Valuing sustainability: engaging data will attract smart investors

When provoked, Tim Cook can get angry. Responding to questions from shareholders at a company meeting in spring 2014, the usually smooth and placid CEO of electronics giant Apple took offence to one particular person in the room. “When we work on making our devices accessible by the blind, I don’t consider the bloody ROI,” he exclaimed.

Justin Danhof from the National Centre for Public Policy Research, an avid campaigner against action to tackle climate change, pressed Cook to explain Apple’s continued investment in renewable energy projects – a key to achieving its goal of being 100% powered by clean energy by 2020 – and whether this strategy was negatively impacting the bottom line.

Cook was categorical in his come-back. “If you want me to do things only for ROI reasons, you should get out of this stock,” he said.

Of course, the Apple boss is not the first business leader to take a hard line against rabid short-termists. Most famously, Unilever CEO Paul Polman abolished full quarterly reporting to investors as it aims to double the size of its business by 2020 while reducing its environmental footprint. It’s a decision he says has discouraged short-term speculators, taken some of the volatility out of the company’s share price and attracted investors that “feel comfortable with our longer-term growth model”.

However, Cook and Polman are part of a very small club of chief executives to have taken such a radical approach to investor relations in setting out their long-term vision. Not every company has the heft or strength of market position as these two giants of the corporate world – and getting investors to sit up and take notice of sustainability performance remains a challenge.

There is something of a ‘blame game’ going on. Investors continue to bemoan poor communication, arguing that businesses just aren’t giving them the information they need.

According to research by Principles for Responsible Investment (PRI), while most CEOs believe they are effectively explaining their sustainability strategy, just 9% of investors are happy. The rest argue that without a clear understanding of the long-term sustainable value being created by business, it’s hard to make meaningful and positive investment decisions.

In the study, the PRI points to a “a striking gap which exposes the shortcomings of many companies in effectively communicating their approach to sustainability and its links to the traditional measures of business value and success”.

Meanwhile, companies claim that the investment community just isn’t interested in non-financial performance.

According to Julian Poulter, founder and CEO of the Asset Owners Disclosure Project, it is a claim substantiated by what he sees in the market. “While the more progressive asset owners are trying to drive their managers to look beyond shorter term metrics, most managers are still really looking just at net return.”

Of course, the use of sustainability metrics – and their complementary rankings and ratings indices – enabling investors to make judgements on corporate environmental, social and governance (ESG) issues is becoming more widespread. But just how closely they are examined varies from sector to sector.

In the energy and fossil fuel extraction industries, for example, companies are still struggling to place a reasonable probability for a low carbon economy into their business models, instead relying on long-term assumptions to make their forward profits look good. “Exxon proved once and for all last year that you can’t leave these forward probabilities to the companies themselves,” adds Poulter. “We are trying to drive the investors to use carbon intensity and a range of other climate metrics for exposed companies.”

The work of the Carbon Tracker Initiative in highlighting the risk associated with fossil-fuel project economics has been groundbreaking. But there remains a disconnect between ill-informed investors and companies that are not being rewarded for their positive sustainability strategies – a gap that must be bridged.

So, what is it that investors really want and need? And how can companies make sure they get it? For Mike Tyrrell, editor of SRI-Connect, a good approach would be for businesses to produce a sustainability report, send it to the analysts and investors that are interested in the company and hold a webcast for all analysts to join.

Oh, and don’t bother sending questionnaires or surveys. “They are not used by mainstream investors, so why should SRI investors use them?” he says.

However, if you are going to bombard investors with facts, don’t forget to bring them to life and make them memorable with effective storytelling. After all, explaining the value of long-term strategies requires not only playing on the mind, but pulling on the heartstrings too, says Carolyn McMaster, who works with the Californian-based comms agency Thinkshift.

She says: “Giving sustainability a narrative that places the company’s efforts in context, highlights the people involved, illustrates qualitative as well as quantitative value, chronicles the journey, and maps that journey to goals will help companies provide the information that investors need to spend their money wisely.”

Tyrrell agrees that a personal touch is key to investor engagement and selling the value of the information that is being disclosed. “Identify which of your investors are interested – and go and see them,” he says.

A failure to communicate the links between business strategy and material sustainability challenges is stalling the advancement of effective investor relations. For Christopher Gleadle, author of Sustainable Growth Through Sustainable Business, company executives need to fundamentally change the way they report performance, focusing more on where they have got to, rather than how they have got there.

“Investors invest in results. Yet, for the mainstream of the sustainability movement, it is common for organisations to focus on how to execute process rather than how to deliver results,” he says.

Poulter agrees. “Marketing to managers and analysts is difficult and we are in a transitional phase where the products, indices and funds being offered by managers that reward sustainability are still a small portion of the market.

“This is a journey of education and companies must continue to try to educate their own investors or, as in the case of Unilever and Apple, simply refuse to pander to short term analysts and reporting requirements.”