Sustainability is often considered a moral obligation, but it may also be good for business, according to a new study from Kyushu University in Japan.

The research, published on December 10, 2024, in the Corporate Social Responsibility and Environmental Management journal, found that companies with stronger environmental performance and greater transparency can lower costs and increase profits.

The study, led by Professor Hidemichi Fujii of Kyushu University’s Faculty of Economics, examined data from 8,547 companies across 34 countries from 2015 to 2022.

The findings reveal that firms with proactive environmental engagement see measurable financial gains, including enhanced short- and long-term profits, as well as reduced operational costs.

These benefits, the researchers argue, are not limited to a company’s bottom line but extend to its ability to attract investors.

“Investors value what companies do for the environment more than what they say,” said Professor Fujii.

“By taking concrete action on environmental issues, companies signal sustainability and reliability to consumers and investors, lowering perceived risks and strengthening their appeal as stable and ethical investments.”

Rise of ESG Investing

The study’s findings emerge at a time when ESG investing is on the rise.

With investors paying closer attention to corporate contributions toward carbon neutrality, the Sustainability Accounting Standards Board has developed an industry-specific framework to guide companies in communicating their environmental risks and opportunities.

Increasingly, companies worldwide must disclose environmental information in line with this framework.

The Kyushu University team created two new indicators to analyze corporate environmental efforts: materiality-based and overall ecological scores.

Materiality-based scores assess how well a company addresses the most pressing environmental issues specific to its industry — for example, water management for mining firms — while overall environmental scores evaluate all disclosed information to measure a company’s general ecological engagement.

The Role of Financial Materiality

According to Siyu Shen, the study’s lead author and a graduate student at Kyushu University’s Graduate School of Economics, the concept of financial materiality is relatively new but increasingly necessary.

“Environmental priorities vary across industries, as different companies face different key environmental challenges,” Shen explained. “Financial materiality helps investors assess whether disclosed information is relevant and supports informed decision-making.”

The study’s findings offer fresh insights into how different types of environmental performance affect financial outcomes. Companies with higher overall environmental scores tend to achieve stronger financial results. However, companies’ materiality-based scores showed only a limited link to economic performance, a finding that initially puzzled the researchers.

“We expected that focusing on industry-specific environmental priorities would lead to better financial outcomes, but that wasn’t always the case,” Shen said. “This led us to explore how environmental efficiency is valued differently across countries.”

Global Differences in Valuing Environmental Efficiency

In developed countries like the United States and Japan, environmental efficiency and financial performance are interconnected. However, this connection is weaker in developing countries, such as Chile and Indonesia.

“This difference likely reflects variations in environmental regulations and public awareness across countries,” Shen noted.

Since sustainability initiatives are more established in developed countries, improving environmental efficiency can improve profitability.

However, regulatory frameworks are still evolving in developing nations, so transparency and environmental performance are prioritized over efficiency.

The Kyushu University team’s work sheds light on how corporate environmental strategies impact financial outcomes, especially as companies worldwide face growing regulatory pressures to disclose environmental information. As investors push for more ESG accountability, the economic case for sustainability is becoming harder to ignore.

New Perspectives on Sustainability

Professor Fujii’s team is now investigating how broader macroeconomic factors—like regulatory environments and social awareness—shape the link between corporate sustainability and financial performance. “We expect our international comparative studies to offer useful information for promoting effective policy planning to encourage proactive responses to environmental issues,” Fujii said.

With this growing body of evidence, businesses that see sustainability as a cost center may want to reconsider. Companies that disclose their environmental impact and take tangible action could be rewarded — not just by consumers and regulators but also by their financial statements.

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