The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance

We investigate the effect of a corporate culture of sustainability on multiple facets of corporate behavior and performance outcomes. Using a matched sample of 180 companies, we find that corporations that voluntarily adopted environmental and social policies by 1993 – termed as High Sustainability companies – exhibit fundamentally different characteristics from a matched sample of firms that adopted almost none of these policies – termed as Low Sustainability companies. In particular, we find that the boards of directors of these companies are more likely to be responsible for sustainability and top executive incentives are more likely to be a function of sustainability metrics. Moreover, they are more likely to have organized procedures for stakeholder engagement, to be more long-term oriented, and to exhibit more measurement and disclosure of nonfinancial information. Finally, we provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. The outperformance is stronger in sectors where the customers are individual consumers, companies compete on the basis of brands and reputation, and in sectors where companies’ products significantly depend upon extracting large amounts of natural resources. Robert G. Eccles is a Professor of Management Practice at Harvard Business School. Ioannis Ioannou is an Assistant Professor of Strategy and Entrepreneurship at London Business School. George Serafeim is an Assistant Professor of Business Administration at Harvard Business School, contact email: [email protected]. Robert Eccles and George Serafeim gratefully acknowledge financial support from the Division of Faculty Research and Development of the Harvard Business School. We would like to thank Christopher Greenwald for supplying us with the ASSET4 data. Moreover, we would like to thank Cecile Churet and Iordanis Chatziprodromou from Sustainable Asset Management for giving us access to their proprietary data. We are grateful to Chris Allen, Jeff Cronin, Christine Rivera, and James Zeitler for research assistance. We thank Ben Esty, David Larcker (discussant), Joshua Margolis, Costas Markides, Jeremy Stein (discussant), Catherine Thomas, and seminar participants at Boston College, the NBER conference on the “Causes and Consequences of Corporate Culture”, Cardiff University, Saint Andrews University, International Finance Corporation, and the Business and Environment Initiative at Harvard Business School for helpful comments. We are solely responsible for any errors in this manuscript.