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The Sustainability Imperative: Business and Investor Outlook The Sustainability Imperative: Business and Investor Outlook 2018 Bloomberg Sustainable Business & Finance Survey The Sustainability Imperative: Business and Investor Outlook 2018 Bloomberg Sustainable Business & Finance Survey Corporations and the financial institutions that invest in, The challenges and initiatives provide context behind lend to, and insure them, are at a critical juncture for corporate and financial sustainability practices between engagement on sustainability issues. While the the two regions, and a deeper understanding of how sustainability of a company and its financial the relationship between investors and corporations stakeholders have always been interdependent, this might look in the future. bond has reached an inflection point. Survey Criteria and Objectives From the first socially-responsible investment funds in the 1970s to 2000 when the Global Reporting Initiative The survey, completed in July 2018, included 600 launched its first sustainability reporting framework, the respondents, broken down by 400 respondents from interest of financial firms in corporate environmental, the U.S. and 200 from France, Germany, Italy, Spain, and social and Governance (ESG) factors continues to rise. the U.K. Each group was split in half, with 200 U.S. corporations, 200 U.S. investors, 100 European The growth of investor networks like the United Nations corporations, and 100 European investors.² Principles for Responsible Investment (PRI), which brings together investors with shared beliefs to promote The information gleaned from these survey groups sustainable investment practices, has only deepened provides a better understanding of how corporate adoption of sustainable business and finance. leaders and investors define sustainability, and how it is implemented in business and financial strategies. While A combination of market drivers, such as the need for varying definitions of sustainability may influence which asset owners to combat short-termism and availability of actions are taken, there is overall agreement that more data to determine material ESG factors, is driving sustainability must be forward-looking. investors to integrate ESG issues into their investment processes. Clear, consistently reported ESG information Future strategies for sustainability may be impacting gives investors the context they need to make decisions these groups today in different ways. And new about which companies best align with their investment frameworks and standards for disclosure, namely the principles and long-term goals. Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB), can facilitate The corporate-financial bond progress by providing practical structures to some of on sustainability has reached the more theoretical sustainability issues. Finally, sentiment around the shared United Nations an inflection point. Sustainable Development Goals (SDGs) helps signal Companies understand this, and typically respond to what progress has been made, and what gaps remain. investor demands for information through sustainability Ultimately, a clearer picture of actions to take now can or corporate responsibility reports. In 2011, fewer than create not only a more sustainable future, but a more 20 percent of companies in the S&P 500 published sustainable present. sustainability reports, but by 2017 that number had increased to 85 percent.¹ This rise is a clear indication A Shared Definition is Emerging that sustainability reporting is largely the norm for Sustainability has long meant different things for investable companies, but is it enough? different organizations, and this is often cited by research groups and investors as a primary reason why Do investors have the information they need to the investment practice has not become more adequately manage risk and identify sustainable widespread in financial markets. Investors continue to investment opportunities? Are companies prioritizing report that they are confused by the term and what sustainable strategies throughout their organizations? constitutes a sustainable investment.³ A new Bloomberg survey of U.S. and European investors and corporations, explored in this paper, seeks to uncover how these groups believe they are faring on their path towards a sustainable future. ¹ Governance & Accountability Institute, Inc., “Flash Report: 85% of S&P 500 Index Companies Publish Sustainability Reports in 2017,” March 20, 2018, https://www.ga-institute.com/press-releases/article/flash-report-85-of-sp-500-indexR-companies-publish-sustainability-reports-in-2017.html ² Investor respondents were director level or above with responsibilities including either analyzing performances of companies, advising on investment strategies, or managing investment portfolios. Corporate respondents all had responsibilities in either sustainability-related or environmental, social, or governance functions. ³ UBS Investment Bank, “Return on Values: Most Sustainable Investors Expect Better Performance, Bigger Impact,” UBS Investor Watch, 2018, vol. 2, https://www.ubs.com/content/dam/ubs/microsites/ubs-investor-watch/IW-09-2018/return-on-value-global-report-final.pdf © 2018 The Bureau of National Affairs, Inc. 1 The survey results, however, begin to tell a different While this notion can work in tandem with operational story. When given 10 varying phrases to characterize efficiency, it is a signpost that companies are beginning what sustainability means at their companies, both to view sustainability as a more integral part of their European and U.S. respondents chose the phrase, overall strategy to unlock business opportunities. “reducing your company’s environmental impact” more Further, investment in long-term growth strategies often than other phrases. Respondents could choose as aligns with the core principles of the PRI,⁴ and of a wider many phrases as they thought applied to their group of investors committed to using ESG factors in company’s understanding of the word, and 60 percent their investment processes. of U.S. respondents and 51 percent of European While respondents did not agree on one defining respondents chose this phrase. principle for sustainability, the fact that this definition varies from organization to organization is not a Which of these statements best describes negative trend. Respondents on average selected four what sustainability means to your company? statements to describe what sustainability means to United States, n =400 Europe, n =200 their company, indicating that companies are Reducing your company’s 60% addressing sustainability on multiple fronts and environmental impact 51% participating in a variety of initiatives to build resilience across different aspects of their businesses. Investing in long-term growth strategies 49% 42% For example, if the majority of respondents had just Developing more sustainable 46% products and services 48% selected “reducing carbon emissions” as their answer, many crucial aspects of sustainable business practices Reducing carbon emissions 44% 44% would go unaddressed. Identifying sustainability-related risks/ 41% opportunities for your company and 38% disclosing them publicly From Definition to Practice Improving the quality of life 42% in local communities 36% Defining sustainability is challenging, and is only the first step to actually becoming a more sustainable enterprise. Developing a more inclusive 36% work environment 36% So how do these various definitions of sustainability play out in practice? To understand this, respondents were Helping your customers be 35% more sustainable 37% asked to rate how sustainable they believe their Leveraging what the company 36% organizations are, and the results are largely promising. does best for future generations 34% 26% Having an active philanthropic program 22% How sustainable is your company? 2% 1% This definition reflects a number of different sustainability reporting frameworks that ask companies 13% to disclose how their organization impacts the environment. Increasingly, investors are asking how 22% environmental factors are impacting a company. In line with this definition, many companies work with their facilities and operational departments to improve the 62% physical efficiency of their businesses through better energy and water use management. These efforts are crucial to meeting global sustainability goals, but the next two top survey responses offer Very Moderately Not too Not at all Don’t know insight into how respondents may be moving together to take a more strategic approach to sustainability. In total, 84 percent of respondents believe their “Investing in long-term growth strategies” and organization is either moderately sustainable or very “developing more sustainable products and services” sustainable. Broken down, this equates to 82 percent in were the second- and third-most selected definitions the U.S. and an impressive 90 percent in Europe. For overall. These responses indicate that investors and these practices to grow, it is helpful to understand how corporations alike are placing emphasis on bringing a these organizations may be implementing sustainable sustainable mindset to strategic development within practices. their companies. ⁴ Principles for Responsible Investment, “What Are the Principles For Responsible Investment?” https://www.unpri.org/pri/what-are-the-principles-for-responsible-investment © 2018 The Bureau of National Affairs, Inc. 2 When asked to select
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