Differentiated sustainability practices see higher ROC

9 October 2019

Differentiated sustainability practices, which were least susceptible to convergence, were associated with higher returns on capital (ROC) and conveyed strategic competitive advantages, according to the research conducted by Harvard Business School in collaboration with Eaton Vance’s affiliate, Calvert Research and Management.

The report "When sustainable practices yield sustainable profits: The path to a strategic edge” found that generally companies appeared to be adopting increasingly similar set of sustainability practices which meant that the common practices were not the strategic differentiators.

Following this, the persistent leaders who remained ahead of the industry average managed to gain the most in terms of increased ROC.

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According to the study’s results, which looked at the 3,800 companies across 65 industries from 2012 to 2017, the ability to understand which practices were becoming common and which were differentiated could provide important insights into corporate strategy and help build a strategic advantage.

Therefore the distinction between strategic and common sustainability practices was key for managers, investors and stakeholders.

Daniel Rourke, vice president and ESG senior research analyst, and Anne B. Matusewicz, responsible investment strategy at Calvert Research and Management, said in a press release that Calvert believed companies that distinguish themselves through their behaviour and operations may outperform over the long term.

“Our research process allows Calvert ESG analysts to rate and rank issuers relative to their peer groups so that we can differentiate between sustainability leaders and average performers (or common practices),” they said.

“This helps generate a more holistic view — one that encompasses how companies affect, and are affected by, social and environmental factors, and the resulting impact on financial performance.

“Through a robust research system maintained by sector specialists and monitored by the broader ESG team, Calvert analysts are able to take data from an array of sources and rate and rank issuers in accordance with what we consider best practices at the sub-industry level.”

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