Before the advent of the Internet and global media, companies could quite easily get away with unsustainable practises, such as polluting or excessive water usage. Nowadays however, such activity is likely to be scouted out by the media or environmental NGO’s, resulting in a storm of bad press with subsequent reputational issues. It only takes a look at the consequences of the 2010 BP oil spill to understand that causing harm to nature or society will have a detrimental influence on a company’s image; which for BP had both an immediate and lasting financial impact.
With that in mind, businesses are beginning to react to the notion of the triple bottom line. This means that delivering shareholder value is no longer solely about financial performance but needs to encompass social and ecological value, to drive long-term returns. Not only will these businesses have less of a damaging impact, but strong environmental policies may also increase their attractiveness to the growing pool of investors favouring considerate business practise.
So called “sustainable or “ESG” (Environmental Social Governance) investing used to be very niche. However, As awareness and concern surrounding topical environmental issues such as climate change has heightened, the interest in shares of sustainability-focused, as well as socially-responsible companies is today more mainstream. This trend has sparked major investment houses including Goldman Sachs, BlackRock and Fidelity to have green or responsible investment funds, making it easier for environmentally-concerned individuals to hold investments in organisations better aligned with their own principles.
According to University of Oxford led research, more than 80% of studies reviewed suggest that share price performance is positively influenced by sound sustainability practises. Good news for both companies and investors. This emanates from numerous advantages of paying greater attention to environmental issues within supply chains. Companies which make the transition to having a greater focus on sustainability often have to revisit their business models, making them leaner and benefiting from possible cost-savings. As a result, a company’s financials may positively reflect such efforts. By way of example, Marks & Spencer introduced their “Plan A” sustainability scheme in 2007, and in 2011/12 the scheme brought in a £105million net benefit to the company, with improved resource efficiency as a key driver of its newfound value.
Reflecting on this, it is important that any company, no matter its size, considers its environmental impact in overall strategic planning. Change often comes from the top, so strong governance is likely to be a common characteristic of environmentally-sound businesses. Any substantive efforts should be documented and well communicated for investors, either on a dedicated Corporate Social Responsibility website section or through press releases and social media. This is key as studies indicate that announcing positive environmental news triggers positive share price movements, and vice versa. Furthermore, companies should voluntarily disclose relevant environmental information to avoid unhelpful information asymmetries, and help provide transparency in order to support the share price. Nevertheless, it should be noted that for a company’s claims to be taken seriously, all environmental initiatives must be genuine and substantive. Any attempts to “greenwash”, by not practising what is preached, may be caught out and consequently result in more harm than good.