Companies underestimate investors’ interest in sustainability

Investors pay more attention to sustainability issues than many executives believe, a new report shows.

Boston Consulting Group and MIT Sloan Management Review collaborated on a report that polled more than 3,000 respondents from commercial enterprises in more than 100 countries. The research showed a communications gap between what a company’s investor relations department is saying and what investors want to know about sustainability.

Among the report’s key findings:

Managers’ perceptions of investors are out of date. Seventy-five per cent of senior executives in investment firms say that a company’s good performance related to sustainability is materially important when making investment decisions. But that belief is shared by 60% of managers in public companies.

Investors see tangible value in sustainability. Seventy-five per cent cite improved revenue performance and operational efficiency from sustainability as strong reasons to invest.

Investors are prepared to divest. Sixty per cent of investment firm board members say they are willing to divest from companies with a poor sustainability footprint, and nearly half of investors say they won’t invest in a company with a poor sustainability record.

Companies lack a sustainability strategy, even though they say such a strategy is important. Nearly 90% of respondents say having a sustainability strategy is important to remaining competitive, but only 60% of companies have such a strategy. Additionally, only 25% of companies have developed a clear business case related to sustainability.

Evidence outside the survey results shows that sustainability issues matter to investors, and not just individuals choosing a few stocks or mutual funds. Allianz SE, a large insurance and asset management company based in Germany, announced in November that it would divest from companies that derive more than 30% of revenue from coal mining or generate more than 30% of energy from coal.

“Our investment perspective is long-term to enable us to cover long-term promises we gave to our customers, especially our life insurance customers,” Allianz spokesman Nick Tewes said. “We have already seen a negative impact on the performance of companies with coal-based businesses before November 2015. The coal divestment was a consequence of both the environmental and the economic impact.”

That announcement is one part of a plan by Allianz to take a closer look at companies’ environmental, social, and governance (ESG) practices. Allianz is analysing investments using 37 ESG criteria, including greenhouse gas emissions, energy efficiency, data protection, and corruption.

Tewes said the company, as an investor and insurer, has learned that ESG risks have an impact on companies and their performance. “And we believe that this impact will increase, because of better transparency, the highly professional engagement of [non-governmental organisations], and because of regulation,” Tewes said.

One non-governmental organisation working with Allianz is Transparency International, which focuses on fighting corruption and publishes the annual Corruption Perception Index.

The Boston Consulting Group and MIT Sloan report offered the following steps for companies to capitalise on the trend towards sustainability-focused investing:

• Build awareness of sustainability challenges and programmes with internal and external stakeholders.
• Identify and analyse material issues and create alignment within the organisation to ensure an integrated response.
• Invest in and focus on tangible and measurable sustainability outcomes instead of positions on ratings lists.
• Once tangible measures are established, formulate a strategy.
• Incorporate the sustainability strategy into the overall corporate strategy, including a clear business case or proof of value.
• Engage a broad range of stakeholders to discuss sustainability strategy and progress.

Related CGMA Magazine content:

“The Big Business of Sustainability”: Sustainability initiatives can make sense from an environmental and reputational perspective, but there is evidence that sustainability also can be profitable.

“Sustainability Challenges and Opportunities for CFOs”: The finance function is well-positioned to help a company improve performance and avoid risks by paying more attention to sustainability, according to a report. CFOs can lead the way if they focus on overcoming challenges related to sustainability.

—Neil Amato (namato@aicpa.org) is a CGMA Magazine senior editor.