Welcome to this session dedicated to the business case for sustainability. We will shortly discuss arguments for, and show evidence of a relationship between sustainability and firm survival and profitability. We will close with a discussion of the reading that you were assigned for today. Over the last thirty years or so, tens of studies have been investigating the relationship that might exist between corporate social performance and corporate financial performance. Most of these studies try to highlight a positive relationship between these two. And indeed, arguments for a positive relationship abound. The first one being, for instance, better risk management. Another one being related to intangible assets through an increase in firm reputation, positive impact on reputation. The third one being sustainability related, that is to say, environmental or social innovation. Another one relates to employee attractiveness and employee retention. And the last one that we might cite is operational effectiveness of sustainable firms. Conversely, on the negative side, there are some penalties associated with not being sustainable as a firm. Social and environmental scandals, legal sanctions, and also penalties in the form of social movement attacks. However, academic research seems to have mixed findings in terms of the relationship between corporate social performance and corporate financial performance. Some find, indeed, a positive relationship. Some don't find any relationship at all. Some find curvilinear relationship, that is to say, inverted U-shape relationship between the two. More recently, some studies have been using more advanced statistical techniques and relied on additional refinements to actually make a greater case, a better case for a positive relationship between sustainability and financial performance. I would like to focus in particular on one study that was published in 2014 in management science. It was written by Eccles, Ioannou, and Serafeim, and it is entitled, “The Impact of Corporate Sustainability on Organizational Processes and Performance.” What the authors do in this study is that they form two groups of firms. In the first group, there are only firms with high sustainability, and in the second group, only firms with low sustainability. Now, what they do is that they match firms in each of the two groups along a number of dimensions. That is to say that a firm in a group with high sustainability will be paired with a firm with low sustainability because they are very similar along many dimensions except the level of sustainability, according to the asset for ranking. So in 1990, the beginning of the observation period, the two groups of firms have more or less on average, similar performances. And so they trace the performance of these two groups over a 20-year window to see whether sustainability actually has an impact on the performance of the firms in the medium to long-term. Their findings actually show that yes, there is a clear difference between the two groups in terms of performance. First of all, if we look at stock returns, we can see that around the fifth year of observation, there starts to be a discrepancy between the two groups. That discrepancy increases until the year number ten and then remains more or less stable until the end of the observation period. Over the 20-year window overall, a $1 investment in a value weighted portfolio of highly sustainable firms would have turned into 22.6 dollars, while a similar investment of $1 in a value weighted portfolio of low sustainability firms, would have turned only into 15.4 dollars over the period. In terms of returns on assets as well, we can see clear differences between the two groups, and that difference increases over the 20 years and still seems to be on the rise at the end if we look at the curve, that the slope of the high sustainability curve is actually steeper even towards the end of the period. But only over these 20 years, we can already see that return on assets increases twice as much for highly sustainable firms than for low sustainability firms. Digging into the mechanisms behind this out-performance, the authors see that certain types of firms actually enjoy a greater performance level. And they actually see particularly significant impact in specific industries, so industries that are business to consumer, industries where companies compete on the basis of brands and human capital, and industries that are really resource intensive. And so they show that actually the mechanisms that might be at play here might be, first, one that relates to the impact on consumer decisions and consumer loyalty, and secondly, the positive impact that sustainability has on reputation, and finally, the positive impact that sustainability has on local license to operate and resource efficiency. In the reading you were assigned for this mini session, the MIT Sloan Review discusses the results of a study conducted with the Boston Consulting Group. This study is entitled “Investing in a Sustainable Future.” It is based on a survey that they conducted among over 3,000 respondents, including 579 investors. Here are what I believe are some of their more insightful findings: First of all, more than 80 percent of respondents suggest that they feel sustainability is becoming increasingly important for investors. And more importantly, 87 percent of investors agree with that statement. Second, investors care about sustainability for various reasons: value creation, operational efficiency, reputation and license to operate, employee attraction and retention, innovation potential, and risk management. And third, top management level investors avoid companies with poor sustainability. Surprisingly, approximately 20, 23 percent of senior managers do not know whether their firm actually shies away from investing in those low sustainability firms, but I feel like there's still a signal that there is a willingness from investors to divest from low sustainability firms, although maybe we're not there yet. In a nutshell, there is growing evidence in academic research, as well as consensus among the business world, that sustainability is not only unavailable, but that it is also good for business. The business case for sustainability suggests that sustainability has a positive impact on reputation, customer loyalty, innovation, license to operate, risk management, operational and resource efficiency. As more and more businesses come to realize, sustainability does not only represent a growth opportunity, but it might actually become a prerequisite for access to large scale investment.