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12 October 2007
Green investors: Climate change must feature in trading statements
Source: www.ft.com
By Sarah Murray
fredag okt 12 2007 01:05
Late last month, a powerful group of investors and advocacy groups filed a petition with the US Securities and Exchange Commission asking the SEC to require publicly-traded companies to assess and disclose their financial risks from climate change in their formal reporting statements.
The initiative is among many in which companies are trying to persuade investors to recognise the importance of their sustainability strategies.
Among the 22 petitioners - which include Environmental Defense, a US non-governmental organisation, and Ceres, a coalition of investors and environmentalists - are a group of major US and European institutional investors that collectively manage more than $1,500bn in assets.
"There''s a place where investors go for their information to understand the financial viability of companies, and that information should be as robust as possible," says Mindy Lubber, president of Ceres.
"We shouldn''t exclude something because it has an environmental stripe when in fact it is now more of an economic issue than an environmental issue."
Other ventures to promote the kind of corporate disclosure on sustainability that investors will take note of include the voluntary Global Reporting Initiative and the Carbon Disclosure Project, which represents leading institutional investors that collectively control about $41-trillion in assets, uses corporate data to report on the risks and opportunities presented by climate change to the business community. The CPD launched its fifth report late last month.
The Enhanced Analytics Initiative, which was launched by a group of European institutional investors in 2004, to encourage sell-side analysts to focus on extra-financial and intangible indicators.
EAI members, including BNP Paribas, USS, Investec and Hermes, commit to spend 5 per cent of their brokerage fees with firms that focus on these indicators.
"When communicating sustainability issues to investors it should be an inside-out process," says Chris North of FHD, the design agency of Fishburn Hedges group, which advises companies on sustainability reporting. "Companies need to embed sustainable values and practices throughout their staff and operations. When it is part of their fabric and DNA, then communicating sustainable values, operations and performance becomes integral in all reporting." However, this is not easy, and there still appear to be some big communication gaps when it comes to linking sustainability reporting and communicating with investors.
Often, these gaps start internally. "There is the silo challenge," says Peter Zollinger, senior vice-president at SustainAbility, a consultancy whose work includes brokering relations between internal corporate groups as well as between investors and companies.
Mr Zollinger says one of the reasons companies have trouble convincing investors of the merits of their sustainability strategies is that their sustainability staff are not communicating effectively with the investor relations department.
Part of the problem is that sustainability professionals often come into the corporate world from the non-profit sector or with backgrounds in areas such as environmental management or development economics but no grasp of finance.
"Very few companies have integrated the work of their sustainability teams and their investor relations teams," Mr Zollinger explains. "Most of the people we speak to say they don''t understand each other - and that''s part of the reason why internally that hasn''t been progressed quicker."
Often, the sustainability team will present their colleagues in investor relations with a barrage of initiatives, many of which are not of interest to investors. Mr Zollinger advises these teams to focus only on the two or three sustainability initiatives that are relevant to the bottom line.
The language problem also exists between companies and their investors. Take the word "integrity". While this is now part of the ethics and sustainability community''s lexicon, for the oil and energy sector, this word refers to the robustness of infrastructure such as oil pipelines.
"It''s as simple as changing the language," says Mr Zollinger. "If you take energy companies, they talk about legacy assets and where they can drill oil. And they''ll say it''s not sufficient just to have the technical skills, you also have to have the skills to manage a politically sensitive environment. So there you have sustainability - but they would never use that term."
Matthew Kiernan, chief executive of Innovest Strategic Value Advisors, points out that companies often have to work harder to convince investors of the value of their sustainability strategies because investors are making demands of those strategies that would not be applied to other parts of a company''s business.
"One of the things that''s plagued this whole dialogue is the quixotic search for absolutes," he says. "[Investors] are saying it has to work 100 per cent of the time. But in investing, if you have a 50 per cent batting average you''re doing pretty well."
Mr Kiernan also highlights the language problem. "There''s a communications divide," he says. "Companies are saying they''re busting their guts to tell their sustainability story and investors aren''t paying attention. Meanwhile, the investors are saying: ''Don''t talk to me in tonnes of CO2, talk to me about earnings per share''."
It is for this reason that Ms Lubber believes sustainability reporting should be mandatory. "Things like the financial implications of climate change are not environmental issues, and they''re not social and ethical issues. They are as much financial bottom line issues as dozens of other things that financial analysts look at," she says. "And in the end if the risk is material, it should be part of companies'' normal financial filing."
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