Viewpoint

Investors Don't Care About Sustainability …


Over the past year, we have been speaking with a wide range of business leaders as part of a study, A New Era of Sustainability, that Accenture conducted in partnership with the UN Global Compact, sponsored by U.N. Secretary-General Ban Ki-moon. In the course of taking the temperature of chief executive sentiment on corporate sustainability, we conducted 50 in-depth interviews with company bosses, backed up by an online survey of a further 766 CEOs from around the globe.

During almost every one of our interviews with CEOs, we hit what we began to call the 40-minute investor moment. For the first 40 minutes of each interview, we would discuss the progress their company had made in embedding sustainability into core business, the opportunities, the barriers to further integration, and some of the challenges they saw in shaping a competitive environment conducive to sustainable business. But with 20 minutes remaining—it happened so consistently we could have set our watches by it—each of the CEOs would turn to us and say, "Look: We'd like to do more on sustainability, but mainstream investors just don't care about it."

Their view is supported by one of the most surprising findings of our study: just 22 percent of the 766 CEOs we surveyed believe investors will be key stakeholders in driving their action on sustainability over the next five years. This figure—below consumers, governments, employees, local communities, regulators, and the media—shows the nature of the impasse and the disconnect. CEOs cite a lack of investor interest as a critical barrier to further investment, but few CEOs attempt to communicate to shareholders on sustainability as a business issue, and even fewer see investors as an important voice in shaping their activities in this area over the next five years.

Lagging Investors

This is an increasingly pressing missed opportunity, and it is at the root of the challenge CEOs face in integrating sustainability deeply and widely within their organizations. As our study showed, 93 percent of CEOs believe sustainability will be "important" or "very important" to the future success of their business, and 96 percent believe sustainability should be fully integrated in the strategy and operations of a company.

It was abundantly clear in every conversation we had that although CEOs' mindsets have shifted dramatically since the last study in 2007, they still see significant challenges in truly embedding sustainability within their businesses. In addressing the difficulties, many CEOs pointed to internal challenges of complexity or competing priorities, but others believe that the major challenges are outside their organizations— specifically, that the investor community does not currently reward companies that invest in sustainability.

There are, of course, significant differences across industries, and in certain sectors CEOs see a more value-focused and productive conversation already occurring. In the oil and gas and automotive industries, for example, where corporate value and sustainability imperatives are inextricably linked, CEOs believe that investors have a better understanding of the material impact of sustainability on business performance. Many CEOs also pointed to a rising—if still largely niche and specialized—interest among socially responsible investment funds.

While the downturn may have sharpened investors' interest in and understanding of structural risk, and some are already showing a greater willingness to factor such long-term considerations into their valuation models, it is clear from CEOs that they believe investors must raise their game in understanding and appreciating the contribution of sustainability to business value.

Communicating Regularly

How can CEOs and investors break this stalemate? Strikingly, just 48 percent of CEOs report that they currently incorporate sustainability issues into discussions with financial analysts, compared to the 81 percent who believe they have embedded these issues internally. As Edemir Pinto, CEO of Brazilian exchange BM&FBovespa, told us, "CEOs may complain that investors do not value their sustainability activities properly, but they need to tell investors what they are doing: If they don't communicate regularly, investors cannot incorporate these issues into their models."

In our view, progress will rest on three pillars: strategy, performance management, and valuation. To enable a new, more productive discussion on sustainability, CEOs will need to:

• demonstrate the role of sustainability in shaping their future strategy

• quantify the impact of sustainability on core business metrics: revenue, cost, risk and intangibles

• articulate and communicate the contribution of sustainability to value creation

To demonstrate the value of sustainability to those whose education has been "rooted within the green borders of Excel," in the words of one business leader, "CEOs need first to articulate and quantify the contribution of sustainability to their future strategy." Businesses need to look beyond the CSR-speak of glossy corporate brochures and use language that captures the real impact of sustainability on current and future cash flows, seen through the lens of revenue, cost, risk, and intangibles: the stuff of valuation.

Finding the Sweet Spot

Second, quantifying value will be crucial in unlocking the dialogue between companies and investors. Tracing the impact of sustainability activities on financial metrics, as well as tracking and reporting performance on newer, sustainability-focused indicators, can begin to shape a new conversation in which sustainability performance is routinely assessed as a natural part of gauging a company's past performance and future prospects. Only by applying the same rigor to sustainability reporting as they do to financial metrics and linking sustainability activities with business performance will companies force analysts to reward those that are finding the sweet spot where business and societal value meet.

Third, articulating and communicating the contribution of sustainability to corporate value will also mean breaking the shackles of short-term quarterly returns. Shaping this debate will require a new, collaborative approach by CEOs and investors. In quantifying and articulating those metrics they believe define the value they create, both for shareholders and for society more broadly, leading companies will raise the bar for their competitors.

Nearing a Tipping Point

What would be the impact if leading companies could break the investor deadlock? Encouragingly, 80 percent of CEOs believe that a tipping point—where sustainability is embedded within the majority of companies globally—could be possible within 10 to 15 years. However, 85 percent of CEOs believe the accurate valuation by investors of sustainability will be critical to reaching this tipping point, and it is on this condition that future progress may rest, so the stakes are high.

As sustainability begins to reshape industries and the competitive landscape, environmental, social, and governance factors will play an ever greater part in what it means to be a high-performance business. Shaping a new conversation will not be easy, and CEOs and investors alike must act now to channel investments to high-performing businesses and to ensure success on the path to competitive advantage in a new era of sustainability.


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