ot much good has come out of the global financial meltdown but there is this:
Investors who watched Bear Stearns, General Motors and Merrill Lynch destroy billions of dollars of shareholder value presumably are ready to focus on what makes companies sustainable, or at least try to better understand risk.
But how? How are institutional or individual investors to know which companies are built to last, which are managed to serve their customers, workers and communities, and which of their boards are fulfilling their obligation to manage risk?
Those were the questions put today before a day-long conference called Sustainable Stock Exchanges, held at UN headquarters in New York and convened by the UN Global Compact (an alliance of responsible companies), the PRI (an investor group whose initials stand for the Principles for Responsible Investment) and UNCTAD (the UN agency that promotes trade and development). The focus was on global stock exchanges, and the potential they have to require public companies to disclose their environmental, social and governance (ESG) risks. But we also talked about building the business case for so-called nonfinancial analysis, and about whether companies with good environmental, social and governance practices will deliver superior shareholder returns.
I was privileged to moderate much of the discussion, and so had the opportunity to hear from stock-exchange officials, investors and regulators from Egypt, South Africa, the UK, Brazil, Turkey, Indonesia, Malaysia and New Zealand. Living and working in the U.S., it’s easy to forget that the conversation about sustainability is also unfolding in far-flung locales that don’t often get datelines on the business pages.
“My own view is that smart companies and smart stock exchanges recognize the value of ESG in driving returns,” said Jane Diplock, a New Zealander who is chair of the International Organization of Securities Commissions, known as IOSCO. “What was a whisper in the 20th century — don’t invest in guns or tobacco — has become shout — invest to protect the planet!”
ames Gifford, the executive director of PRI, described the forward-thinking corporations, investors and exchanges as an “ecosystem” in which each part contributes to the whole. “Clearly there is a huge amount of momentum among the investors and the exchanges,” he said. “The business case (for integrating environmental, social and governance risk into investing) has been well established.”
Really? I’m not persuaded that we can make the link between the financial crisis and the need for companies to be more responsible, more aligned with society and better governed. If there is a connection, it’s probably driven — or at least it should be — by a greater skepticism among investors, a willingness to dig deeper into risk and the understanding that neither size nor short-term performance tell you what you need to know about a company.
As George Kell, executive director of the Global Compact, put it: “Short-term, quarterly profit maximization is not sufficient to build long-term value.”