There are three drivers that are pushing sustainability into an investment megatrend in 2013.
Driver #1: Emerging sustainability accounting standards
One of these drivers is the accounting industry’s investigation into accounting policies and practices that will account for the financial liability of a company’s environmental impacts. KPMG, in their “Expect The Unexpected” white paper, reported that in 2008, the world’s 3,000 largest public companies by market capitalization were estimated to be causing $2.15 trillion of environmental damage.
This off-balance sheet liability is equivalent to seven percent of their combined revenues and 50 percent of their EBITDA (earnings before interest, taxation, depreciation and amortization). In response, a Sustainability Accounting Standards Board was launched in 2012 with funding by the Bloomberg Philanthropies and the Rockefeller Foundation. The organization’s main goal is to establish and maintain industry-specific sustainability accounting standards for use in Form 10-K and 20-F. What this means for investors is that sustainability is now a CFO issue. A Deloitte white paper entitled Sustainable Finance: The risks and opportunities that (some) CFOs are overlooking reports that half of surveyed CFOs are planning capital investments that support the implementation of sustainability initiatives.
Driver #2: Sustainability is now a C-suite area of focus
Sustainability is now being adopted by the C-suite as a valuable tool for growing profits and competitive advantage. Walmart’s CEO, Mike Duke, has embraced a corporate strategy to advance Walmart’s everyday low price competitiveness through sustainability. He hosts two milestone meetings per year for his leadership team focused upon adopting sustainable best practices in operations and merchandise procurement. Similar to achievements by Ford and DuPont, Walmart’s CFO, Charles Holley, reported at a recent milestone meeting that Walmart now earns $230 million annually through its waste management program.
Driver #3: Consumers are demanding smarter, healthier and greener solutions
The consumer is the ultimate driver in sustainability’s emergence as an investment megatrend. But consumers don’t call it sustainability. They are actively searching price competitive “in me, on me and around me” solutions that are healthier, smarter and greener. Attractive investment opportunities that are emerging as smarter, healthier and greener solutions win price competitiveness through manufacturing economies of scale. Much maligned solar power is an example.
If oil had dropped in price as much as solar panels it would be selling for $10 per barrel. A report by ILSR projects that unsubsidized solar will grow from .1 percent of U.S. electricity supply to 10 percent by 2023, as it wins price parity against utility supplied electricity. Hawaii provides a current example where the price of rooftop solar is now lower than utility supplied electricity resulting in a 75 percent leap in construction applications to install rooftop solar electricity systems.
Tomorrow’s article will profile five sustainability trends shaping stock valuations in 2013.
Bill Roth is the Founder of Earth 2017 He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues.