MIT/BCG: Investors Increasingly Take Into Account a Company’s Sustainability Practices
A study of more than 7,000 managers and investors around the globe conducted by MIT Sloan Management Review and The Boston Consulting Group showed investors are attracted to companies dedicated to sustainability and link sustainability performance to a company’s value, using information on a company’s sustainability efforts as a key criterion for making investment decisions. The report also showed that a growing number of investors pay more attention to an organization’s environmental, social and governance (ESG) metrics, as they have been shown to contribute to a company’s financial success over time.
“Companies have been complaining that nobody cares about sustainability,” Robert Eccles, chairman of Arabesque Partners and professor of management practice at Harvard Business School, says. “But investors care, and companies need to up their game.”
Seventy-five percent of senior executives at investment firms said a company’s good sustainability performance was “materially important when making investment decisions”. Additionally, 75% said the fact that sustainability practices lead to improved revenues and operational efficiencies was a strong reason to invest in a company.
Divesting From Companies with Poor Sustainability
Conversely, if a company had a record of poor sustainability performance, 44% of investors said they would not invest in it and another 60% of investment firm board members said they would divest from a company if it had a poor sustainability footprint.
Growing Significance
Many investors agree sustainability has grown in importance in recent years. Ninety-two percent of investors said good sustainability performance mattered more so today than just three years ago.
A main reason why a company’s sustainability performance mattered to investors was that sustainability increased the company’s potential for long-term value creation. Investors also want to avoid being linked to companies that experience corporate scandals, like Volkswagen’s diesel emission scandal, which led to investor losses of about $33 billion last October, according to the report.
Companies Need to Take Action
It seems many companies are missing out on possible investor opportunities for failing to implement sustainability practices. The survey showed that the number of companies with a sustainability strategy in place has decreased in recent years. In 2015, 60% said they had a sustainability strategy, down from 68% in 2014 and 62% in 2013.
MIT and BCG offered recommendations companies can take to ramp up sustainability practices and gain the attention of sustainability focused investors, such as incorporating sustainability strategy into the overall corporate strategy.
The GRI Standards
Today, 80% of the world’s 250 largest companies are using the Global Reporting Initiative’s Standards for sustainability reporting. They are dealing with their most important impacts responsibly, taking a structured, systematic approach to improving performance and following a 4-step process: identify – measure – manage – change.
Sustainability reporting according to the Global Reporting Initiative’s Standards helps companies identify key issues to focus on and, accordingly, improve productivity and reduce costs. Additionally, through gaining access to new markets and clients, their competitiveness improves. And these are just some of the benefits.
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This article was compiled using a study by MIT Sloan Management Review and The Boston Consulting Group. For the sake of readability, we did not use brackets or ellipses but made sure that the extra or missing words did not change the study’s meaning. If you would like to quote these written sources from the original please revert to the links below: