Sustainable and responsible investing that aims to generate risk-adjusted financial returns while supporting positive environmental and/or social impact has been around for many years. However, the discussion about its significance and impact on returns is now attracting some serious attention. According to the Forum for Sustainable and Responsible Investment, sustainable, responsible and impact investing (SRI) assets have expanded 76% in two years: from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014. In response, public companies are adopting sustainability disclosure practices to increase transparency and responsibility to their investor audience.
Morgan Stanley recently held a seminar on the topic of sustainability to discuss how individuals, foundations, and fiduciaries can allocate investments in a way that both supports value-based missions and helps investors achieve their own philanthropic and financial goals. At the seminar, R. Paul Herman, CEO of HIP (Human Impact + Profit) Investor, Inc. explained that beyond the balance sheet, intangibles such as people and reputation, can be the most critical assets that create long-term value. Employees today, like many investors, can be highly motivated by a company’s mission, particularly one with a socially responsible focus. Mr. Herman used the example that people are an expense on an income statement, yet enlightened companies know that human capital is the source of innovation and productivity. Savvy investors appreciate the connection between a company focused on sustainability and social responsibility, an inspired human capital base, and company performance.
As SRI exerts more influence on investment decisions, disclosure of sustainability practices is becoming increasingly important for investor relations. When SRI is viewed as an indicator of the quality of management and even long-term performance, it becomes a significant element to the investment story.
Furthermore, a recent article from the National Investor Relations Institute revealed that requests for sustainability reports have traditionally been directed at large-cap companies, but now even smaller organizations are coming under investor scrutiny. While SRI is relevant for all sectors, companies in the health care, technology, and automotive sectors are facing increasing pressure to publish an SRI report.
Proactively discussing your company’s commitment to sustainability in investor calls, annual reports, and other marketing collateral is one clear way to reach this growing class of investors focused on both mission and returns. A recent PwC report disclosed that 73% of investors surveyed believe a company’s commitment to sustainability can reduce risk and 61% expressed dissatisfaction with current disclosure practices by U.S. companies.