earthIf you read my blog and follow my LinkedIn and Facebook posts regularly, you will have seen references to various organizations involved in the sustainability movement.  As you can imagine, each of them publishes metrics, indices, and position papers to support their viewpoint. And as a believer in sustainability, I like what I hear from them.  Why wouldn’t I?

However, as with any line of work, sometimes you can become enclosed in the “bubble,” meaning you tend to filter out facts that don’t support your beliefs or conclusions you have accepted.  Being a CPA and amateur economist (my MBA was concentrated in applied economics) I am always trying to be skeptical of my own beliefs and conclusions that I use to guide my decisions. I do this because I would like to contribute to the best outcome for everyone.

Since I will be going to the first Sustainability Accounting Standards Board conference this week in New York City on December 1 (Sustainability Symposium), I wanted to be prepared for potential clients.  I began thinking of some information I could convey quickly that could interest a potential client, something to back up my elevator speech.

Since only one public company has implemented SASB in full, that being the company of Michael Bloomberg, the founder of SASB, I searched for another ESG benchmark I could use that was free (I am an accountant after all!).  This led me to become more knowledgeable on the Dow Jones Sustainability Indices (DJSI) which are operated by Robeco.  The DJSI invites the world’s largest companies by market capitalization to respond to a comprehensive questionnaire that attempts to ascertain a company policies and actions that support sustainability.  Like SASB, the measures are industry-specific. Also, the questions focus on the same three major areas as SASB, namely environment, governance, and  treatment of people.  So, on balance using DJSI data to demonstrate the value of sustainability to shareholders is a valid predictor of applying SASB standards. What I found, shocked me – in the most delightful way possible.

At the end of his blog is table that shows the results.  Admittedly, this is a small sample, and I am not a statistician (my last stats course was 33 years ago).  However, I do use the basics of statistical analysis on a regular basis.

Here is the methodology I used:

  1. I filtered the DJSI data on companies that have responded to the questionnaires (only top 20% of companies are invited) for companies based in the United States (SASB standards are for US public companies). The data includes industry and DJSI sustainability scores. Clicking the link at the end of the previous sentence will show you what the ranking means. If you don’t want to bother, they indicate that the companies’ questionnaire responses are ranked very highly.
  2. I then analyzed the data for sectors where there were a) at least two companies in the Unites States, and b) one was ranked and one was not. The intent was to classify US companies into distinguished and undistinguished companies in terms of the DJSI criteria.
  3. I then calculated the variance of the average total return versus the industry average (from Morningstar) of distinguished versus undistinguished using Morningstar data as presented on the ‘Performance’ tab on that website. The data was from 2011 through the date of the sample (November 23, 2016) which is almost 6 years. For clarity, if, for example, the industry return was 10%, undistinguished company A’s return is 12%, and distinguished company B’s return is 15%, the variance calculated would be (15% – 10%) – (12% – 10%) = 5% – 2% = 3%.
  4. I then calculated the net difference in average annual return of distinguished verses undistinguished companies for all industries in the sample.
  5. Finally, I divided the variance calculated in step 4 by the average annual return variance from industry mean for undistinguished companies to capture the scale of the variance in terms of dollar returns.


The strict criteria kept the sample small.  Also, where I could not find an unranked United States-based company in the DJSI listing, I chose a competitor that was as close as possible in market capitalization using Morningstar data. Trying to be as random as possible, I chose the first one I saw that I could tell was a similar company and did not have a significant sustainability program (as much as I could tell from public information). The two companies chosen using this method are highlighted in gray for full disclosure purposes.


My Findings

On average, total dollar returns were 119.79% higher. That is to say that, if you invested $1000 in each of the stocks in the distinguished and undistinguished groups (distinguished meaning it has a DJSI rating), you would end up making 119.79% more money choosing the distinguished investments over the undistinguished.  Using average annual returns, the distinguished stocks returns were 3.05% higher, or 5.60% versus the undistinguished company mean of 2.55%.  Please note this is average annual returns so the favorable impact does not take into account compounding of holding these investments over more than one year; the returns would be even greater.

Because biotech was such an outlier, I also performed the same calculations excluding biotech. The results were still impressive.  Dollar returns were 84.36% higher and average annual returns were 5.17% for distinguished companies versus 2.80% for undistinguished, a favorable variance of 2.36%.

The wide dispersion is likely partly a result of a small sample size, but also may indicate that industries can benefit disproportionately from sustainability efforts.  What is so astounding to me is that 4 of 6 of the average returns are significantly higher. Moreover, the unfavorable variances are smaller than the favorable. This increase in return from this small sample is corroborated in a 2015 study by Harvard University. So on balance, I feel good about the results despite the limitations.


What Will You Do?

So, the question is, what could your company do that it is not doing today if its cost of capital were between 2% and 3% lower?  Keep in mind that many sustainability efforts reduce costs immediately (for example, reducing water or material usage).  Other sustainability efforts are more pervasive and take more time to implement, such as instituting good governance and treating employees and communities well. A company could use these cost-savings to fund the longer-term efforts.  It could be that the discipline that a company acquires from adhering to a cross-functional, enduring effort simply makes for an organization that communicates better.

What is borne out from the information available about sustainability is that stock prices are higher for sustainably-run companies because they manage risks more fully than those what do not and are more efficient.  The lower-risk profiles reduce volatility in earnings, which in turn raises stock prices in accordance with general financial theory.  Higher stock prices due to higher profits from being more efficient and productive are self-explanatory in their effect.



Trillions of dollars of investment are now filtered for sustainability. There are several prominent institutions, which are firmly in the capitalist realm, that use sustainability as a driver of superior business results (for example, The Forum for Sustainable and Responsible Investment (USSIF) and Bloomberg, in addition to the DJSI).   Numerous studies and observations demonstrate that sustainable business is good business.  Doing good and doing well – what’s not to love about that!



Who we are

Sustainability Reporting Partners (SRP) was created in 2016 to focus solely on helping US public companies implement sustainability practices and reporting, with an emphasis on Sustainability Accounting Standards Board standards.  It is a consortium of professionals with talents needed to incorporate sustainability into companies. This model was chosen because no one firm possesses the skills to implement these guidelines.  Sustainability efforts involve many skillsets including the areas of securities legal expertise, SEC reporting, human resources, occupational health and safety, and environmental science.  Because a company may be advanced in one area and nascent in another, the consortium model permits cost-effective implementation by matching needed outside expertise to a company’s progress in a particular area of sustainability.

SRP’s mission is the rapid adoption of sustainability standards to use corporate efficiency to drive shareholder value while simultaneously making step changes in the sustainability of modern life.  Consequently, SRP is motivated to achieve implementation with the lowest possible cost.