In my own consulting work, I have long noticed a strong correlation between outstanding environmental or social performance and exceptional management. It takes a shortsighted manager to risk the high costs of public ire, along with possible fines, lawsuits, environmental cleanups and product recalls. A manager who gives up sustainability for short-term gain often ends up focusing on damage control instead of growth. It has been particularly rewarding to see Wall Street bankers come to this same conclusion in recent years.

Goldman Sachs, Deutsche Bank, HBSC and a dozen other global institutions reported in a joint study issued in December 2004 that: "The way that environmental, social and corporate governance issues are managed is part of companies’ overall management quality needed to compete successfully." UBS, the Swiss investment bank, issued investment research on the food and beverage industry in 2005 that stated: "Environmental performance indicators appear to be a possible indicator of strong operational performance. Strong environmental indicators in the presence of below-average profitability may signal an investment opportunity in our view."

Sustainable companies advance environmental protection, worker and community rights, consumer health, educational opportunity and economic development by integrating them into business strategy and operations. They stretch to find ways to meet their business interests and those of society at the same time, which turns out to be very good for business.

Environmental Edge
A thousand case studies support this point, but anyone can see how it works just by perusing the daily business news. Toyota is about to surpass General Motors as the world’s largest carmaker—in part because the company astutely aligned its business interests with those of the environment, turning climate change and rising fuel prices to its competitive advantage by means of the Prius, its hybrid flagship. GM has been forced to play catch up. Its new Chevy Volt has a larger electric motor than the Prius, but U.S. car companies remain behind their Japanese counterparts in developing a battery that can power an engine. Meanwhile, Toyota basks in its reputation as the leader in innovation and technology, and that helps it sell cars in all categories.

On the social side, Wegmans, a privately held grocery chain with sales of $3.8 billion in 2005, has spent a fortune on employee benefits—a staggering 50 percent more than its competitors, including more than $50 million in employee tuition reimbursement. The company has built a winning strategy centered on employee retention. Though it has less than 100 stores to Wal-Mart’s 6,700 around the world, Wegman’s sales per square foot run twice the industry average, and the company has saved hundreds of millions of dollars by dramatically reducing employee turnover. Wal-Mart might consider a similar strategy, or at least pay heed to Nike—forced to spend millions during the course of a decade to ensure that its overseas suppliers never again hire children to perform menial labor.

Companies and their investors should make sure that business strategies take full account of environmental and social issues—both risks and opportunities. Hershey blew a $12.5 billion opportunity to sell out to Wrigley in 2002, inexplicably failing to anticipate the outcry from the residents of Hershey, Pa., that the sale would destroy the main sources of employment in the town. Similar miscalculations have led to the halting of large mining and energy projects in developing countries, costing project proponents billions.

Companies that embrace their responsibilities and turn them into opportunities are sending a clear signal that they know what they are doing—and smart investors are starting to take notice.

Andrew Savitz is a sustainability consultant and author of The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social and Environmental Success—and How You Can Too.