Where, for instance, is the line to be drawn between a substantive commitment to energy efficiency and “greenwashing”?
If investors think so much about sustainability, are they ready to put their money where their mouth is? If so many agree that business should be better, what is stopping good business from becoming the new normal? And what do the people with the job titles to make it happen – chief sustainability officers, sustainability strategists — actually do?
Those are just a few of the questions that we hope to answer at the Bloomberg “Good Business” conference, on 24 November in London. With the Paris Climate talks just around the corner it’s a good time to talk about the wider impact and responsibilities of business: and how companies can do better by both people and planet.
Ever since the birth of the CSR department (Corporate Social Responsibility) businesses have sought to express their commitment to social, environmental and moral causes. What was probably at first a PR gambit has become something with the substance to affect the bottom line and investment decisions.
A recent report on Responsible Capitalism by the investment managers Hermes found that 90 per cent of institutional investors they surveyed believed fund managers should price in corporate governance risks. Saker Nusseibeh, CEO Hermes Investment Management, said: “The results are remarkable when you consider fifteen years ago ESG (environmental, social, governmental) was considered to be ‘out-of-the-box’ thinking. It is clear that ESG has become mainstream.”
Other voices agree that investors are increasingly alive to investing in sustainable businesses. In the view of Peter van der Werf, an engagement specialist at Robeco Institutional Asset Management, “sustainability has moved from a hygiene factor to a competitive edge”. According to Kevin Bourne, MD for Database Services at FTSE Russell, “pension schemes, investment managers and banks are becoming increasingly aware of the importance of factoring sustainable investment considerations into their portfolios”.
But, there’s a “but”. Nusseibeh believes money managers might be increasingly aware of environmental, social and governance factors, but they are not yet making investment decisions based on them. He blames a “siloed and short-term” investment approach and regulatory and reporting regimes that result in too much focus on short-term returns. An awareness and appreciation for better business has not yet translated into an activist approach on the part of investors, therefore.
If short-termism is still the main driver of investment, are companies themselves able to work with a longer perspective? Not according to politicians, especially Stateside. In the ongoing US Presidential race, politicians have pointed fingers at everything from activist investors to misaligned management incentives, stock buybacks and the quarterly reporting cycle.
Democratic party hopeful Hilary Clinton called in July for a full review of “quarterly capitalism”. She said: “Too many pressures in our economy today are pushing businesses toward short-termism – a focus on the next earnings report or the short-term share price rather than the sources of long term growth and lasting value.”
This is an issue which the UK has already gone some way to addressing. The 2012 Kay Review outlined a series of recommendations aimed at reducing short-term decision-making linked to excessively frequent reporting. UK regulations changed but not necessarily habits. L&G is one investor that continues to call on FTSE 350 companies to reject quarterly reporting, saying “providing the market with quarterly updates adds little value for companies that are operating in long-term business cycles”.
Good business, it is clear, has risen up the agenda in a way that was simply not the case a decade ago. From ensuring companies take sustainability seriously, to enshrining the benefits of long-termism in the boardroom, businesses are now considering things that they once dismissed. What is less clear is how the leap from good intentions to tangible actions can happen.
Anna Edwards is a news anchor at Bloomberg News.
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