New sustainability index focuses on correlation between company behaviours and impacts – including profitability

The Business Impact Maturity Framework focuses on the behaviours that make a company’s sustainability strategy profitable – providing much-needed clarity at a time when top sustainability performers are facing financial headwinds.

The framework, led by researchers at The Leonardo Centre on Business for Society at Imperial College Business School, in collaboration with Emeritus, ranks companies’ sustainability maturity based on 10 criteria including stakeholder involvement, governance, culture and the influence of their Chief Sustainability Officers. It suggests that companies whose sustainability strategies revolve more around innovation than advocacy and compliance present the best results.

While existing ESG ratings such as S&P Global ESG, Sustainalytics or MSCI show only slightly higher returns than the S&P 500 index, the Business Impact Maturity Framework finds that businesses whose sustainability strategies are centred on innovation get 92% higher returns than the S&P 500 average. Meanwhile, those with lower maturity – which focus more on advocacy and compliance – underperform the S&P 500 index by 70% over the same period.

The key role of Chief Sustainability Officers

The framework confirms commonly held beliefs that sustainability needs to be fully integrated into business strategy, with a Chief Sustainability Officer integrated in the C-suite, in order to bring positive impacts on the company’s bottom line. In fact, this is one of the main conclusions of the first assessment.

“Whereas financial investors are certainly key stakeholders that any company (especially if publicly listed) must take into account, they do not represent the entirety of strategic investments in a company. Investors in human capital (employees and suppliers), social capital (customers, suppliers, and local communities), and natural capital (local communities) equally determine the creation, growth, and success of the company. 

“Hence, the development of companies’ strategic integration maturity described in the framework above, is expected to legitimate a role of the CSO as member of the C-suite, working with all the other Chief Officers to onboard the strategic stakeholders for the development and execution of fully integrated business (and impact) strategies,” the report authors write.

Yet for many CSOs, moving beyond compliance to focus on systemic change is challenging. 

Sustainability vs financial performance

Today, even businesses widely recognised for their sustainability leadership are facing financial headwinds: Estée Lauder is shaking up sustainability governance after a 10% drop in net sales, while Unilever’s new CEO wants to radically refocus the firm’s sustainability strategy after a disappointing quarter.

In this context, the new index, which is based on empirical evidence from 900,000 sustainability initiatives, can provide much-needed clarity on which sustainability-related behaviours work, and which don’t.

“The existing approaches have two fundamental problems. One is that they are subjective assessments made by ESG analysts, with low levels of correlation among different analysts assessing the same company. The second problem is that they assess companies in very general terms: they do not systematically identify actions and behaviours, and therefore they cannot correlate impact with behaviour,” Maurizio Zollo, Professor of Strategy and Sustainability at Imperial College Business School and Scientific Director of the Leonardo Centre on Business for Society, tells CSO Futures.

A tool for policymakers

He adds that the framework is primarily aimed at companies that want to improve their sustainability and overall performance, as well as investors looking to design better portfolios. But policymakers may also be interested in identifying the behaviours they need to incentivise – and those that don’t need to be pushed.

“Policy and regulation raises the floor without necessarily building the incentives to go beyond the minimum. In order to design evidence-based policy that really motivates companies to do more than just compliance, you need this kind of model,” Zollo explains.