Sustainability Is A Business Metric

A recent study by Merrill Lynch found that “good companies can make good stocks,” though not as a stand-alone metric. It’s a good start.

It turns out that high ratings for environmental, social and governance practices, called “ESG,” evidence lower stock price volatility and declines, even if those companies don’t always outperform their peers; in fact, their stock prices do worse compared to others in healthcare, tech, and consumer products.

Why the disconnect? I say it’s all a matter of definitions.

Sustainability means no consumption of resources that can’t be replaced, and no waste of materials or human talent. It defaults to simpler, local solutions over complex, distant ones, since the former are easier to develop, replace, and therefore represent lower risk.

Sustainability means lower investments spent over shorter periods of time, thereby yielding returns faster and more reliably. Once operational, lowering net inputs and outputs from factories means fewer variables that can be disrupted by weather or politics.

Sustainability is a set of business practices that contribute to businesses being more profitable as well as reliable, especially when you add all the cost savings that should come from nixing the maintenance and insurance of practices that are less so.

ESG metics get confused because they confuse these “good” actions with being a “good” company…

Read the entire essay at Innovation Communicator or Medium