Redwood Reader

35. New UNEP Report Pinpoints Necessity of Environmental and Social Research to Protect Shareholder ValueThursday, June 24, 2004
UNEP
Twelve large global institutional investors today released a statement about the need for environmental and social issue awareness if large corporations are going to stay profitable in a changing world. Improvements in environmental and social areas lay the groundwork for successful businesses. Their statement backs Kofi Anan’s U.N. Global Compact, an independent evaluation of the corporate social responsibility initiative.
The summary report, titled "The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing", warns long-term investment losses if the areas of environment and social issues are not addressed in an aggressive way. The twelve represent companies managing $1.6 trillion in assets.
Speaking from the Summit UNEP Executive Director Klaus Toepfer said: "This new report is a crucial recognition from major financial institutions that the environmental and social components of sustainable development, as well as the economic considerations, should sit at the heart of investment and capital market considerations."
"The financial analysts who undertook the research believe sustainability issues impact long-term shareholder value. It is clear, however, that to protect shareholder value the response must start with action today by companies serious about our environment and that wish to contribute to thriving communities worldwide"… .
The report was produced for the UN and covered eleven sectors in eight industries and was the first time the financial impact of environmental, social and corporate considerations and criteria were evaluated through the lens of industrial portfolio and pension plan outlooks.
Some industries like oil and gas, aviation, utilities and insurance already threatened with climate change, while others have developing opportunities in awakeneing carbon markets.

“Some of the key findings include:
* Environmental, social and corporate governance issues affect long-term shareholder value. In some cases those effects may be profound.
* Financial research is hindered both due to the paucity of reporting on the part of many companies concerning environmental, social and corporate governance issues and because of insufficient disclosure of these issues in annual reports.
* Financial research is greatly aided when there are clear government positions with respect to environmental, social and corporate governance issues. In some cases analysts were not able to provide in-depth reports due to a lack of certainty regarding government policy.
"The analyst findings demonstrate clearly that consideration of environmental, social and corporate governance factors are essential to prudent investment management and, therefore, essential to the fiduciary responsibility of pension fund trustees and investment managers", said Carlos Joly, Co-Chair of the UNEP FI Asset Management Working Group, and representative of Storebrand Investments. "It is to be expected that regulators will take this into account when updating fiduciary law and that institutional investment consultants will also take notice", he said.
The release coincides with a report by stock exchanges of their support for the principles of the UN Global Compact. Georg Kell, of the UN Global Compact Office said "financial markets are awakening to the fact that environmental and social issues have important financial impacts."

Copies of the report will be available mid-day on 24 June on the web at: www.unepfi.net/stocks
Information about the UN Global Compact can be found at:
www.unglobalcompact.org
For more information, contact:
Robert Bisset
Information Officer for Europe, UNEP
rbisset@unep.fr
Web site: http://www.unep.org/
Commentary: This is an important acknowledgement of the seemingly obvious. You can run neither your markets nor your resources into the ground and expect to continue to profit. Year to year analysts’ sheets tell nothing of depleted resources or restoration timetables. Underpaid labor does not create market bases. Walking away from depleted resource sites is a commonly accepted practice. Operations injurious to others need to be addressed.
This refocusing on a bottom line shadowed by social and ecological issues is a good sign for the future. Corporations will strive to protect their interests and gain advantages. Once the competition becomes a competition of profitable sustainability we will see some exciting changes.