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We construct a measure of corporate purpose within a sample of U.S. companies based on approximately 500,000 survey responses of worker perceptions about their employers. We find that this measure of purpose is not related to financial performance. However, high-purpose firms come in two forms: firms characterized by high camaraderie between workers and firms characterized by high clarity from management. We document that firms exhibiting both high purpose and clarity have systematically higher future accounting and stock market performance, even after controlling for current performance, and that this relation is driven by the perceptions of middle management and professional staff rather than senior executives or hourly or commissioned workers. Taken together, these results suggest that firms with midlevel employees with strong beliefs in the purpose of their organization and the clarity in the path toward that purpose experience better performance. Funding: The authors recognize the generous research grant from Strategy CDA at Columbia Business School to support this research. C. Gartenberg recognizes financial support from NYU Stem School of Business and Wharton School at University of Pennsylvania. A. Prat recognizes financial support from Columbia University. G. Serafeim recognizes financial support from the Division of Research and Faculty Development of the Harvard Business School. Supplemental Material: The online appendices are available at https://doi.org/10.1287/orsc.2018.1230. Keywords: employment contract * governance and control * strategy and firm performance * strategy implementation * management processes * trust, Introduction Does purpose influence firm performance? More than two decades ago, Bartlett and Ghoshal (1994) issued a call for scholars to consider purpose as the essential precursor to effective strategic [...]

An increasing number of companies are providing products and services that help reduce carbon emissions in the economy. The authors develop a methodology to identify those companies and create a sample of publicly listed climate solutions companies, allowing the authors to study their geographic composition, accounting fundamentals, valuation ratios, and stock performance over time. The sample is equally split between developed and emerging markets, with a significant number of companies located in China. A portfolio of climate solutions companies exhibits higher revenue growth, higher investments in research and development and talent, and lower profitability margin. Portfolio returns are higher for solutions in energy, fuels, battery, and transportation themes and exhibit very little correlation with the returns of portfolios that seek to reduce their carbon emissions by underweighting high-carbon-emission companies, suggesting that climate solutions portfolios are distinct from low-carbon-emission indexes. [ABSTRACT FROM AUTHOR]

There is a growing interest to understand the business relevance of ESG issues, especially those related to the firm performance. We propose a framework to better understand the relationship between true and observed materiality and outline the associated measurement errors, which reflect the complex, nuanced and time evolving nature of the underlying construct as well as the ESG data. Our framework calls for researchers to consider the different types of measurement errors with care, because the choices made could exacerbate or mitigate the relationship between true and observed materiality. Overall, our framework has implications to the emerging stream of literature that assesses the business relevance of ESG issues. [ABSTRACT FROM AUTHOR]