Doing Well and Doing Good
Profits and Principles
Evidence is increasing that there is a strong correlation between ethics and sustainable financial performance. This demonstrates that it is possible to have both profits and principles.
An award-winning analysis of 52 studies (involving 33,000 observations) of the relationship between corporate environmental and social performance and corporate financial performance concluded that there has been sufficient research to prove a positive association between the two. This demonstrates that responsible businesses usually make money from their initiatives that make a difference. In turn, responsible investors can indeed do well by doing good.
Another analysis showed that of 50 academic studies into the relationship between corporate ethics and financial performance, 33 showed a positive relationship (“doing well by doing good”), 13 were neutral (“doing well and doing good”) and only four showed a negative relationship.
Research in Britain found that socially responsible companies have higher stock market returns, and that taking account of ethics when investing is fundamentally sound since this selection criterion helps to effectively lower investment risk.
US research found that environmental performance and economic performance were positively correlated, with environmentally responsible portfolios achieving better returns compared both with the S&P 500 index and those companies considered not environmentally responsible.
Many investors and business leaders now believe that consideration of ethical issues does not compromise financial performance and can often increase return and reduce risk.
They cite factors such as attracting, retaining and enhancing the productivity of employees; improving customer sales and loyalty; increasing supplier commitment; contributing to environmental sustainability; reducing legislative demands; and strengthening community and Government relations. They believe that management quality can be improved, and when combined with enhanced relationships with stakeholders, this can result in improved financial performance for shareholders.
The idea that there is necessarily a trade-off between stakeholder-oriented business and shareholder financial rewards has been shown to be a myth.
© Rodger Spiller & Associates 2013. Website developed by beweb.