Sustainability in business is not just an ethical obligation—it makes financial sense. Research from Kyushu University shows that companies with stronger environmental performance and transparent disclosures can cut costs and boost profits.
Investors are increasingly rewarding firms committed to carbon neutrality, fueling the rise of environmental, social, and governance (ESG) investing. To support this shift, the Sustainability Accounting Standards Board (SASB) provides an industry-specific framework that helps companies share their sustainability risks and opportunities with investors.
Driving growth
Many firms now disclose environmental information using this framework, with such transparency becoming mandatory in many countries. Yet the link between corporate environmental strategies and financial outcomes remains unclear.
To clarify this, researchers analyzed data from 8,547 companies across 34 countries between 2015 and 2022. They developed two indicators to evaluate corporate environmental information: materiality-based scores and overall environmental scores.
“Financial materiality is a new idea,” they explain. “Environmental challenges differ by industry, and financial materiality helps investors assess the relevance of disclosed information for better decision-making.”
For example, water management is vital for mining but less important for finance. Materiality-based scores focus on such industry-specific issues, while overall environmental scores assess all disclosed environmental efforts.
Green growth
The findings reveal that companies with stronger environmental engagement—not just better disclosures—achieve better financial results, including higher profits and lower costs.
“Investors value what companies do more than what they say,” the researchers note. Concrete action on environmental issues signals reliability and sustainability, reducing risks and increasing a company’s appeal to investors and consumers.
Interestingly, while overall environmental scores consistently correlate with financial performance, materiality-based scores show only a limited link. This discrepancy prompted the researchers to investigate how environmental efficiency is valued across countries.
In developed nations such as the United States and Japan, environmental efficiency has a stronger connection to financial performance. By contrast, in developing countries like Chile and Indonesia, environmental transparency and performance take precedence over efficiency, likely due to differing regulations and public awareness.
Mature markets
In mature markets, where sustainability has been a priority for years, improving environmental efficiency enhances profitability and market value. In less developed markets, building foundational practices and transparent reporting takes priority.
The team plans further studies to explore how national regulations and social factors shape the relationship between sustainability and profitability. They hope their findings will guide policy decisions that encourage effective environmental action.
“We aim to provide evidence that supports policies promoting sustainability, showing how conservation efforts and disclosures benefit both the planet and the bottom line,” they conclude.
