Companies prioritizing sustainability in their business strategies are better positioned to survive during times of crisis and experience economic growth, new research from the University of Guelph has found.

Dr. Kathleen Rodenburg

Researchers looked at sustainability performance during the COVID-19 pandemic and before and after the 2007-08 financial collapse, two major economic crises widely considered “the most significant economic collapses since the Great Depression,” according to the study.

They found companies that invested in environmental, social and corporate governance (ESG) during the global pandemic had more positive economic outcomes, whereas the opposite occurred during the 2007-08 financial crisis.

Now, sustainability provides a kind of “insurance” to protect against economic downturns, researchers found.

“If you think that environmental damage isn’t going to impact economic growth, you’re mistaken,” said co-author Dr. Kathleen Rodenburg, professor in the Gordon S. Lang School of Business and Economics. She co-authored the study with Lang colleagues Dr. Jing Lu, Dr. Lianne Foti and Dr. Ann Pegoraro.

Profitability and sustainability were once considered to conflict with each other, with companies believing investments in sustainability initiatives would compromise profitability, said Rodenburg, a professor in the School of Hospitality, Food and Tourism Management. As societal norms shifted, so did business perspectives, and today ESG appears woven into business strategy, she added.

Companies are now recognizing that sustainability helps with long-term performance, she said, leading to improved investor confidence and business reputation among other advantages.

This is evidenced in the study’s findings, published in Business Strategy and the Environment.

Sustainable priorities shift between economic crises

“What we found was that companies that were investing in ESG actually did worse during the financial crisis and that poor-performing ESG companies did well during the financial crisis,” Rodenburg said.

During the 2007-08 financial crisis, companies responding to a demand-side shift may have poured money into marketing and promotion rather than sustainability.

But during the global pandemic, “companies with poor performance in sustainability did far worse than companies that had good performance in sustainability,” Rodenburg said.

The difference in the outcomes of ESG investment is “hopefully” an indication of how much societal norms, business perspectives and consumer behaviour have shifted during the 12 years between the two crises, she said.

The findings come from more than 20,000 observations provided by 2,885 companies across different industries in G7 countries. The data was self-reported and provided to researchers who used the Heckman two-step method.

Overall, the study found a “bidirectional relationship” meaning that higher sustainability performance led to better financial performance and vice versa.

Good environmental practice is also good for business

Dr. Ann Pegoraro
Dr. Ann Pegoraro

“While environmental governance is good for the environment and society, it’s actually good for business,” said co-author Dr. Ann Pegoraro, Lang Chair in Sport Management at U of G. Director of the International Institute for Sport Business and Leadership at Lang, she is a professor in the School of Hospitality, Food and Tourism Management.

Gen Z, the next generation of consumers, is much more conscious of sustainability and ethics when using their purchasing power, Pegoraro said. Companies doing “the right things” will continue to do well, she said, adding that companies with gender diversity on their boards were also found to have stronger sustainability performance.

“And we need them to do well if we’re going to achieve the 2030 UN sustainability goals,” Rodenburg added. “These companies have massive ability and swiftness and expertise to help us be in a better place.”

Industries that have been brought under scrutiny for sustainability practices such as oil and gas had stronger scores, the study found. During the pandemic, oil and gas products were used less often than they had been. “We stayed home, we didn’t drive our cars,” Pegoraro said. “We helped the environment, but the companies the pandemic would have hurt didn’t suffer as much as other firms.”

Rodenburg added, “We’re only going to be facing more crises that are environmentally amassed.” The hope is that companies start to think about how social, environmental and economic priorities are interconnected, she said, calling it the “triple bottom line.”

“Companies that are positioned well in terms of their sustainability practices are thinking more long term and will be protected in the next crisis.”

Funding for this research was provided by the Social Sciences and Humanities Research Council of Canada Insight Development Grants.


Dr. Kathleen Rodenburg