Investors Link Sustainability with Financial Performance: BCG Report

(3BL Media/Justmeans) – For any company, it is critically important to understand the priorities of its investors. Companies readapt their corporate strategy and behavior based on their understanding of investor interests. Corporate sustainability is increasingly important for investors, as evidence grows that companies' ESG performance has an impact on long-term financial success.

The Boston Consulting Group’s seventh sustainability report in collaboration with MIT Sloan Management Review presents an in-depth analysis of investors’ new ability to connect sustainability performance with corporate performance and identifies what corporate leaders can do to stay relevant to sustainability-oriented investors.

The report, Investing for a Sustainable Future: Investors Care More about Sustainability than Many Executives Believe, found that three out of four senior executives in investment firms see a company’s sustainability performance as materially important to their investment decisions – and nearly half would not invest in a company with a poor sustainability track record.

Six key findings that emerged from the 2015 survey of more than 3,000 executives and managers from more than 100 countries include:

Managers’ perceptions of investors are out of date

Only 60 percent of managers in publicly traded companies believe that good sustainability performance is materially important to investors’ investment decisions.

Investors believe that sustainability creates tangible value

Seventy-five percent of investors cite improved revenue performance and operational efficiency from sustainability as strong reasons to invest.

Investors are prepared to divest

Nearly half of investors say that they would not invest in a company with a record of poor sustainability performance.

Lack of communication

Only 51 percent of senior managers are well-informed about their company’s sustainability efforts. The communication gap between investors and corporate management is just as large.

Sustainability indices are losing their luster

Only 36 percent of the investors say that being included on a major index is an important factor in their investment decisions.

Investor interest in sustainability is driven by factors such as growth of analytics and sophisticated modeling that show how sustainability investments create shareholder value. Large firms such as Bloomberg and Thompson Reuters collect data on sustainability issues, and most large investment firms, including BlackRock, have specialized departments examining these issues.

Sustainability concerns are reflecting sharply in terms of divestments in the fossil fuel industry. Norway’s largest pension fund, Kommunal Landspensjonskasse, or KLP, has decided to divest all of its investments in coal companies. Global insurer Allianz SE recently announced that it will divest from any company that bases more than 30 percent of its energy production on coal.

In 2015, Corporate Knights, a Toronto-based media and research company, launched its Decarbonizer tool, where any investor can see what effect a divestment in 2012 from fossil fuels would have had on a fund or index performance in 2015. The Bill & Melinda Gates Foundation, for example, would have been nearly $2 billion richer had it divested from fossil fuels.

Incidentally, the Gates Foundation has sold 85 percent of its holdings in fossil fuel companies since 2014, and recently sold its entire stake in oil giant BP.

Source: 3BL Media