Last week I attended a presentation with Andy Savitz, author of The Triple Bottom Line. As a veteran in the field of sustainability, Mr. Savitz has made a career out of assisting corporations in the design, development, and implementation of sustainability programs. With more pressure on today's corporate world in the "Age of Accountability," the book describes how the world's best run companies are achieving economic, social, and environmental success – in other words, bolstering their triple bottom line.

In a previous era, business interests and societal interests were mutually exclusive and sustainability was just a fad for the very well-capitalized companies that could afford to write big checks to their favorite charities. The Venn Diagram simply resembled two circles, in different shades of green, that were separate from each other. Today these circles are conjoined, as business and societal interests have aligned.

Mr. Savitz refers to the shared area of the circles as the "sustainability sweet spot," and it represents worlds of opportunities for innovation within companies. Specifically, innovation to spur new products and services, business processes, markets, business models, and methods of management and reporting. This all translates into new ways to make money (which is, incidentally, a founding principle of The Panelist).

During the presentation, Mr. Savitz explained how some of today's leading organizations have embraced sustainability and integrated it into their business models, subsequently finding their sweet spots. He highlighted a number of ways to achieve this objective.

To begin with, a sweet spot can be formed to serve a new market need. To illustrate this, let's quickly revisit our previous post on the Toyota Prius. A rise in gasoline prices could very well change the paradigm by which your average Joe Consumer operates, prompting a need for a more fuel-efficient vehicle. Toyota (TM) has since become the world's largest automaker, overtaking the lead that the Big 3 enjoyed for so long.

3M Corporation (MMM) acheived its sweet spot via product development. Long known for both innovation and commitment to sustainability, 3M has since combined the two and offers a whole portfolio of products dedicated to helping customers reduce their environmental impact. In fact, this is how the company brands itself today.

There is also "sweet spot by acquisition" PepsiCo (PEP) has always lagged behind Coca-Cola (KO) in market share for its core soft drink business, regardless of aggressive marketing measures. Innovation didn't seem to do the trick, so Pepsi slightly shifted its focus and went out and acquired Tropicana and Quaker Oats, two brands that promoted good health instead of sugar and carbonated syrup. These product lines are now growing four times faster than its traditional soft drink business unit. This is not to say that Coca-Cola has not since tried similar strategies, but Pepsi's market cap is finally comparable.

Finally, and perhaps most importantly, corporations find their sustainability sweet spot simply because it "just makes business sense." General Electric (GE) launched their Ecomagination campaign within the past two years and created a whole new set of products to unveil and markets to tap into. Most notably, the Energy and Water subsidiaries, who by design, have the potential to make the biggest impact, have enjoyed the bulk of the attention and have experienced rapid growth.

Former CEO Jack Welch had always been on the hot seat for his lack of focus on environmental issues and the prevention of externalities during his term. Then again, before 2001, sustainability was not mentioned nearly as much as it is today. CEO Jeff Immelt has since rebranded GE as a company that looks to achieve sustainability, but not because GE is now a "tree-hugger." The company doesn't need to be. Neither does any enterprise seeking success. Sustainability within a company's philosophy "just makes sense."

Mr. Savitz explained that the "Holy Grail of sustainability is when sustainability becomes fully integrated into a company's philosophy and not a stand-alone item." This vision already started to gain momentum within the corporate world and we can only expect more to come.

So from an investing standpoint, what do we have to show for all of this?

Well, starting in 1999, Dow Jones launched a series of stock market indices that include companies dedicated to sustainability. Let's take a comparative look at the Dow Jones Sustainability Index North America (DJSI) vs. the S&P 500 Index dating back to January 1, 1999. The S&P 500 went from 1,229.23 to 1,482.37 until 4/30/07, or a CAGR of 2.28%, while the DJSI went from 100 to 146.32 during the same time period, or a CAGR of 4.67%. This is more than double the return.

While the "show me" skeptic would say that, because of the minimal data points, these numbers don't prove anything definitive, the progressive, socially responsible investor would continue to invest his/her money in the successful companies that exhibit sustainability, and then be willing to compare numbers at the end of the day. The latter is the strategy I would take. In fact, I already have.

Disclaimer: I do not give investment advice. Do your own research. Do not rely on anything in this weblog to make investment decisions. Consult an investment professional familiar with your specific financial situation before buying or selling any security.

Disclosure and Confessions: I do not own any of the stocks above on an individual basis, but part of my IRA is allocated to a socially responsible fund and it will be for a long time. I am fiercely loyal to the Pepsi brand and I have consumed only a handful of cans of Coca-Cola since ninth grade (largely because it tastes awful).