The Commercial and Financial Case for Responsible Business Conduct and What Works for Promotion

Abstract

This evidence brief shows that business’s sustainability strategies that drive better financial performance do so through mediating factors, such as enhancing business reputation, increasing stakeholder partnerships, mitigating business risks, and strengthening innovation capacity. Recent empirical literature shows optimism that investing in RBC is a way to increase competitiveness, improve financial returns on investments and firm valuation, while reducing business costs. Empirical evidence also shows that RBC has potential to decrease systematic risk and improves firm value. When companies with a good sustainability profile are acquired, the market reaction is unanimously positive and a ‘high-sustainability’ portfolio often outperforms a ‘low-sustainability’ portfolio. However, there are still barriers which prevent faster uptake of responsible business practices, including lack of information on different aspects of business conduct and tensions between desire to demonstrate short-term improvements in practice, (typically for shareholders) and the need for longer-term planning.