From a Material World to a Sustainable Society

There was time in the 80’s where the younger Boomers and older Gen Xers were living large – and Madonna famously reminded us that we were “living in a material world.” Here we are nearly 30 years later, and those Boomers are having grandchildren and those Xers are figuring out how to pay their kids college tuition– and collectively, they have raised the Millennials, who are the driving force for change in everything from technology to employment policies to investing. And today, we find ourselves living in a “sustainable society”.

Sustainable has become such a ubiquitous term, people often make assumptions about what it means. “Sustainability” is often associated narrowly with environmentalism, or the “E” in ESG. Yet even as climate change and environmental protection are globally important concerns, some argue they are better addressed outside the boardroom.

Our research has found that a certain percentage of investors reject ESG altogether because they see the environment -- as well as social and governance issues like human rights, diversity and economic empowerment -- as goodwill endeavors that don’t mix with investing goals. It’s time to move beyond the myth that doing good and being a good investment are mutually exclusive. There’s now strong, compelling evidence that companies focused on ESG practices also improve their financial performance, and are therefore healthier and more attractive to investors. A recent study by Bank of America Merrill Lynch Global Research found that stocks with higher ESG scores have consistently lower future price volatility than those companies with a lower ESG rating.

To change expectations and behavior, we must not only broaden the way we think about value creation but also overhaul the conventional, limited way it is measured. The value of a business is more than its financial capital alone. Yet the standard for evaluating business success has long relied on the financial metrics of the capital markets -- profitability, cash flow, and earnings per share – which tell only part of the story. These extrinsic markers alone reveal little about how companies govern themselves, treat others, and the extent to which they believe the end justifies the means of their actions.

At the center are fundamental questions about basic principles of capitalism and what responsibilities, if any, businesses have as corporate citizens. We know that much of a company’s market value comes from or is affected by factors never reported on a balance sheet. These include social and intellectual capital, brand reputation, governance practices, and social and environmental impact. These non-financial factors are a telling measure of the degree to which companies approach their business in support of returns that are more reliably sustainable and forecastable.

Companies create value across multiple dimensions, and their prosperity is linked inextricably to the communities they serve and the challenges they face. The value they create must also be shared to be sustainable long-term. For Bank of America that means committing ourselves to responsible growth ­­– meaning we understand we must grow but we will do so in a way that’s firmly rooted in our values and in service of our employees, customers, clients and the community.

Central to our approach is innovative deployment of capital to pursue opportunities and solve problems at all levels, in markets around the world. We also partner with other sources of capital such as private equity firms, venture capital firms, asset managers, governments, nonprofits and development banks to create innovative financing structures that will dramatically increase the flow of capital to address the long-term sustainability of the communities we share.

The upshot is that ESG has become an important area of focus for companies and investors, and they are leading the evolution of our industry by demanding that investment decisions take into consideration social or environmental impact, alongside financial return. For leading companies, this means a focus on good environmental, social and governance policies that help to create jobs, transform communities, and seek solutions. It means creating opportunities to help families, businesses and communities prosper and thrive as companies, themselves, grow. 

In closing, all of these are business practices that drive the bottom line. They’re not charity or grant-giving—though all major companies do that, too. Turns out, the most successful companies in a sustainable world are those who drive social and economic change while also growing their business – creating shared success with individuals and communities around the globe.