Investors warm up to climate-change concerns, research shows

Investors increasingly believe that social and environmental conditions in society can have a direct impact on the business operations of a company and its long-term viability.

In 2011, average support for environmental and social shareholder resolutions topped 20% for the first time, according to research by Institutional Shareholder Services. That’s up from 18.1% in 2010 and 16.3% in 2009.

But many businesses struggle with how to measure and track the impact of their sustainability activities on core business metrics such as revenue growth, cost reduction, risk management and reputation, a PwC report suggests. “As a result, companies have difficulty explaining the benefits of a sustainable business strategy to stakeholders,” the report says.

Investors are joining consumers in putting pressure on companies to consider the so-called triple bottom line—social, economic and environmental performance—which could lead to enhanced accountability and disclosure of workplace safety, human and labour rights, and environmental practices, according to an Ernst & Young report.

When E&Y surveyed executives in 24 industry sectors last year, 66% of companies reported an increase in sustainability-related inquiries from investors compared with 2010. Seventy per cent of inquiries focused on company efforts to reduce energy consumption and on greenhouse gas emissions.

Sustainability initiatives under way at the companies were driven by energy cost reduction (93%), changes in consumer demand (87%), brand risks (87%), increased stakeholder expectations (86%) and competitive threats (81%).

Boards of directors and executive management can expect more of the same from investors during the upcoming proxy season, according to E&Y.

Companies should expect questions about sustainability-related issues during quarterly analyst calls and shareholder proposals that seek to tie environmental and social considerations to more traditional governance issues, such as executive compensation or the composition and structure of the board, the report said.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.