© Jakob Utgård. Last updated 6 Aug 2026

Is it profitable to be (more) sustainable? This is a big and important topic for companies, society, and for the thousands of researchers who have looked into this question. If sustainability in general is profitable, firms could invest in becoming more sustainable and both them and the world would be better off.

It is not impossible that sustainability can be profitable. Sustainability efforts can reduce costs by getting rid of unnecessary material and resource use and changing to cheaper alternatives.. Sustainability efforts can also increase income, by attracting new customers or getting customers to pay more for more sustainable products and services. On the other hand, sustainability can also be expensive. For sustainability to be profitable, the additional incomes or savings must be larger than the associated costs.

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.

Sustainability as strategy

Given the results from the empirical research, it is difficult to believe in a “simple” answer to the pay-offs of business sustainability. In business studies, the field of strategy tries to explain why different firms and different actions get different outcomes. Accordint to strategy, whether sustainability improves profitability should depend on how a firm pursues it. Strategy theory offers different frameworks for thinking about when and why sustainability can generate lasting competitive advantage.

Cost leadership and differentiation

Porter (1985) argued that firms must choose between two fundamental competitive strategies: cost leadership (being the lowest-cost producer in the market), or differentiation (offering something customers will pay a premium for). Sustainability can support both. Porter and van der Linde (1995) made an early version of this argument, suggesting that well-designed environmental strategy encourages innovation that more than compensates for its costs, a claim that became known as the Porter Hypothesis.

Cost leadership can be achieved through investing in eco-efficiency: reducing energy consumption, material inputs, and waste lowers operating costs and can translate into a lasting cost advantage if competitors are slower to adapt. By investing heavily and early in electric vehicles Posten Bring can potentially get a long-term advantage over competitors.

Differentiation works when customers are willing to pay more for products or services they perceive as sustainable, or when business customers need suppliers to demonstrate sustainability credentials to meet their own commitments. Sustainability-based differentiation is strategically viable if the sustainability attribute is genuinely valued by a customer segment, if competitors cannot easily imitate it, and if the price premium exceeds the cost of delivering it (Reinhardt 1999). These conditions may be met in some markets but far from all (Reinhardt 1999). In Posten Bring’s example, electrical vehicles may give differentiation if customers are willing to pay more for low carbon transport services (covering the higher initial truck investments), and when competitors cannot easily copy Posten’s early investments and knowledge in this area.

The shared value framework, developed by Porter and Kramer (2011), gained considerable popularity in business circles. Rather than engaging in superficial corporate social responsibility, the framework argues that companies should use their core business, unique resources, and expertise to create economic value by simultaneously creating social value. Shared value is defined as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates” (Porter and Kramer 2011, p. 66).

Porter and Kramer identify three strategies through which shared value can be created. First, reconceiving products and markets: companies can develop products and services that meet societal needs — affordable products for underserved markets, environmentally friendly goods, or products that improve health and well-being — opening new revenue streams while addressing social challenges. Second, redefining productivity in the value chain: by addressing societal problems that affect their operations, such as reducing water and energy consumption in manufacturing, companies can simultaneously lower costs and reduce environmental harm. Third, enabling local cluster development: because companies depend on the broader ecosystem of suppliers, institutions, and communities around them, investing in that ecosystem — for example through local education and training programmes — can strengthen both the community and the firm’s own operational foundations.

The shared value perspective has attracted significant criticism. Crane et al. (2014) argue that it largely repeats concepts already developed within corporate social responsibility, stakeholder theory, and social innovation research without providing genuinely new insights, and that it ignores decades of accumulated evidence on the relationship between CSR and financial performance. They also contend that the framework oversimplifies complex social issues by focusing on win-win situations and marginalising cases where social and commercial objectives genuinely conflict. Dembek et al. (2016) reach a similar conclusion. Still, the framework helps shifting the question from whether sustainability and profit can coexist to how business strategy can be designed so that they do.

Sustainability as a strategic resource

Another strategic perspective comes from the resource-based view of the firm (Wernerfelt 1984; Barney 1991), which argues that durable competitive advantage rests on resources and capabilities that are valuable, rare, and difficult for competitors to imitate or substitute. From this perspective, the question is not whether sustainability is profitable in general, but whether a particular firm’s approach builds the kind of asset that are valuable and that competitors cannot easily replicate. Russo and Fouts (1997) tested this empirically, finding that firms with stronger environmental performance earned higher financial returns, with the relationship strongest in high-growth industries, consistent with environmental capability functioning as a strategic resource rather than a cost driver.

Sustainability efforts can be such resources. A deep organisational culture of responsible operations can be valuable because such operations improve stakeholder relations, to customers, employees, funders, policy-makers and others, and cannot be easily copied. A reputation for genuine sustainability may keep customers coming back, may attract new customers, and may make customers be willing to pay more. Employees, funders and suppliers may be demand less to support the comapny.

Hart (1995) extends the resource-based view in his natural resource-based view, arguing that firms build environmental competitive advantage by progressing through three linked strategies: pollution prevention, which reduces costs through cleaner internal processes; product stewardship, which integrates environmental thinking into product design and the supply chain; and sustainable development, which involves investing in capabilities that position the firm for a future of tighter resource constraints and stricter regulation. Each stage builds on capabilities developed in the previous, so firms that start early builds an advantage that is difficult to copy.

Conclusion: No simple answers

Those looking for simple answers then will not find them in the research on sustainability and financial results, and neither in the theories of strategy. My take on the question is that of course 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 sensible investments in sustainability might gain a little due to reduced costs, improvements in perceived quality of its products and improved corporate reputation among customers and other stakeholders. 

Comprehension questions

• What is the difference between the cost leadership and differentiation routes to sustainability-based competitive advantage? Give one example of each from the chapter
• What are the three strategies in Porter and Kramer’s Creating Shared Value framework?
• What are the main objections towards the Creating Shared Value framework?
• According to Barney (1991), what four characteristics must a resource have to generate sustained competitive advantage? Give one example of a sustainability-related resource that meets these criteria.
• Meta-analyses of the relationship between sustainability and financial performance generally find a small positive correlation. What are three methodological reasons to be cautious about this finding?
• What makes the Flammer (2015) study more convincing than a standard cross-sectional study? What are its limitations?

Exercises

A company is considering two sustainability initiatives:

• Initiative A: Replace all office and warehouse lighting with LED, reducing electricity costs by 300,000 NOK per year. Upfront investment: 800,000 NOK.
• Initiative B: Switch to organic cotton in all products, increasing material costs by 8%. Market research suggests customers may be willing to pay 2-3% more.

For each initiative identify which competitive strategy it corresponds to, and give your overall assessment of whether each investment is likely to be profitable.

References

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108

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

Crane, A., Palazzo, G., Spence, L. J., & Matten, D. (2014). Contesting the value of “creating shared value.” California Management Review, 56(2), 130–153. https://doi.org/10.1525/cmr.2014.56.2.130

Dembek, K., Singh, P., & Bhakoo, V. (2016). Literature review of shared value: A theoretical concept or a management buzzword? Journal of Business Ethics, 137(2), 231–267. https://doi.org/10.1007/s10551-015-2554-z

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Flammer, C. (2015). Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), 2549–2568. https://doi.org/10.1287/mnsc.2014.2038

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

Hart, S. L. (1995). A natural-resource-based view of the firm. Academy of Management Review, 20(4), 986–1014. https://doi.org/10.2307/258963

King, A. (2023). Does it pay to be a responsible firm? A critical review of theoretical and empirical developments. Academy of Management Annals, 17(1), 333–368. https://doi.org/10.5465/annals.2021.0038

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