Rethinking Sustainability, Innovation, and Financial Performance

In light of the recent financial crises, many economists and politicians claim that a paradigm change in modern capitalism is needed, from short-term profit maximization to a long-term value value-creating and value-maintaining strategy. In this context, scholars have emphasized stakeholder claims, institutional change, corporate responsibilities, and the role of ecological conditions on the competitive environment (Buysse & Verbeke, 2003; Delmas & Toffel, 2004; Henriques & Sadorsky, 1999; Hoffman, 1999; Kassinis & Vafeas, 2006; Aragon-Correa & Sharma, 2003; Darnall & Edwards, 2006; Sharma & Vredenburg, 1998; Husted & Allen, 2007; Matten & Crane, 2005; Scherer & Palazzo, 2007). For managers this entails investing in resources that enhance the firm’s environmental and social performance while continuing to pursue economic growth. The goals are to minimize the firm’s negative effects on the natural environment and society without compromising profits. Are these goals mutually exclusive? We find that they are compatible in the long run. They are different sides of the same coin, with innovation being the missing link between them.