Institute Insights: Prosperity for All: Aligning Company Goals with Sustainability

Tuesday, August 27, 2019
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Featuring research by Boston University Questrom School of Business Associate Professor of Strategy and Innovation Caroline Flammer, NYU Stern School of Business Visiting Assistant Professor of Management Bryan Hong and Northwestern University Kellogg School of Management Assistant Professor of Managerial Economics & Decision Sciences Dylan Minor; presented by UNC Kenan-Flagler Business School Assistant Professor of Strategy and Entrepreneurship and Center for Sustainable Enterprise Faculty Director Olga Hawn

In spite of widespread buzz about corporate sustainability, research shows that, for many companies, sustainability is still mostly a public relations exercise. In 2015, the United Nations’ 2030 Agenda for Sustainable Development outlined a list of 17 Sustainable Development Goals (SDGs), to help stakeholders focus and measure their sustainability efforts. But a recent survey by KPMG reveals that only 23 percent of Fortune 500 companies who claim to have adopted SDGs have implemented performance indicators to measure how well they’re achieving their goals.

In addition, the survey shows that companies are primarily focused on three specific SDGs: promoting sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all; ensuring sustainable consumption and production patterns; and ensuring inclusive and equitable quality education and promote lifelong learning opportunities for all. Very few companies have adopted measures to address other SDGs, particularly the one that the U.N. has defined as the most pressing issue: climate change.

So, how can we resolve this disconnect between the most critical focus of the U.N. sustainability agenda and the long-term goals of corporations? One way is to realign incentives for corporate executives. Known as corporate social responsibility contracting, the practice makes achieving defined social and environmental goals an integral factor in awarding executive compensation.

New research by my friends and colleagues Caroline Flammer, Bryan Hong and Dylan Minor, published this past July in the Strategic Management Journal, has shown that companies that adopt corporate social responsibility contracting have a greater and more pervasive focus on sustainability, are better able to track their ESG (environmental, social and governance) performance and are more likely to achieve their social and environmental goals. Not only that, but the alignment of sustainability goals with executive compensation has been shown to correspond to an increased financial value for firms. In the end, both corporations and sustainability win.

Read the full paper, here.