Sustainability a Fad?
Monday, December 5, 2011
POSTED BY D. N. Aust / 1 COMMENTS
A book review in today’s Wall Street Journal had an “interesting” reference to corporate Sustainability efforts:
“For all the talk of a “triple bottom line”—targeting people, planet and profits—few companies, in the U.S. at least, have truly taken their eyes off their stock price and quarterly profit.”
The author’s implicit assumption is highly problematic. Of course companies are interested in making money! Far from being mutually exclusive, sustainability, when done right, can and does actually enhance shareholder value.
Both the sustainability advocate and the corporate executive should realize that their efforts need not be at odds. In fact, a management focus on shareholder value is highly consistent with our extensive research into the impact of sustainability performance. Our analysis indicates that US capital markets assign a price premium to companies that embrace certain sustainability practices. Specifically, the markets reward adherence to sustainability initiatives that offer the potential to improve cashflow or reduce risks.
Capital markets are becoming much more sophisticated about ESG/Sustainability issues and, today, they usually see through “greenwashing” and punish companies for the practice. They also appear to be skeptical of “greenmongering” efforts which push companies to adopt “feel good” programs and practices that actually increase costs without, at least, some evidence of direct or indirect corporate benefit. Bottom line, sustainability will become increasingly mainstream as companies learn to identify those practices that truly enhance shareholder value.
Although there is much still to do before ESG/Sustainability behavior is fully and universally integrated into corporate best practices, it is clear, at least to us, that the market as a whole is leading companies solidly in that direction.
A Fad? No.