by Hank Boerner – Chair & Chief Strategist, G&A Institute
HBR Authors Share Some Research Findings Of Importance to Corporate Leaders and Asset Managers…
Strategy – the familiar word comes down to us over the eons from the language of ancient Greece. The roots of the original word (translated to the more modern “stratagem”) mean “the work of the generals, or generalship” which is to clearly say: to lead from the front..or the top!
In 2019, “strategy” and “sustainability” should be clearly linked, right? In the corporate sector, setting strategies is at the heart of the work of the men and women at the top, in the board room and in the C-suite. So what does that mean to us in terms of the intensive focus today on corporate sustainability and ESG performance? (And, the impacts positive and negative in the capital markets?)
The corporate enterprise that is seeking to excel among its peers, and clearly demonstrates leadership in sustainability matters (that encompasses a broadening range of ESG issues today) surely has the leaders at the top crafting, innovating and sharpening the leadership strategy…and driving the foundational elements down into the depth and breadth of the enterprise. Typically, universal understanding helps to drive competitive advantage and creates a moat more difficult for peers to cross.
And so in this context, what about the “corporate sustainability laggards”? Often in our ongoing conversations with a wide range of corporate managers – and with investment managers evaluating corporate ESG performance – the companies not yet well along in the journey or perhaps not even started on the journey, lack of sustainability strategy sends a signal of “silence” from the top ranks.
What this says to stakeholders: ESG and strategy = not connected yet, there is a lack of quality in our management and board. Don’t look to our firm for signals of sustainability leadership.
We find that most large-caps “get it” and it is the resource-challenged small-cap and mid-cap firms that are not yet started or not far into the sustainability journey.
The topic of corporate sustainability strategy gets a good overview in the pages of the Harvard Business Review by the outstanding ESG / sustainability experts, George Serafeim and Ioannis Ioannou. Their post is based on their new 45-page paper (“Corporate Sustainability: A Strategy?”) and their co-authored HBR management brief is the topic of our Top Story for you.
They recently published the paper using data from MSCI ESG Ratings for 2012-to-2017 (looking at 3,802 companies); among the approaches was to separate “common practices” (across many companies) and “strategic” (those not so common to most companies).
Your key takeaway from their work: “Our exploratory results confirm that the adoption of strategic sustainability practices is significantly and positively associated with both return on capital and market valuation multiples, even after accounting for the focal firm’s past financial performance.”
And…”the adoption of common sustainability practices is not associated with return-on-capital, but is positively associated with market valuation multiples.” There’s more for your reading in the Top Story below.
You could share these findings upward in your organization if your firm’s executives are not quite tuned in yet to the importance of having a clear strategy that factors ESG factors and sustainability into account.
Notes: George Serafeim is Professor of Business Administration at Harvard B-School and Ioannis Ioannou is Associate Professor of Strategy and Entrepreneurship at London Business School. They frequently collaborate and both write extensively on topics related to corporate sustainability and sustainable investment. And both are frequent speakers and panelists at trade and industry conferences and workshops.
This Week’s Top Story
Yes, Sustainability Can Be a Strategy
(February 11, 2019) Source: Harvard Business Review – In recent years, a growing number of companies around the world have voluntarily adopted and implemented a broad range of sustainability practices. The accelerating rate of adoption of these practices has also provoked a debate about the nature of sustainability and its long-term implications for organizations. Is the adoption of sustainability practices a form of strategic differentiation that can lead to superior financial performance?
Or, is it a strategic necessity that can ensure corporate survival but not necessarily outperformance?