Sustainability Investing Evolving, But Much More Change Needed

“I think we’re upright and we’re walking, but there’s no higher cortex functions yet,” said Gregory Unruh, sustainability editor at MIT Sloan Management Review, discussing where we stand in sustainable business evolution during a Tuesday breakout session at SB'16 San Diego.

While awareness and valuation of sustainable practices continues to grow overall, investors are demanding more data, better data, and deepening engagement with their investment prospects.

“Companies should embrace sustainability because customers will buy more, employees will work more and investors will value more,” said Paul Herman, CEO of HIP Investor. “Often there’s no technical reason sustainability can’t be implemented, it’s often psychological.”

With 84 percent of market value being intangible, sustainability practices and metrics can help capture some of this value. And new research from EY indicates that investors increasingly are coming to realize the importance of sustainability.

But there still exists a disconnect between some companies and investors who still don’t “get it.”

“Stakeholders haven’t been sophisticated enough to ask the right questions to get the right answers,” said Brendan LeBlanc, partner of Climate Change & Sustainability Services at EY. “And sustainability professionals haven’t successfully made the business case internally. But this is changing quickly for the better.”

Until the 1930s, the FCC didn’t require companies to disclose costs, but policy changed and so did industry with it. Similarly, new policies aimed at requiring social and environmental disclosure could transform how companies and investors interact in the future.

Those hoping to make the business case for sustainability must make sure they are making it to the right people.

“Maybe what’s important to the stakeholders isn’t really material. What you can do is get to know your risk people,” LeBlanc said. “You got to meet people where they are, and make the case to them.”