Are Your Sustainability Efforts Helping or Hurting Your Business?
Investors are putting more pressure on businesses to show progress on sustainability and energy efficiency efforts. An unexpected consequence of this trend is an apparent willingness to embrace any suggested sustainability effort from investors, sometimes without understanding the full impact on their financial performance. A new study sheds light on how this is affecting these companies’ market value.
In a recent article for Greentech Media, Enel X Co-Founder, Chairman, and CEO Tim Healy analyzed the results of a recent study conducted by researchers from Harvard Business School. The study compared thousands of shareholder proposals for publicly traded companies with the Sustainability Accounting Standards Board’s guidelines on determining whether a sustainability issue is material to a specific business—the definition of which can vary widely for businesses in different industries.
Specifically, the study found that companies largely showed progress on an environmental, social, or governance (ESG) issue after a shareholder submitted a proposal on the issue. This was true whether or not the company even voted on the proposal, or whether the issue was material or immaterial to the business at hand.
The study found a decline in market valuation corresponding with shareholder proposals for ESG issues that were immaterial to the company at hand. The opposite was true for material issues, with these companies seeing market valuation increase “even several years after the proposal,” Harvard Business School researcher and co-author of the report George Serafeim wrote in a Harvard Business Review article.
How Your Business Can Stay Ahead of These Risks
How can businesses determine what kinds of sustainability will be the best fit? Fortunately, there are some resources available to start. The Sustainability Accounting Standards Board offers an online “materiality map” that business can use to diagnose the materiality of certain issues for specific industries, as well as project the potential financial impact it could have.
Healy’s Greentech Media article on the issue also focuses on the importance of a comprehensive corporate energy strategy. With a coordinated, cross-department strategy, businesses can use internal energy data to identify the right investments and efforts to make for the business, and align personnel and processes to ensure they capitalize when these opportunities arise. You can see how well your organization is equipped to make the right decisions on energy management with this interactive assessment tool.
Companies that are capable of taking action on their energy consumption are already seeing significant financial benefits. A 2014 study by the nonprofit CDP found that, among corporations on the S&P 500 Index, those that are actively preparing for the effects of climate change saw an 18% higher return on investment (ROI) than those that are not, and 67% higher ROI than companies that didn’t disclose emissions data at all.
When combined with the many other trends driving change in energy strategy—including the emergence of strict laws and regulations on greenhouse gas emissions and shifts in the market making sustainability more important to long-term branding—the ability to identify and pursue the right energy and sustainability efforts will become critical to remaining competitive.