Findings from new research by the Carbon Disclosure Project (CDP) suggest that companies that invest in sustainability initiatives experience a boost in financial performance.
The research, published in CDP’s report, Climate action and profitability, explored sustainability trends in companies on the S&P 500 stock market index, analysing the integration of climate change risk management, emissions reductions and long-term thinking into business planning.
The report forms part of the CDP’s annual ranking of leading companies by climate performance and disclosure, and states: “We hope to…put to rest the common misconception that taking action on climate change exacts a cost to profitability. Our data shows the opposite.”
By tracking sustainability indicators against the last three years of financial performance, the research found that companies embedding sustainability into their core business strategy experienced an 18 per cent higher rate of return on equity (ROE) than companies that are not.
It also indicates that leading companies disclosing their carbon emissions to the CDP have a 67 per cent higher ROE than those that are not.
Furthermore, the report also argues that strong sustainability performance brings financial stability, with the top-scoring companies experiencing 50 per cent lower volatility in earnings over the last ten years against lower-ranking peers.
According to the report, the four sectors with the strongest links between financial performance and sustainability are consumer durables, clothing, transport and healthcare equipment.
Paul Simpson, chief executive of CDP, said: “With this comprehensive analysis of S&P 500 companies, the market has new, compelling evidence of the link between industry leadership on climate change and corporate profitability.
“There is only upside for corporations acting in a prudent way to address the challenges of climate change.”
The report can be downloaded in full here.