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Sustainability and Value Creation: Investors Are Paying Attention

Bill DiBenedetto | Tuesday March 31st, 2009 | 1 Comment

Sustainability%20Investing.jpg These days, it’s not just about following the money. More importantly, it’s also about finding the best way to find the money that’s out there while making the process more visible and transparent. That’s a tall order for companies trying to do the right thing on the sustainability front while delving into the murky world of finance and investment for funding, which by its very nature is prone to opaqueness, complexity, and secrecy. Simply put it’s tough to reach investors even in a solid financial and economic environment. So dotting the i’s on sustainability is becoming a crucial piece of the funding puzzle.
That’s where the Global Reporting Initiative, an Amsterdam non-profit, enters the picture. It has developed a framework for disclosure on environmental, social, and governance data – also known as ESG disclosures or sustainability reporting – and in a report this week says that companies that fail to link their sustainability reporting and activities to an overall corporate strategy likely will fail to connect with investors.


The report – “Reaching Investors: Communicating Value through ESG disclosures” – was written following “extensive consultation” with the finance industry. GRI says investors have been a key driver in promoting sustainability reporting. They are increasingly asking companies for ESG information to help them make their investment decisions. Assets of more than $15 trillion – or about 15 percent of total global capital markets – are now managed by signatories to the United Nations Principles for Responsible Investment (UNPRI).
“UNPRI signatories commit to integrating ESG issues into investment analysis and to seek appropriate disclosure on ESG issues,” GRI said. The disclosure is based on the GRI reporting framework.
Sean Gilbert, Sustainability Reporting Framework Director at GRI said: “As we can see from the number of investors now actively seeking ESG information in order to help them base investment decisions, the dichotomy between sustainability and long-term business value is false.”
But the report says that for the ESG data to be useful to investors, “It must be presented in a consistent way.” In a combined sustainability and annual report, for instance, or in separate documents such as CEO or board statements. The link between a company’s performance on environmental, social and governance issues, and its business strategy is crucial, the report says. “Without this link investors will have no way to gauge what the ESG disclosure might mean for the financial bottom line.”
Sustainability reporting should demonstrate “how the company’s behavior in a rapidly changing economic, environmental, and social context is affecting its long-term value” – for example how the company is dealing with risks and opportunities presented by climate change or how it is addressing poverty and inequalities in the communities in which it operates and thus derives its workforce and consumers. “In this context, business has to think differently and perform differently and, as we’ve seen, investors are increasingly seeking out ESG leaders. Sustainability reporting should help investors find those companies as well as help the companies understand how they themselves are positioned in the context of sustainability,” Gilbert said.
It may be that companies and their potential investors are getting it; that a company’s green and sustainable strategy must be an integral part of the overall corporate strategy if they expect to get some greenbacks. A recent survey from the financial research firm KPMG says the majority of the Global Fortune 250 companies now issue sustainability reports. Given recent financial history, it might also help if investors were to implement some sustainable reporting, and lending, of their own.


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  • http://www.vanno.com/ Nickd

    There is some recent evidence that – at least for the companies in the 2009 Business Week 50 – financial performance and good corporate reputation might not be correlated.