High Road Businesses that act better can often do better. And, as a result, those who invest in them may often end up doing better as well.

Why is that the case?

Recently, a team of Harvard Business School professors set out to test whether a company's High Road policies made any appreciable difference – and, if they did, what kind of policies mattered.¹

They looked at the performance of 180 companies over the course of 16 years. Of these, ninety were High Road companies that had actively adopted significant and relevant environmental, social and governance policies. There were also 90 similar firms in the same sectors that had statistically identical size, capital structure, operating performance, and growth opportunities. These Low Road companies were much less likely to have embraced such approaches.

For example, the High Road companies were about twice as likely to link executive pay to environmental performance, three times as likely to keep track of the number of fatalities in the workplace, and nearly two and a half times more likely to give the Board of Directors specific responsibility around sustainability.

Their study found that $10,000 invested in a High Road company would, sixteen years later, be worth $283,600, but that same $10,000 invested in a similar Low Road company would only have grown to $146,000. And an investment in High Road companies would have had less volatile ups and downs along the way.

Why do these High Road Businesses do better?

Part of the answer is that our world is changing – and consumers' expectations are changing with it. If you look at the chart above, you'll see that for most of the 1990s there was not much of a difference in the value. However, since the turn of the century, the gap has grown even larger.

We believe there are few possible reasons for why this is so.

First of all, thinking long term can make a company more innovative, more efficient, and ultimately more profitable. For instance, many companies have found that spending more on health benefits outweighs the costs of lost workdays and less productivity on the job:

These companies, like others, are certainly far from perfect. But they have found that, instead of a race to the bottom, pro-employee and pro-environment practices can lead to a healthier bottom line.

Second, today, a company's reputation matters more than ever before. As shown in the chart below, forty years ago, over 80 percent of a company's value came from what you could touch – so-called "tangible assets" like buildings or machines on a factory floor. Today, the numbers are reversed and over 80 percent of a company's value comes from what people think – "intangible assets" that not only include patents and research, but also the company's standing among customers and their ability to attract high-quality employees.

Third, the flipside of the above is that the costs of doing business today have changed. Because so much of a company's value comes from its standing, the risks of harming that need to be considered as never before. It used to be that spending money on employee safety, environmental protection or greater diversity was a cost that got in the way of maximizing profit. That is no longer true.

For instance, the costs faced by BP in the aftermath of the Deepwater Horizon calamity in 2010 were not only the $50 billion spent on clean up and compensation, but a stock price which plunged by 50% and which has consistently underperformed its industry ever since.⁴

High Road Companies proactively seek to avoid the risks of costly lawsuits, fines, boycotts, and reputational harm.

Fourth, our world is increasingly interconnected – and companies are interdependent. No one corporation will single-handedly meet the challenges of climate change or pollution or a financial crisis precipitated by faulty debt instruments, but High Road Companies see the risks to their business and see a responsibility to lead in a positive direction.