Sustainability And Your Company’s Stock Value
Sunday, 29 May 2011 00:00
Marc's blogs have provided many reasons for a company to go "green", including "The 8 Purely Buisness Reasons To Go Green" found on www.CCESworld.com. Well, now a pretty viable 9th one has come up. A recent published study from the University of Minnesota shows that among S&P 500 companies those that emit lower quantities of greenhouse gases (GHGs) have a higher value, based on stock price, than those that emit more carbon. Those companies that the market believes are more efficient, effective, and business savvy are indicative of their carbon emissions. And what’s more important to a CEO and the corporate suite than stock price?
Well, if this is true what aspects of sustainability have the biggest impact on stock price?
Is it the savings of fuel usage and reductions of other operational expenses? Is it new
revenue associated with products to address consumer “green” demands? Is it
confidence that a company with good environmental, social, and governance (ESG)
performance will grow, weather business storms, and have great value?
Business publications are beginning to document environment and sustainability data and posting it up for the public to see. Bloomberg now posts ESG performance data for
its customers to use to make investment decisions. This is a premium of information for
investors, as currently sustainability and ESG data are not required by the SEC.
Another area of concern to investors is risk. A company with a robust sustainability
program with an energy and fuel savings program will normally succeed in energy and
financial risk reduction. Reduced need for energy, as well as obtaining fuel from
multiple, diverse sources will reduce your risk of being short of fuel and not being able
to make or transport your product, a key risk that could depress one’s value.
What is the relationship between sustainability and business growth? If a company
begins to manufacture or re-brand some products as “green”, and is successful and
grows revenue and profit, is it because of its sustainability program or because of smart
business acumen – successfully responding to changes in the market? Perhaps both.
Therefore, there is not a clear picture on exactly how ESG initiatives impact shareholder
value, although recent studies do show this correlation. However, good business data
can provide information for strategic planning to give sustainability leaders the proof that
their initiatives are resulting in positive business successes. More research will be
needed to better pinpoint the relationship.
