Extensive Harvard University research shows that managing environmental, social and governance (ESG) issues increases financial performance, but only when coupled with significant innovation.  In their HBR article, The Performance Frontier, Bob Eccles and George Serafiem argue that companies must go beyond a tactical approach and work to identify material issues, quantify ROI on projects that address these issues, and develop a culture that allows for transformative innovation of products, processes, and business models. The research is based on over 3,000 companies from 2002-2011.

Eccles and Serafiem identify four things that companies must do to ensure that their sustainability efforts will deliver substantial long-term value:

  1. Focus on the “material” ESG issues that have the greatest potential to enhance shareholder value.
  2. Quantify the financial implications of addressing material issues.
  3. Create innovative new business models, processes and products that prioritize material issues.
  4. Communicate efforts to key stakeholders.

In today’s business climate, ignoring ESG issues altogether can be financial folly; most companies have some sort of sustainability program. This new research shows that a motley jumble of sustainability efforts can in some ways be more detrimental than no sustainability strategy, and what companies need most is to address ESG issues strategically. A complete copy of the article can be found at http://hbr.org/2013/05/the-performance-frontier-innovating-for-a-sustainable-strategy/ar/1