Ever since the term “sustainability” entered the mainstream in the 1980s, companies have struggled to convince their boards and investors of why they should integrate social and environmental dimensions into their core businesses. I have heard from many executives who are eager to invest in sustainability but find themselves stuck with the same question: “How can I make a stronger business case for sustainability?”
Interestingly, skepticism about sustainability contradicts a growing number of studies that show a positive relationship between sustainability investments and stock prices. These studies reveal that the stock of companies committed to sustainability typically matches and often outperforms stocks of companies with no sustainability commitments. Studies have also shown that the value of a business is increasingly correlated with intangibles, such as reputation and acquired social license to operate, making an even stronger business case for sustainability.
So why does skepticism persist? While studies have made the case for investing in social and environmental sustainability in general, many companies have struggled to show how their investments in sustainability have returned value to their individual company’s performance. All too often, their organization’s measurement approaches have lacked a methodology, rigor, and structure.
Chemonics’ framework for maximizing business value from social investments
Chemonics recently developed the Maximizing Business Value from Social Investments Framework to help companies overcome these challenges and qualitatively establish a relationship between sustainability investments and financial performance. The framework, pictured below, breaks down a virtuous cycle for social investments into five stages. Most other frameworks are structured based on the type of stakeholder (such as employees or community) or the type of sustainability topics that companies need to manage (labor and working conditions, biodiversity, among others). Chemonics’ framework mirrors a project life cycle.
For each of those stages, Chemonics has proposed illustrative strategies, activities and resources to maximize business value in the table linked below.
It is especially important to define and use appropriate indicators and benchmarks when measuring sustainability investments. Guidelines, standards, and tools, such as those provided by the Global Reporting Initiative (GRI), provide companies with a solid framework, a methodology, and a comprehensive list of indicators to assess a company’s overall performance.
Some argue though that the GRI standard and other similar sustainability resources could be improved as they mostly focus on assessing the outcomes of program (lagging indicators) as opposed to effectively measuring ongoing performance (leading indicators), which inform decision-making during the program implementation and allow corrective actions throughout to achieve its desired results. From my perspective, it is important to not only select the right indicators, but also to be strategic about how and how often those indicators are assessed and used for continuous decision-making to improve the company’s overall performance.
Benchmarking is also important because it allows organizations to assess performance and investment trends over time, set targets, and compare performance against industry peers in a variety of industries (for example, by using the GRI Sustainability Disclosure Database). However, benchmarking can also be complex and time-consuming if you do not identify the correct benchmark with your same set of parameters for comparison.
Need for further analysis and tools
Despite the need for further analysis on this topic, many quantitative and qualitative studies have concluded the positive relationship between sustainability investments and financial performance. This motivates us at Chemonics to continue to promote the integration of sustainability into core business strategies.
We are continuously improving this framework, so please do not hesitate to contact us through the comments below should you have any ideas or recommendations.