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Does Big Business Care about Sustainability?

Does big business care about sustainability and social responsibility? I often ask attendees to my courses and presentations this question. In general, the response is a strong negative:

“NO big business couldn’t care less about sustainability or social responsibility!”

GPM’s experience though is the exact opposite:

YES big business aggressively cares about sustainability and social responsibility!

Quite simply because they have to.

The Transition

It is true that big businesses may not currently support all areas of sustainability and social responsibility. That is understandable though, as organizations often do not have the resources, funds or time to focus on everything. That said, regulatory and consumer demands have been changing the discussion, and most recently so have investors and shareholders.  Note: This isn’t a post about CSR or how corporations such as Nestle essentially steal water to package and sell it back for gazillions of dollars to make their shareholders rich. There are bad examples and Nestle is the captain of that ship.

My personal perception of “does big business care about sustainability” was fundamentally changed based on two experiences back in 2015.  The trends represented in these examples have rapidly become the new normal ever since.

June 2015 – Demand for Sustainable Investments

The first was the June 2015 Business as a Force for Good Event at the United Nations HQ in NYC. I attended the investment track where four major investment funds and four public companies presented and chaired a group discussion. The four public companies had recently found themselves in trouble around sustainability / social responsibility issues. If it was today it would probably include Volkswagen and BP.

What caught my attention was the message the major investment houses were saying back then. In their portfolios they wanted their investments to follow sustainable and socially responsible principles. The straightforward business reason was to protect their investment’s brand and to mitigate risks that would obviously protect and strengthen their investments. If the organizations they invested in, and their suppliers, were not sustainable they would either insist the organization improved their practices, charge them a greater interest rate or other penalties, or not invest at all in them.

December 2015 – Demand for Regulations Empowering Sustainability

The second event was the famous COP21 Caring for Climate Business Forum December 2015 at Le Bourget, France where GPM Global was invited to attend. What we witnessed at COP21 was the major multi-nationals insisting and lobbying for governments to adopt the Paris Accord. Their rationale was that at the time their shareholders were not demanding or supporting policies and practices that were needed to limit the negative impact on the multi-nationals assets and investments. They were taking a short-term immediate profit focus, not a longer-term investment focus. The major multi-nationals needed governments to force them to do what their shareholders would not. The multi-nationals had run the scenario planning and saw huge negative impacts on their assets from Co2 emissions, global warming, waste and pollution, scarcity of resources and other problems associated with not following sustainable and socially responsible practices.

The following graphic presents possible scenarios from negative sustainability outcomes that would severely threaten organizational assets and investments. This is why big business, well any organization really, should actively care and get involved:

 

 

The New Business as Usual in Big Business and Investments

Putting our personal experiences aside though, the news and trending over the past few years has seen a complete change in both business and shareholder perspectives around sustainability and social responsibility from the investment, business and shareholder space. These are not “snowflake” references. This is from big business.

January 2016 – Wall Street Journal

There was a Wall Street Journal article in January 2016 that nicely summed up the changes from Wall Street: ‘Sustainable Investing’ Goes Mainstream: Do-good investing took a step forward in 2015, with Wall Street ramping up interest. The year 2015 might well have been when sustainable investing became sustainable.

Long viewed as a niche asset class catering to wealthy individuals and institutions that wanted to avoid controversial industries such as tobacco and firearms, sustainable investing seemed to turn a corner last year.

Mainstream financial firms such as BlackRock Inc. BLK -0.32% and Goldman Sachs Group Inc. GS -0.38% jumped into the fray, launching investment products that take into account environmental, social and governance (ESG) factors.

At the same time, research from Morgan Stanley and others helped dispel concerns that investors have to sacrifice returns to do good.

 

April 2016 – Pensionable Investments in 50 Years at Risk Now

One of my favorite Harvard Business Review articles had this frightening observation:

Consider another recent scientific study with enormous ramifications for anyone living in, or investing in, coastal property. Some eminent scientists concluded that the sea level rise that they thought would occur over centuries is now likely to happen in just decades. The obvious implication is that any investment tied to physical, coastal assets could be at real risk. These time frames are not theoretical for long-term asset owners. A 20-something teacher contributing to her state pension today will expect a payout 50 years from now… around the time that huge areas of Boston, New York, Miami, and New Orleans could be unlivable.

If we stay on the current emissions path, the study predicts, the value at risk in global portfolios could range from about $2 trillion to $25 trillion.

Forget the polar bears…
your pension and retirement funds are in trouble!

 

February 2017 – US Federal Policies Will Not Impact Sustainable Investments

From the Wall Street Journal article “Trump Policies Unlikely to End Sustainable-Investing Trend – Presidential agenda poses short-term challenges, but experts say the ESG tenets are here to stay,” the following quotes show the trending threats:

“The responsible-investment movement in not a movement started by Wall Street and it’s not a social movement,” says John Streur, president and chief executive of Calvert Research and Management, a subsidiary of Eaton Vance Corp. that manages more than $10 billion in ESG investments.

“It’s a movement from large asset owners and large operating companies who have essentially said, ‘We need to do a better job with resource efficiency, environmental impact and social justice, and all those things matter to the financial results of companies.’ ”

Many institutional investors, including pension funds, take a long-term perspective on the markets, the economy and the companies they invest in, Mr. Hale says. These investors now consider issues such as how companies are dealing with climate change and their overall environmental impact, along with gender and other diversity issues, and managing their supply chain to ensure human rights and fair labor standards, he says.

There’s also evidence that more individual investors are interested in ESG investments, Mr. Hale says. Surveys of emerging investors—those who will control more capital going forward—show that there tends to be a high level of interest in sustainable investing among younger generations and women in general, he says.

And more corporations are embracing clean energy and other ESG concerns in recognition of inexorable changes.

 

January 2018 – BlackRock’s Message: Contribute to Society, or Risk Losing Our Support

The following quote comes from a letter that has been described as a watershed moment on Wall Street, that raises all sorts of questions about the very nature of capitalism:

On Tuesday, the chief executives of the world’s largest public companies will be receiving a letter from one of the most influential investors in the world. And what it says is likely to cause a firestorm in the corner offices of companies everywhere and a debate over social responsibility that stretches from Wall Street to Washington.

Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.

Mr. Fink has the clout to make this kind of demand: His firm manages more than $6 trillion in investments through 401(k) plans, exchange-traded funds and mutual funds, making it the largest investor in the world, and he has an outsize influence on whether directors are voted on and off boards.

“Society is demanding that companies, both public and private, serve a social purpose,” he wrote in a draft of the letter that was shared with me. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

The very nature of institutional investment was shaken with this notice.

 

April 2018 – ‘Firms must Acknowledge Risks to Avoid ‘Catastrophic Impact’

An article from The Guardian outlined how the Bank of England Governor warns of climate change threat to financial system:

The governor of the Bank of England has warned of the “catastrophic impact” climate change could have for the financial system unless firms do more to disclose their vulnerabilities.

Telling banks and insurers they would need to provide more information about the risks they might face from climate change, Mark Carney said failure to do so would have damaging effects for financial stability.

He said the finance industry could be forced into making rapid adjustments if they did not gradually expose where their climate change risks might lie, which he said could trigger steep losses.

The governor warned of a “climate Minsky moment”, referring to the work of the economist Hyman Minsky, whose analysis was used to show how banks overreached themselves before the 2008 financial crisis.

“Given the uncertainties around climate, not everyone will agree on the timing or scale of the adjustments required … [but] the right information allows skeptics and evangelists alike to back their convictions with their capital,” Carney said.

 

Conclusion

Business and investment journals, newspapers, periodicals have shown how big business and investors have accepted the importance of the threats, and opportunities, and are responding to mitigate and exploit, them. This is now the cost of entry and business as usual.

 

REFERENCES

Winston, A. (2015). The Data Says Climate Change Could Cost Investors Trillions. Retrieved April 17, 2016, from https://hbr.org/2016/04/the-data-says-climate-change-could-cost-investors-trillions?utm_source=twitter&utm_medium=social&utm_campaign=harvardbiz

Davidson, A. (2016). “Sustainable Investing” Goes Mainstream. Retrieved April 17, 2016, from http://www.wsj.com/articles/sustainable-investing-goes-mainstream-1452482737

“US Sustainable, Responsible and Impact Investing Trends.” 2014. http://www.ussif.org/content.asp?contentid=82.

Clark, Gordon, Andreas Feiner, and Michael Viehs (2014). “How Sustainability Can Drive Financial Outperformance.”

Robert Eccles, loannis loannou, George Serafeim (2011). “Impact of Corporate Sustainability on Organizational Processes and Performance.”

Edmans, Alex, Li, Lucius, Zhang Chengdi (2014). “Employee Satisfaction, Labor Market Flexibility, and Stock Returns around the World.”

“Power Forward 2.0: How American Companies Are Setting Clean Energy Targets and Capturing Greater Business Value.” 2014. http://www.ceres.org/resources/reports/power-forward-2.0-how-american-companies-are-setting-clean-energy-targets-and-capturing-greater-business-value/view

Bonini, Sheila, Swartz, Steven (2014). “Profits with purpose: How organizing for sustainability can benefit the bottom line”.

Lee, Darren D., Faff, Robert W. (2009). “Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective.”

Partington, Richard (2018). “Mark Carney warns of climate change threat to financial system”. The Guardian. Retrieved May 10, 2018, from https://www.theguardian.com/business/2018/apr/06/mark-carney-warns-climate-change-threat-financial-system

Eccles, Bob (2018). “The Strategic Investor Initiative’s Third CEO Investor Forum.” Forbes. https://www.forbes.com/sites/bobeccles/2018/03/11/the-strategic-investor-initiatives-third-ceo-investor-forum/#4f20f0af652d

Sorkin, Andrew Ross (2018). “BlackRock’s Message: Contribute to Society, or Risk Losing Our Support.” The New York Times. https://www.nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html

https://www.linkedin.com/pulse/sustainability-investors-really-can-make-difference-julie-gorte/?trk=hb_ntf_MEGAPHONE_ARTICLE_POST

http://www.dw.com/en/investors-rethink-portfolios-after-climate-deal/a-18916477

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Peter Milsom

Peter Milsom is an entrepreneurial advocate for sensible, sustainable change delivery practice. Peter has come to realize that sustainability is the perfect catalyst for Project / Programme / Portfolio / Risk / Value / Business Case and Benefits Management improvement. As an entrepreneurial methodologist Peter's unique value proposition is the vast array of tools and techniques that he brings to every engagement using the most cost effective and efficient methods based on the situation and tailored to meet your needs. This is based on his unique combination of experience and extensive training / certifications in change delivery, value / risk / benefits management business case, and business architecture.

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