How to Become a Sustainable Company

  • Robert G. Eccles, Kathleen Miller Perkins and George Serafeim
  • June 01, 2012

Few companies are born with a broad-based commitment to sustainability. To develop one, companies need leadership commitment, an ability to engage with multiple stakeholders along the value chain, widespread employee engagement and disciplined mechanisms for execution.

Novo Nordisk A/S, a global healthcare company, follows a business philosophy based on balancing financial, social and environmental considerations.

Image courtesy of Novo Nordisk A/S.

Corporate sustainability has captured the attention of much of the world over the last few years. Trends including the growth of nongovernmental organizations and movements such as Occupy Wall Street suggest that the public is no longer satisfied with corporations that focus solely on short-term profit maximization. People want corporations to consider broad human needs.

Surveys show that a growing number of companies are taking notice of these shifts and have come to consider sustainability-related strategies necessary to be competitive.1 One recent study that compared companies that adopted environmental and social policies with companies that didn’t, authored by two of the authors of this article and another colleague, provides empirical support for this view. “High sustainability” companies significantly outperformed their counterparts over an 18-year period in terms of both stock market and accounting criteria, such as return on assets and return on equity.2 In terms of stock market returns, the “high sustainability” companies had an abnormal stock market performance that was 4.8% higher than the “low sustainability” companies on a value-weighted basis. They also exhibited lower performance volatility. It is not surprising, then, that more and more companies are exploring how environmental, social and governance performance can contribute to financial performance.

Currently, organizations that exhibit a broad-based commitment to sustainability on the basis of their original corporate DNA are few and far between. An exception is Novo Nordisk A/S, a global healthcare company created in 1989 through a merger of two Danish companies. For decades, it has followed a business philosophy based on balancing financial, social and environmental considerations. Novo Nordisk managers use the values framework to drive their day-to-day decisions and make difficult choices, and the company provides financial and nonfinancial information and data in one report.

For most companies, however, becoming sustainable involves a conscious and continuing effort to build long-term value for shareholders by contributing to a sustainable society. To illuminate how the transformation occurs and how a sustainable strategy can be formulated and executed, we studied the organizational models of companies that we refer to as “sustainable” by comparing them with companies that we call “traditional.” (See “About the Research.