By Robert Ludke
While working with a very diverse clientele–one that runs the spectrum from nonprofit organizations to retailers to global financial services firms–one issue has become increasingly clear: the growing need to disclose efforts to act in a more sustainable manner.
Several companies report successful efforts. A publicly traded uniform services and information management company is working hard to educate employees and investors on how its successful efforts to reduce energy consumption have improved its profit margin. In Asia, a U.S.-based nonprofit conservation organization has put in place a series of benchmarks for it and its partners so as to demonstrate that key conservation methods actually do work, and have the potential to reverse a very severe decline in the world’s wild tiger population.
However, just because there is more public pressure to disclose information does not mean every client wants to comply. While many clients have committed to greater transparency, others believe greater transparency is tantamount to providing too much information to detractors and competitors.
Despite those concerns, the best approach for any corporation or organization is to err on the side of disclosure. By proactively disclosing information, a company or organization is able to set the terms of the debate on how the disclosed material is analyzed by public audiences.
Most important, by using disclosure to demonstrate the company is on the path to a sustainable and profitable future, the company will be rewarded by its various stakeholders. Investors will see a company worthy of their capital, customers will support the brand and public audiences will provide a reservoir of reputational goodwill that can be used strategically both in good times and in bad.
The trend towards greater transparency ultimately is headed in one direction – an “integrated report” in which financial and nonfinancial performance are tied together and articulated in a single document. Although there is no formal standard as to what constitutes an integrated report, there is growing evidence that the financial markets reward those companies that engage in sustainable behavior and disclose those efforts in a comprehensive manner, including impact on bottom line performance.
For example, Harvard University’s Dr. Robert Eccles and his team recently published a report entitled, “A Corporate Culture of Sustainability
.” As part of the research, the authors looked at 180 companies, evenly divided between “high sustainability” and “low sustainability” organizations. Those categorized as high sustainability have a long, consistent track record of engaging in and disclosing efforts to operate with economic, social and governance policies in mind.
When the rate of return on investment in the high sustainability companies was matched to the rate of return for their low sustainability peers, the authors found that “Investing $1 in the beginning of 1993 in a value-weighted (equal-weighted) portfolio of sustainable firms would have grown to $22.6 ($14.3) by the end of 2010...In contrast, investing $1 in the beginning of 1993 in a value-weighted (equal-weighted) portfolio of traditional firms would have grown to $15.4 ($11.7) by the end of 2010.”
Thus, we are now in a period where both the large segments of the public (which includes consumers) and investors are increasingly aligned in their desire for more sustainable corporate and organizational behavior. More important, they are demanding an explanation for how that behavior is being put into practice along with its financial impact. That alignment will have far reaching impacts - ranging from the brand, to the reputation, to the bottom line.
Robert Ludke is the Managing Director of Public Strategies, Inc.
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