New research among 3,000 respondents across 100 countries has found that “nearly half of investors say that they wonâ€™t invest in a company with a record of poor sustainability performance.” Which means, if you’re looking to raise investment capital, raising your sustainabilityÂ performance first is key.
The research, conducted jointly by the Boston Consulting Group and MIT Sloan Management Review, found:
Managersâ€™ perceptions of investors are out of date: Seventy-five percent of senior executives in investment firms agree that a companyâ€™s good sustainability performance is materially important when making investment decisions. However, only 60% of managers in publicly traded companies believe that good sustainability performance is materially important to investorsâ€™ investment decisions.
Investors believe that sustainability creates tangible value: Seventy-five percent cite improved revenue performance and operational efficiency from sustainability as strong reasons to invest. More than 60% believe that solid sustainability performance reduces a companyâ€™s risks. Nearly the same number also strongly believe that it lowers a companyâ€™s cost of capital.
Investors are prepared to divest: Nearly half of investors say that they wonâ€™t invest in a company with a record of poor sustainability performance. Some 60% of investment firm board members say they are willing to divest from companies with a poor sustainability footprint.
Although a sustainability strategy is considered important, few companies have developed one: nearly 90% of respondents say that a sustainability strategy is essential to remaining competitive. However, only 60% of corporations have such a strategy. Although a clear business case is central to the strategy, only 25% of respondents say that their companies have developed one. Business model changes are also central. Organizations that have made a sustainability-related change to their business model are twice as likely to report profit from sustainability than companies that havenâ€™t.
The message is clear: investors make decisions based not only on the financial strength of businesses but also on sustainability performance because they recognise that it can add value by reducing costs, boosting profits and avoiding risk.
Understanding and then improving sustainability performance
If you’re thinking about raising fresh investment, whether that be debt or equity finance, it makes sense to first understand your current level of sustainability performance and to think about how you can improve it given its growing importance to investors.
Here at Remsol, weâ€™ve developed a unique maturity model that we use to evaluate sustainability and resilience performance across up to 30 separate measures, codifying that performance as either Beginning, Improving, Succeeding or Leading.
Weâ€™ve constructed it under the over-arching ESG themes of environment, social and governance performance, under which we then assess things such as energy management, water consumption, waste and recycling and many more linked to sustainability.
The output is a comprehensive report thatâ€™s packed with intelligence, actionable insights and recommendations on how to improve performance iteratively from where you start to where you could eventually get to.
It is a valuable strategic tool that can be used to identify ESG gaps that can materially impact on financial performance and, revisited annually, can also be used to measure progress.
Because of the way the evaluation works â€“ you start by completing a detailed online questionnaire, which we then follow-up with one or more telephone interviews and site visits to validate what youâ€™ve told us and to test our assumptions â€“ the report findings are particularly robust: this is no desk-top exercise. The report is also structured in a way that means it can be easily integrated into your annual financial reports and made available to potential investors in a way that will help them interpret what it all means to them.
Linking sustainability to financial performance with the right language
Investor-friendly language is a comparative language. ESG and sustainability is only relevant if it can be compared to a competitor, past performance, or new market development.
In March 2010, the United Nations Environment Programme (UNEP) and the World Business Council for Sustainable Development published the results of a study that attempted to better understand how ESG factors can be translated into sustainable business value. Their report identified a number of â€˜investor wantsâ€™ which include:
Companies should provide data on how ESG factors influence their operations and commercial performance;
Companies should provide a clear link between ESG factors and financial materiality in annual reports;
Companies should show ESG as a means to reduce volatility;
Companies need to report more on the social inequities in the workplace, and inequities and lack of transparency in employee remuneration.
The recommendations for businesses are unequivocal: draw clear links between ESG factors, sustainability, financial performance and strategy.
Work in an industry under intense scrutiny? Then strong ESG and sustainability performance is even more important to would-be investors
If you work in an industry under intense scrutiny, like nuclear power, shale gas or waste management for example, then investors will appreciate your strong ESG and sustainability performance all the more.
It will help to demonstrate that you enjoy:
An “informalâ€ or â€œsocialâ€ license to operate within communities, legal systems and governments that otherwise might be antagonistic
Reduced costs and enhanced efficiency and productivity
Improved working conditions, which can reduce turnover and improve quality and reliability
Improved efficiency and profitability as a result of increased environmental responsibility
Protection of corporate brand and values, and enhanced consumer confidence and loyalty
The bottom line: investors are interested in protecting their capital by reducing risks, and increasingly recognise that businesses with a proven track-record of strong ESG and sustainability performance present a safer bet than those that don’t.
Need help and advice on practical sustainability strategies that work? Want to evaluate your performance using our unique maturity model? Then get in touch today – [email protected] And if you found this article useful, please share it!