© Jakob Utgård 2025.
Chapter contents
Business example: Electric vehicles in Posten/Bring
Meta-analyses
Quasi-experimental studies
No simple answers
Business example: Electric vehicles in Posten/Bring
For a sustainability investment to be profitable it needs to increase revenue or reduce costs or both. Posten/Bring have the goal to reduce Scope 1 and 2 emissions with 85% from 2022. This will mainly be done by replacing fossil fuel vans and trucks with electric ones. At the end of 2023 52% of light vans were fossil free (mainly electric, a few run on biogas), and Posten have ordered more. The heavier trucks are more complicated to replace, since the batteries are heavy, the range of heavy electric trucks is limited. In 2023 Posten had 71 electric trucks.
An electric truck is about 2 mnok more expensive than a fossil truck. The realistic driving range with load is around 300 kilometres (less in winter). Charging costs are lower than fuel costs, a truck saves about 50% on energy use. Electric trucks need time for charging but this can often be done during the night. Electric trucks should have lower maintenance costs (fewer moving parts!) but more tire wear. There is some uncertainty around how long the batteries will last.
The relationship between sustainability and profitability can be negative, positive, U-shaped, or neutral (Brammer & Millington 2008). For the positive relationship, the theory is that (more) sustainable firms become more profitable because sustainability gives advantages such as more loyal customers willing to pay higher prices, lower costs of financing, less waste (and costs), more motivated employees, better general reputation, or more innovations. The negative relationship is based on belief that sustainable operations are more expensive, and that few customers are willing to pay the extra price.
Academic research: Meta-analyses say yes, but have problems
Whether sustainability is profitable is a topic for thousands of research studies. Meta-analyses, statistical summaries of multiple scientific studies, have generally found a relatively small but positive relationship (correlation 0.09-0.18) between corporate social responsibility (CSR) or sustainability, and financial performance (Friede et al 2015, Margolis et al 2009, Orlitzky et al 2003).
One of the challenges of these meta-analyses is that they mainly summarize cross-sectional studies. If we observe that sustainable firms are more profitable, we cannot conclude that it is the investments in sustainability that cause the profits. It may be the other way around (more profitable firms invest in sustainability), or it might be other, unobserved factors causing both (high-quality management invest in sustainability and causes profitability).
Another question is how to measure sustainability or CSR. These are complex concepts, with no simple measurement. Many of the studies use rankings of firm sustainability developed by consulting companies, relying on public and company-provided data on different indicators of sustainability. It is not clear whether these are good measures of sustainability (Chatterji et al 2016).
Publication bias also poses a problem. If studies finding a positive relationship are more likely to be published, either because the researcher finds it more worthy to continue working on such projects or because journals are more likely to publish them, the meta-analyses will be biased. This can account for most or all of the positive relationship found in such analysis.
Quasi-experimental research also says yes, but also have problems.
To truly establish causality, we would like experiments where firms are randomized to be either more sustainable or not. If we then observe that the sustainable firms become more profitable, we can be pretty sure. However, it is difficult to commit firms to such experiments, and from what I know it has never been done.
The best alternative then is to rely on quasi-experiments where we compare firms that for random reasons are different on sustainability, but that are similar on all other factors. In one article, the authors compared 90 companies that had adopted sustainability policies in 1993 and 90 companies that had not, but that were extremely similar in all other ways. They found that the sustainable companies outperformed the non-sustainable financially in the years after (Eccles et al 2014). However, it has recently been argued that the method and data used in the article was incorrect, and a correct analysis shows no difference in the financial outcomes of the two types of firms (King 2023).
A clever study compared firms where investments in CSR were just approved in a firm’s annual general meeting (50-55% voted yes) with firms with the investments were just not approved (45-50% voted yes). These groups should be very similar in most ways. The study finds that firms that invest in CSR become more profitable (Flammer 2015). A critique of this study is that the effects are small and that projects getting 55% of votes may be different from projects getting 45% of votes. The potential problem of publication bias also exists in these studies, it is for instance not clear whether Flammer would have (got) published her study if the findings were negative or undecisive.
No simple answers
Those looking for simple answers then will not find them in the research on sustainability and financial results. My take on the question is that not all investments in sustainability are profitable and that there is a large amount of heterogeneity. An oil company reducing oil exploration due to climate change will become less profitable. A consumer goods company making moderate investments in sustainability might gain a little due to improvements in perceived quality of its products and improved corporate reputation among customers and other stakeholders.
References
Brammer, S., & Millington, A. (2008). Does it pay to be different? An analysis of the relationship between corporate social and financial performance. Strategic Management Journal, 29(12), 1325–1343. https://doi.org/10.1002/smj.714.
Chatterji, A. K., Durand, R., Levine, D. I., & Touboul, S. (2016). Do ratings of firms converge? Implications for managers, investors and strategy researchers. Strategic Management Journal, 37(8), 1597–1614. https://doi.org/10.1002/smj.2407.
Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The Impact of Corporate Sustainability on Organizational Processes and Performance. Management Science, 60(11), 2835–2857. https://doi.org/10.1287/mnsc.2014.1984.
Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), 2549–2568.
Friede, G., Busch, T., & Bassen, A. (2015). ESG and financial performance: Aggregated evidence from more than 2000 empirical studies. Journal of Sustainable Finance & Investment, 5(4), 210–233. https://doi.org/10.1080/20430795.2015.1118917.
King, A. A. (2023). Comment and Replication: The Impact of Corporate Sustainability on Organizational Processes and Performance (SSRN Scholarly Paper 4648438). https://doi.org/10.2139/ssrn.4648438.
Margolis, J. D., Elfenbein, H. A., & Walsh, J. P. (2009). Does it Pay to Be Good…And Does it Matter? A Meta-Analysis of the Relationship between Corporate Social and Financial Performance (SSRN Scholarly Paper ID 1866371). Social Science Research Network. http://papers.ssrn.com/abstract=1866371,
Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate Social and Financial Performance: A Meta-Analysis. Organization Studies, 24(3), 403–441. https://doi.org/10.1177/0170840603024003910.