Valuing Corporate Responsibility. How do investors really sue Corporate Responsibility information?

Peter Truesdale


Posted in: Reviews

Valuing Corporate Responsibility. How do investors really sue Corporate Responsibility information?

September 09, 2011

Hidden away at the start of this direct, well-informed book the author has planted an anti-personnel device:

“There are a number of important limits to this book…the perspective is that of an equity investor…with a relatively long-term (i.e. 1-2 years view of the company).”

So there we have it. Forget all the long-term stuff about nurturing biodiversity, Rainforest Alliance certification or more efficient water use, the investor’s long-term is the company’s short-term.

The book contains wisdom created by a career in responsible investment.

The key insight is the unpacking of the statement: “Materiality is one of the most important concepts in investment practice.” Yet a true assessment of materiality is what is most often missing from corporate responsibility reporting.

Dr Sullivan recommends that companies “should provide a clear statement on whether any environmental or social issues are financially material or of strategic importance to the business. This statement should be forward looking and should, as appropriate, identify issues that are not material at present but may become over time.”

Sound advice and certainly to be preferred to the fruitless pursuit of salvation through a universal set of key performance indicators. As Dr Sullivan notes: “We are unlikely to see convergence around the GRI (or other) reporting guidelines over the short to medium term.” And, as Keynes pointed out: “In the long run we are all dead.”

Besides materiality the author’s main concern is data quality. While presented in a balanced way, his attack on the poor quality of data is searing.
In the light of the conclusions of the book what ought a company to do?

First, talk to a few investors. Taking time off from talking to groups who are not the owners of the business and talking to those who are is a smart move.

Second, concentrate on the things that really matter, not the shopping-list demands invented by pressure groups.
Third, ensure the data used to manage the material non-financial matters is at least as robust as the financial numbers.