Measures for Sustainable Investment Decisions and Business Strategy

How can you add ESG to your bottom line?

Maite Cubas-Díaz and Miguel Ángel Martínez Sedano try to measure corporate sustainability performance in an objective and comparable way in "Measures for Sustainable Investment Decisions and Business Strategy – A Triple Bottom Line Approach".

They propose two measures for sustainable investment decision-making, the Relative Sustainable Performance Measure (RSPM) and the Measure of Commitment-failure (MC), and explain:

• The RSPM allows comparison of companies' environmental and social performance relative to their sector.
• The average RSPM for CO2 emissions in the chemical sector was 0.0316, indicating companies on average obtained 3% higher profit than the market due to better CO2 management.
• The MC detects decreases in companies' environmental and social performance over time.
• The average MC for environmental resources was 0.0238, with only 12.22% of companies showing no decline in performance.
• A graphical sustainability analysis combining RSPM and MC allows investors to identify companies with both high performance and commitment to sustainability.
• Chemical companies generally performed better on environmental issues than social issues, with 73.33% having positive environmental RSPMs versus 40% for social RSPMs.

This study provides quantitative tools to assess corporate sustainability, enabling rigorous comparative research across companies and sectors.

The graphical analysis offers a practical method for integrating sustainability considerations into investment decisions and corporate strategy development and could be used to provide benchmarks for ESG performance.

Critics may however argue the binary yes/no assessment in the MC oversimplifies complex sustainability issues, with a low account for sector-specific challenges or company size differences.