A Trillion Dollar Question: Can You Do Well By Doing Good?

There are more and more success stories of companies applying sustainability concepts to their business. And the inspiring thing is that they often find that their sustainability initiatives turn into more than just cost centres, but into sources of improved profits and lower risk. For example, take the famous case of Interface Inc., the carpet manufacturer, whose founder Ray Anderson noted that:

“Since 2003, we’ve sold over 83 million square yards of carpet with no net global warming effect. These climate-neutral carpets, Cool Carpets, have been runaway bestsellers. That’s competitive advantage at its best – doing well by doing good.

But do sustainability improvements in company’s business models translate into better returns in the financial markets? That’s a trillion dollar question that demands much more analysis and a much lengthier post than this. However, there is some encouraging evidence. Companies in the Carbon Disclosure Leadership Index (CDLI) and Carbon Performance Leadership Index (CPLI) delivered approximately double the total return of the Global 500 companies between January 2005 and May 2011. Over this period the return of the Global 500 was 42.71%, while that of the CPLI was 85.72%.

CDP-CDLI-CPLI-G5001

Now care must be taken when considering these numbers as the Carbon Disclosure Project hasn’t disclosed exactly how they calculated these results, and I haven’t tried to replicate them myself. Also, other less exciting effects could be going on. For example, perhaps better carbon disclosure is just indicative of better corporate governance, which leads to better performance (rather than a lower carbon footprint leading to better performance). However, it is still encouraging to see that the companies in these indices have been out-performing the rest of the Global 500!

Among other things, it would be interesting to see if this out-performance has continued over the last year and a half, and if there was a significant difference in volatility been the carbon indices and the Global 500. Not to mention looking at the performance of other sustainability related indices. I really would like to do some research on this, so if you’re reading this post and you have some suggestions for interesting datasets to look at, then please do let me know!

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One thought on “A Trillion Dollar Question: Can You Do Well By Doing Good?

  1. Interesting topic… however, being the devil’s advocate, how does being “climate neutral” become a competitive advantage? How do you know that these carpets are outselling competitors based on their carbon footprint and not on so many other factors like design, marketing, etc??
    However it is a very interesting topic… sorry I can’t help much on data sets!

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