The Relation Capital Partners Blog

In a recent study by Crowe Horwath LLP, The Center for Business Excellence at the Farmer School of Business at Miami University, executives identified the inability to sufficiently measure sustainability initiatives as their biggest challenge.

This correlates well with our experience when we are out meeting executives here in Sweden. Many ask us the same question – How can we measure the financial value of sustainability efforts? Within the financial sector this question has been especially highlighted. The Haas School of Business at the University of California, Berkeley, professor David Vogel writes

“In fact, the financial performance of many firms with relatively positive CSR reputations such as Marks & Spencer, Sainsbury, Merck, Levi Strauss, Hewlett-Packard, Chiquita, Shell, Ben & Jerry’s Homemade, and the Body Shop has recently been poorer than that of their less responsible competitors. These companies did not perform more poorly because they were more responsible. Rather, as is true for almost all firms, CSR was largely irrelevant to their profitability.”

Of course, any environmental activist would answer that measuring financial value from sustainability efforts is irrelevant since it is hard to create any financial value what so ever, when you are missing a planet to conduct your business on. That is true but that argument apparently doesn’t seem to bite on everyone running a business today. Hence, we need to find a better answer.

My experience, from listening in on the academic debate, is that it is somewhat unclear if it is possible to prove a direct link between sustainability efforts and increased financial value. However, the academia seems to be in consensus about the soft values of sustainability, i.e. talent attraction & retention, brand loyalty, PR, business innovation etc., all which are indirectly linked to the value creation capability of an organization. The very readable European Competitiveness Report 2008 express it like this

“CSR can contribute to cost savings in certain circumstances. It is difficult to draw general conclusions about the cost-saving effects of CSR because they are highly dependent on the nature of the CSR measure taken. The example of the environmental dimension of CSR shows evidence of both positive and negative relationships between CSR and cost structure. In addition to cost savings from environmental measures, CSR may also contribute to cost savings in other ways, for example in the field of human resources, risk management or access to finance.”

Coming from a marketing background, it seems to me that the challenge of finding a measurable link between sustainability efforts and financial value creation are somewhat similar to those of marketing. Just as marketing metrics was developed in order to start discerning what type of initiatives that was actually creating value, I believe sustainability academics and practitioners must also create good metrics to help companies/executives find their path to profitable sustainability or rather sustainable profits if you like. What is your opinion?