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July 16, 2007

Sustainability Picks Up Where Supply and Demand Meet
    by Anne Moore Odell

Both investors and companies are working on sustainability issues as new reports by UN PRI and Goldman Sachs show ESG issues are gaining momentum. -- Sustainability is gaining momentum as more shareholders, stakeholders, and businesses are creating policies to protect the environment, empower people, and create transparent business practices. If the current drive toward sustainability is enough or too little too late is for future generations to debate, but it is for the future generations that many are working. New studies from the Principles for Responsible Investment (PRI) and Goldman Sachs point to both sides of the supply and demand chain asking for more corporate responsibility, and in many cases, getting it.

More than 200 institutional investors from around the world have signed onto the PRI, an initiative of UNEP Finance Initiative and the UN Global Compact. These large investors, which represent more than $9 trillion in assets, have agreed to incorporate environmental, social, and governance (ESG) issues into their investment policies. The first survey of these investors was recently released in Geneva, Switzerland, at the GIobal Compact's Leadership Summit, held on July 5th and 6th.

The "PRI Report on Progress 2007" notes that 88% of investment manager signatories and 82% of asset managers are involved with shareholder engagement on ESG issues. More than four-fifths of investment manager signatories have staff dedicated to ESG investment concerns.

The survey found that the Carbon Disclosure Project, a non-profit for institutional investors and businesses to dialogue about climate change, has drawn a lot of interest from investors with over half of surveyed investors asking companies for standardized ESG reporting.

"While signatories are making significant progress in implementing the Principles, we recognize that there is still a lot to be done," said Donald MacDonald, PRI Chairperson. "What is especially pleasing is that signatories are committed to increasing their responsible investment activities considerably during 2007. This year's assessment is the beginning of an ongoing annual process that will be improved over time."

Another finding reported by PRI is that 80% of asset owners have communicated their ESG issues and strategies with their beneficiaries. Sixty-three percent of respondents said that they signed the PRI to increase trust in their company.

The act of creating the PRI survey itself helped signatories reflect on progress made and helped create best practice guidelines for investors.

"The PRI has made the integration of ESG issues easier for many investors," said Jane Ambachtsheer, Head of Responsible Investment, Mercer Investment Consulting. "The PRI Report on Progress further supplements the Principles and associated possible actions with real-life examples of how signatories are implementing the Principles. While helping to develop the report we identified many interesting examples of responsible investment, many of which are possible first steps for investors new to responsible investment," Ambachtsheer added.

A new report from Goldman Sachs, an international investment bank with offices in more than 20 countries, finds that companies that have ESG policies in place have outperformed the general stock market by 25% since August 2005. Goldman Sachs further reported that 72% of the companies with ESG policies outperformed competitors.

Goldman Sachs studied companies across six sectors (beverages, food, energy, media mining, and steel) and analyzed their ESG performance, their positions in long-term industry trends, and their financial returns.

However, a third survey of chief executives that have signed onto Global Compact shows that the implementation of ESG principles into practice at companies still needs work. The survey, conducted by McKinsey & Company, was conceived of to complement the PRI survey of investment and asset managers.

The executive survey reports on a positive note that more than 90% of CEOs are doing more than they did five years ago to include ESG issues into companies' operations. Yet although 72% of CEOs said corporate responsibility should be part of daily operations, only 50% think that their companies are actually practicing it. Twenty-seven percent of CEOs think that the corporate responsibility is embedded into the global supply chain.

"Taken together, these three reports show that for an increasing number of business leaders, corporate responsibility is no longer an option, it is a necessity in order to compete successfully," said Georg Kell, Executive Director of the UN Global Compact. "At the same time, in order to fully maximize these benefits and increase their competitive advantage in the global marketplace, companies must adopt a broader and deeper approach with respect to implementation of corporate responsibility principles."

"The PRI is not just an initiative for socially responsible investors, but was designed for mainstream investors working to act in the best long-term interests of their beneficiaries," said Ambachtsheer.

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