The old corporate adage has been to take care of your shareholders — to increase share value, and everything else will fall into place. But that thinking is now evolving. Why? Because corporate owners — the shareholders — are demanding that companies focus on sustainability.
That was a key theme at the Environmental Leader’s conference in Denver last week, which made clear that large institutional investors such as pension funds wield a lot power and are able to force companies to make changes. In other words, those stakeholders want companies to disclose what they are doing to run their operations in a cleaner fashion and to benefit their communities, especially when it comes to things like carbon reductions and waste management.
“Operational excellence is synonymous with sustainability,” says Scott Lockhart, head of operational excellence and risk management at IHS, in speech before attendees. “There is pressure to disclose their non-financial metrics alongside their financial metrics.”
The evolution is occurring because activists, investors and regulators are uniting to make companies live up to higher standards. Those who espouse such shareholder activism maintain that their pursuits are adding corporate value.
Major retailers and industrials that include Walmart, General Electric and Dow Chemical are taking up the cause of sustainability. The efforts, they collectively say, are not just environmentally beneficial but also economically prosperous. GE, for example, says that its “eco-imagination” campaign is lucrative.
According to the Corporate Social Responsibility Newswire, $1 out of every $6 invested is in investment that incorporate sustainability, or a total of $6.5 trillion.
“Investors play an important role in the companies they finance and the future their investments create,” says As You Sow, in a statement. “These companies and the investment community at large can lead the way in product, technology and operational innovations — or face losses if they are unprepared for a future which will inevitably include some form of carbon restrictions.”
To be sure, not everyone agrees that institutional investors should be tossing around their weight. Critics of socially responsible investing point out that those large funds manage the retirement monies of ordinary citizens. Public pensions, for example, are allocating resources for school teachers and fire fighters, who need their professional money managers to act in their interest — and not to be concerned with making social and environmental changes.
While corporate social responsibility makes everyone feel good, there is no true scorecard to determine whether those enterprises thrive more in the market place, or on Wall Street, says Aneel Karnani, in a column he authored in the Wall Street Journal. He goes on to call such activism “potentially dangerous” given that companies are obliged to earn the highest rates of returns for shareholders. That, in turn, provides jobs and creates wealth, allowing whole communities to flourish.
It is up to the individuals who support those businesses with their dollars to effect change, he adds. That means shareholders hold sway, along with customers and voters, who elect the officials making the laws.
But its not just the external pressures that coming into play here, it’s also the corporate cultures that are evolving along with the times. General Motors, which also spoke at the conference, says that it is continuing to invest in renewable energy, mitigate its carbon emissions and to recycle and re-use waste that it would otherwise be tossed.
Mari Kay Scott told the audience that specifically GM has goals to end coal use in North America and to continue to invest in green energy, increasing its current 106 megawatts of renewable energy to 125 megawatts in the coming years. Right now, it also has 131 landfill-free sites, which it wants to increase to 150 sites. It’s cut its total waste by 40 percent and its volatile organic compounds by 10 percent.
“The leadership needs to impart action if you are not hitting the goals,” she says. “We are looking for one or two year paybacks.”
“If sustainability is done right, there is a return on investment,” adds Neil Myers. founding principal at the consulting firm Williams Creek, who also spoke at the conference.
Are these changes driven by market demand, regulatory pressures or technology improvements? All three dynamics have a role here but consumers are providing the critical mass by requiring more sustainable products and services. What’s made this market dynamic increasingly interesting, though, is that shareholders are also pushing companies to go green while some companies are responding to those calls with vigor.