Investors are increasingly scrutinizing corporate sustainability efforts, both in terms of overall practices and shareholder disclosure. Companies that want to satisfy existing investors and attract new ones to create demand can often do so by acting in a more sustainable manner, such as reducing greenhouse gas (GHG) emissions. Doing so not only placates investors, but it also helps improve performance
The Investment Case
As of the end of 2015, more than one out of every five dollars under professional management in the U.S. was invested based on what’s known as sustainable, responsible and impact (SRI) strategies,according to the US SIF: The Forum for Sustainable and Responsible Investment. These strategies “consider environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact,” notes US SIF.
SRI investments total nearly $9 trillion dollars and span investment types, ranging from public company stock to corporate bonds to real estate, so all sorts of companies can attract investors by operating in a manner that meets ESG criteria.
Not only do investors increasingly look to allocate funds to these types of companies, but these businesses have historically performed better. A study by professors at Harvard Business School and London Business School tracked companies that voluntarily adopted sustainability policies by 1993. Compared to businesses that did not adopt many sustainability policies, the more sustainable ones significantly outperformed over the following 18 years from both a stock market and accounting perspective.
The Shareholder Case
For companies with existing shareholders, they should be prepared for a growing movement to increase sustainability reporting and adopt more environmentally friendly practices.
For the 2016 proxy season, environmental concerns were the top category for shareholder proposals at Fortune 250 companies, according to Proxy Monitor.
Many other signs point to more investors caring about these issues, such as the fact that the average shareholder support for proposals related to climate risk climbed from just 7% in 2011 to 28% as of June 2016, finds EY.
As support grows throughout shareholder bases, more companies will have to make changes or risk losing investors. Even if the company’s board and executives do not agree with some of these shareholder measures, improving corporate sustainability makes the company even more attractive to other investors, and meanwhile they gain alignment with existing investors. This alignment helps in cases where the board needs majority shareholder support, such as if an activist investor tries to push for a short-term measure that would harm the company long-term.
And while much of the shareholder activity around environmental proposals has been directed toward large companies, “it stands to reason that small and mid-cap companies may see increased investor pressure in these areas, in the form of shareholder proposals or otherwise,” notes Deloitte in a 2016 proxy season review.
The Case for Analytics
Whether a company has already been pressured by shareholders to adopt sustainability goals or just wants to position itself for future investment, energy analytics software (EAS) provides an opportunity to improve sustainability and be able to report on this more easily.
For example, a company can use EAS to see how its energy usage results in spikes in GHG emissions and therefore take steps to manage energy consumption more efficiently. These GHG emissions analytics can then be easily incorporated into corporate sustainability reports to investors so that there is transparency on this issue.
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