Focus on the long term and ride out the economic crisis, writes Megan DeYoung
How come mainstream investors head for the hills when you mention socially responsible investing (SRI)? At the ‘Financial Times Sustainable Business, Responsible Investing’ conference in New York City on March 2, I looked around at the 200 or so attendees and only saw the usual suspects. People from socially responsible funds and SRI-focused nongovernmental organisations were out in full force. However, multinational corporations had only a smattering of attendees and mainstream investors were almost nowhere to be found.
I was not the only one who noticed the absence of mainstream investors. One woman whose organisation works closely with multinational companies had a mandate from her members to engage with mainstream investors. She was asking one of the conference panels for advice on how to lure such investors to the table. Well, that’s the million – maybe billion – dollar question, isn’t it?
Materiality
Part of the answer lies in the concept of materiality. If something isn’t viewed as material, then it isn’t viewed as important. So if we want to get mainstream investors to the table we need to focus on what matters to the markets. This is easier said that done; when markets are crashing. But then maybe, this is the best time to bring front and centre the question of what really matters to long term sustainable success. Clearly many aspects of current financial structures are not working, and this financial crisis is helping to illustrate first-hand that a myopic focus on short-term earnings must become a thing of the past. I’m not saying mainstream investors should disregard earnings, just that this quarter’s earnings should not be the only decision criteria.
If you asked a traditional shareholder whether a company’s ability to identify risks, opportunities, operational efficiency, and leadership position are important factors to consider when making an investment decision, I bet you’d hear a resounding “yes”. So why do investors tune out when we connect these indicators with corporate responsibility and sustainability? Clearly we aren’t effectively making the arguments about what’s material to business success.
Language
Part of the answer to that might lie in the language we use. What if the conference had been called ‘How to ride out the recession by focusing on long-run quality earnings’? Would the mix of attendees been different?
What we talk about and how applies to companies themselves. On the earnings calls, are CEOs hammering points about forward looking issues and integration into the business? How many companies are talking about the opportunities? Too often we stress that corporate responsibility can prevent potential risks. However, potential risks don’t lead mainstream investors to pay attention unless a potential risk turns into a crisis. Instead, let’s talk drivers of innovation, then I bet investors will start listening and even asking questions.
Results
Another part of the answer is showing that responsible and sustainable business strategies pay off. Dow Jones launched its Sustainability Indexes in 1999 to track the performance of companies leading in sustainability activities and operations. The Financial Times, with the London Stock Exchange, runs the global index provider, FTSE, whose FTSE4Good Index began in 2001. Now Standard & Poor (S&P) has just launched the US Carbon Efficient Index to track 350 companies that are viewed as carbon efficient.
Dow Jones, FTSE and S&P are credible organisations that investors and companies closely follow. Mainstream investors have the tools to evaluate a company’s performance in the round rather than a narrow evaluation. Let’s take advantage of the economic crisis to make the case to mainstream investors and the market based on the hard evidence from indexes like FTSE4Good that being responsible is no barrier to earnings. Otherwise I fear we will be doomed to continue making incremental steps, talking only to the usual suspects. Now is the time for us to show how we truly create business value.
MINI BIOG
Megan DeYoung is a senior consultant working in Corporate Citizenship’s New York office.
She has 10 years of corporate responsibility experience with both the private and nonprofit sectors.
Prior to joining CC, Megan worked for PricewaterhouseCoopers where she assisted clients on sustainability, risk management, and ethics projects with clients in the consumer products, financial services, and energy sectors. Megan also worked for Population Services International (PSI), where she developed a program for companies interested in providing HIV education to their employees and worked with PSI’s African offices to provide health products and services to underserved markets.
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