strong corporate governance
  • Sound risk-management practices
  • A history of investment in green innovations

The study contains discussions of each of the 18 industries studied, as well as examples of best practices from a variety of industries. Together with the macro analysis, these case studies provide a map for companies looking to be proactive in terms of protecting their market capitalization.

While green measures that produce immediate cost-savings such as reducing packaging material and decreasing fuel use will become increasingly common in a cash-strapped economy, Sustainability and the Financial Crisis suggests that investing in sustainability for the long term may be the best way to protect a company’s value through the months — and years — ahead.

The study covered all 10 industries, and 18 out of 19 supersectors (excluding real estate) as defined by Industry Classification Benchmarks. These were:

  • Utilities
  • Telecommunications
  • Technology
  • Oil       & Gas
  • Industrial       Goods and Services
  • Construction       & Materials
  • Health       Care
  • Insurance
  • Financial       Services
  • Banks
  • Travel       & Leisure
  • Retail
  • Media
  • Personal       & Household Goods
  • Food       & Beverage
  • Automobiles       & Parts
  • Chemicals
  • Basic       Resources

The stock price for each of these was indexed to 100 for the time period analyzed, and were averaged within each supersector to create a combined Sustainable Company index for the industry.  These indices were then compared with Dow Jones World and STOXX global indices for these sectors to determine the performance differential.


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