Sustainable business practices improve profits new research from the University of South Australia indicates.
The study, which has been published in the International Review of Financial Analysis, analysed over 24,000 businesses from 41 countries with varying economic conditions and found that businesses that adopted environmentally sustainable practices (ESPs) faced significantly fewer financial restraints and in turn became profitable.
This research is the first of its kind to map the sustainability programs of a diverse range of businesses across a wide range of countries.
Lead author Dr Rajabrata Banerjee said that the overall pattern in the findings is very telling.
"Different industries are more environmentally intensive, and different countries have different regulations and markets, so the impact of ESPs varies somewhat from situation to situation, but when we look at the pattern as a whole, it is very consistent.
"If a business tries to be more environmentally friendly, it will benefit financially.
"We found, in particular, those companies who invest in innovation to improve ESPs, and who reduce their resource consumption, become more efficient, more profitable operations," he said.
The improved performance was measured across a range of factors including mitigating risk, higher profit, return on assets, average sales, growth and lower cost of capital, as influenced by ESPs in three categories: emission reduction, product innovation, and resource reduction.
The study found that those businesses operating in high-polluting industries or those operating within strict economic regulatory standards, ESPs help the business stand out against others and find more favourable operating terms.
Similarly the research found that those operating in highly competitive industries could adopt ESPs to gain an advantage over competitors. Businesses which implemented ESPs that go above and beyond minimums experienced less scrutiny from lenders and stakeholders while enjoying greater customer loyalty.
Co-author of the study Associate Professor Kartick Gupta said that these findings could be the catalyst for positive change.
"This research is a clear indication that by having an ethical approach to the environment, a company is more appealing for investors and customers.
"Hopefully, this can be a real driver for positive change, leading to a cleaner environment because it is better for business."
This research complements research from Monash University which states that consumers prefer and are willing to pay more for products made using sustainable materials. Read those findings here.