The broader societal concern about sustainability has grown from almost nothing in the early 1990s to a dominant theme today. Meanwhile, leaders of major corporations worldwide are increasingly facing the challenge of managing organisations that meet the expectations of a broad range of stakeholders (often themselves in conflict), while still delivering a return to shareholders. As a result, sustainability is now an essential ingredient for a company’s long-term success and we have been able to provide solid evidence for this in a rigorous empirical study.

We compared a matched sample of 180 US-based companies, 90 of which we classify as high-sustainability and another 90 as low-sustainability. Our classification was based on the adoption of environmental, social, and governance (ESG) policies in the 1990s that reinforced a cultural commitment to sustainability. Examples of environmental policies included carbon emissions reduction policies, green supply-chain policies and energy and water-efficiency strategies. Social policies included diversity and equal-opportunity targets, work-life balance, health and safety improvement, and favouring internal promotion. Policies related to community included corporate citizenship commitments, business ethics, and human-rights criteria. Finally, other policies we accounted for related to customers, product risk and customer health and safety.

The high-sustainability companies had adopted an average of 40% of these policies early on, while their counterparts had adopted only 10%. We selected these two sets of companies to be identical in terms of financial performance in the early 1990s, in order to examine the long-term performance effects of a culture of sustainability.

We found that high-sustainability organisations were characterised by a governance structure that explicitly and directly took into account the environmental and social performance of the company, in addition to financial performance. They were significantly more likely to assign responsibility to the board of directors for sustainability and to form a separate board committee for sustainability. They were also are more likely to make executive compensation a function of environmental, social, and external perception (eg customer satisfaction) metrics.

Secondly, we found that high-sustainability companies paid particular attention to their relationships with stakeholders – such as employees, customers and NGOs representing civil society – through active processes of engagement. This begins with reaching agreement with stakeholders on how the process should be conducted, continues through the management of the process itself and ends with providing feedback to the board obtained from stakeholders, and reporting the results of the process to stakeholders and the public in general.

Thirdly, high-sustainability companies are more likely to measure and report on environmental and social metrics in addition to their financial results. Their external communications are also more long-term oriented. Not surprisingly, the high-sustainability organisations have more long-term investors – every company’s desire – than their low-sustainability counterparts.

These differences in behaviour are reflected in differences in financial performance. Over an 18-year period, the high-sustainability companies dramatically outperformed the low-sustainability ones in terms of both stock market and accounting measures. The annual above-market average return for the high-sustainability sample was 4.8% higher than for their counterparts and with lower volatility. The high-sustainability companies also performed much better as measured by return on equity and return on assets.

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