The Business Case for Investing In Sustainability

Ursula Woodburn
Purpose Decoded
Published in
4 min readApr 28, 2017

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In an era of heightened political volatility, with challenges such as climate change and resource scarcity, integrating sustainability into business models is no longer just a matter of compliance. It’s a question of business survival.

The catalyst to do business sustainably is now everywhere. There’s increasing proof of the critical role that transparency and purpose plays in the post-truth era and the role of the private sector in driving innovative solutions to environmental and social problems. These trends are fundamentally shifting how businesses engage with their stakeholders and consumers by encouraging corporations to rethink how they incorporate sustainability into long term business planning.

Many large financial firms, such as BlackRock Inc. and Goldman Sachs Group Inc., have recently launched investment products that account for environmental, social and governance (ESG) factors. Recent research from Morgan Stanley also suggests that investments in sustainability now meet and often outperform comparable traditional investments. And Deutsche Asset & Wealth Management’s analysis of more than 2,000 empirical studies shows a positive correlation between environmental, social and governance (ESG) criteria and corporate financial performance.

In line with a focus on private sector commitments to environmental sustainability, we’ve seen a rise of “green bonds” — or financial investments underwriting climate action projects. According to the Climate Bonds Initiative, about $81 billion of green bonds were issued last year alone. The private sector has accelerated investments in similar bonds, including Apple and the International Finance Corporation, who recently invested $325 million in a green bond fund for projects in developing markets. And this is being encouraged at the highest political levels — as reflected by the G20 discussions on the work of the Financial Stability Board’s (FSB) Task Force on Climate-related Finance Disclosure (TCFD).

Shifting Measurement
Sustainability is becoming a growing source of concern for investors, who are keen to promote behaviors and policies that address long-term risks. Divestment campaigns are shining the spotlight on investor portfolios. Shareholder activists are whipping up opposition to investor short-termism. And institutional investors are becoming activists in their own right.

The rise of sustainable investments is evident in the influence of sustainability indexes; from Dow Jones, to the new Sustainable Impact Index in the Modern Index Strategy Indices All Company World Index (ACWI).

In an investor space that is increasingly risk averse, sustainability future-proofing can enhance long-term investment values. And although the impact of divestment on share prices may be relatively small, the reputational damage can have serious financial and communications consequences. In fact, according to the Global Sustainable Investment Alliance’s most recent biennial report, assets invested in sustainable strategies rose to $22.89 trillion globally at the beginning of 2016, up 25% from the start of 2014, and accounting for 26% of all professionally managed assets globally.

Translation? Investors aren’t just examining companies’ balance sheets anymore. They’re looking for proof of investment in sustainability reports and assessments — or lack thereof. Companies such as Heineken have taken note of this and woven sustainability criteria into their annual reports.

Steps towards future-proofing your business
Taking concrete steps towards activating a sustainability program is imperative to long-term viability. Whether an organization or corporation is starting anew or refining existing programs, the UN Sustainable Development Goals provide the ideal framework for businesses and organizations to track and implement sustainable practices.

Now, corporations are increasingly seeking to communicate their business goals and achievements consistently with the SDGs — both in sustainability reports and overall company and executive communication. Organizations such as Unilever* and Ericsson* have shared their vision for how they will work to achieve the ambitious agenda by 2030 — by targeting specific goals aligned to their business and forging new partnerships.

This month, the United Nations released the SDG Commitment Report 100, the first-ever analysis to use annual reports as the sole metric to assess corporate commitments to the UN’s 17 sustainable development goals. The analysis is part of an overall push to corporations to better sync up sustainability goals with business objectives, a process that many U.S. based companies are far behind on.

Bottom line, it’s important to make an honest assessment of all risk factors, leveraging insights from employees, stakeholders and even critics to weigh in. This provides an opportunity to make a thorough analysis of any work achieved to date and how far you want to go. Committing to concrete, measurable and achievable targets is key. In the end, this is about integrating sustainability into your business strategy, as laid out here by Harmit Singh, CFO of Levi Strauss*.

By bringing all these elements together, the private sector will stand ready to face the challenges of this complex and unpredictable era, with sustainability as its cornerstone for future success.

*Weber Shandwick client.

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