Sustainable Business Strategies: Investors

Investors are one of the biggest, “below the radar”, drivers of sustainable business for the future, and are making slow and steady progress in sustainable and responsible investments.

The lessons for corporate sustainability champions are:

  1. While it may not seem that investors care about sustainability, their interest is steadily growing and will become very visible in a few years.
  2. The cost savings for companies from sustainability and rising expectations of limited partners are driving the interest in these investments.
  3. This trend will accelerate when the metrics for monitoring investments improve, which seems to be taking place now.  Nearly half of all shareholder resolutions typically have to do with sustainability.

Sustainable and responsible investing (SRI) accounted for one out of every nine dollars under professional management in the US, according to a recent, comprehensive study.

In 2012, $3.74 trillion in US-domiciled assets were engaged in sustainable and responsible investing practices.  $3.31 trillion of the investment managed by institutional investors, money managers, and community investment institutions had ESG criteria applied to them.  This was a healthy 30% growth over 2010.

On the investment front, 60% of private equity investors say that corporate cost savings from sustainability and rising expectations of limited partners are the biggest reasons for their increased focus on ESG issues.

A key challenge is the lack of well-defined, consistent metrics for monitoring and measuring ESG issues.  Another study shows that while US-based investors mainly focus on eco-efficiency initiatives, EU-based investors consider a wider range of ESG issues in making investment decisions.

Measuring the indirect value of ESG efforts, e.g., on customer loyalty and brand value, is one of the biggest challenges in driving sustainable investments.

ESG-related shareholder resolutions comprised $1.5 trillion in assets. In 2012, there were 110 resolutions related to sustainability, of which 44% resulted in corporate commitments.  ESG-related resolutions comprised 45% of all shareholder resolutions, which testifies to its importance for activist shareholders.