Companies that invest heavily in sustainable business practices boast a superior long-term financial performance compared to those that neglect environmental issues.

That is the key finding of a major new report from investment firm Sustainable Asset Management (SAM) and auditors PricewaterhouseCoopers, which affirmed that there is a "positive strategically significant correlation between corporate sustainability and financial performance".

Writing in the foreword of the report, SAM asset management CEO Reto Ringger and PricewaterhouseCoopers CEO Samuel A DiPiazza Jr said that the the research clearly "indicates that sustainability considerations are an integral part of corporate financial performance".

The Sustainability Yearbook 2008 is the result of SAM's analysis of 57 sectors and 367 firms originally chosen from a universe of the 2,500 largest companies in the Dow Jones Global Index. A best-in-class approach was used to target the top seven companies in each sector, expected to create above average shareholder value.

SAM then used a raft of metrics to assess their environmental and financial performance and found that sustainability strategies had a significant impact on "the cost of external financing, return on invested capital, sales growth and the fade-rate of a firm's competitive advantage".

Consequently, the report argued that the presence of sophisticated corporate sustainability strategies is a good indication of a company's financial prospects. "Firms that adhere to sustainability principles should outperform those that do not, because they prioritise long-term investment opportunities," it explained.

It also warned that failure to address green concerns could reduce an investor's confidence in a stock, potentially reducing the share price.

The research found that growing numbers of companies have shifted from a defensive to proactive attitude towards the environment in the past year as they have realised arguments that sustainability diminishes a firm's financial resources are outdated. This realisation has been driven by concerns that regulators will increasingly impose taxes and fines on unsustainable companies as well as the recognition of potential savings for green businesses through energy conservation, the report said.

The report also urged firms to take a bolder approach to their sustainability strategies, arguing that while simple initiatives such as reducing packaging and encouraging recycling are important, "the true winners will be those who think outside the box about the business models required to develop new products and services for society’s evolving needs".