Sustainable
FinanceFinance sees evolution towards Sustainability: implications for companies
Sustainability is a key factor in global financial markets: It is relevant for investors as it affects to corporate financial performance. On the one hand, sustainability-issues can lead to massive losses (e.g. US-superfund-legislation), on the other hand it fosters innovation (e.g. fuel cell). Though, the importance of sustainability is still not widely recognized by financial players.
Therefore describing sustainability as well established in financial markets is too early today. Nevertheless, an acceler-ating evolution is already observable especially in Europe: The markets are aroused. Traditional financial players appear in the market and start to mainstream sustainability. The Dow Jones Sustainability Group Index (DJSGI) is both an important exponent and catalyst of the development. The Kyoto-protocol with its flexible mechanisms (e.g. emission-trading) is another essential driver.
Based on the assumption that sustainability is a long term trend, the following table (1) outlines a scenario of possible future financial markets. Already today, this future is tangible for certain issues:
| Focus | From the past... ...to the future | |
| Financial Markets | Sustainability is of marginal importance | Sustainability is widely acknowledged as a key factor |
| Financial Analysts | Only financial con-siderations | Ecological, social and economic performance are integrated into financial analysis |
| Investors | Neither do investors take sustainability-related issues into consideration nor do they remunerate cor-porate sustainability | Investors both remunerate corporate sustainability and set incentives for continuous sustainability-improvement. |
| Benchmarks | The Dow Jones Indus-trial Average is the dominant benchmark | The DJSGI is an important mainstream benchmark |
| Sustainability and Business | Environmental issues are purely regarded as cost-intensive | Environmental and sustainability-performance enhance shareholder value and lead to competitive edge |
Table 1: Sustainability and Financial Markets: Past and Future
This scenario implicates both opportunities and threats. To become future market leader and to shape future market condi-tions, companies should act in a proactive way already today.
Opportunities to consider:
- Positive correlation between Shareholder Value and corporate Sustainability Performance has been proved: Sustainability-aspects are incorporated in the value drivers (e.g. corpo-rate governance).
- Financial institutions are increasingly interested in sustainability: Consideration of ecological and social as-pects improve their own portfolio�s risk-/return-ratio.
- The present stage of the evolution towards sustainability allow both financial institutions and companies to position themselves early in an emerging market.
- DJSGI-inclusion leads to reputational benefits and reduced capital costs.
Threats to consider:
- The extent of ecological and social problems increasingly results in economic shortages (water, biodiversity etc): Overcoming these shortages will become a critical factor for business-success.
- International treaties, national legislation, public opinion and other forces ("global governance") put companies under growing pressure.
- Ignoring the importance of sustainability in financial mar-kets may result in missed beneficial effects. Rather should entrepreneurs act in a proactive way to augment their ability to realize business potentials. Mention should be made of the fact that whether or not sustainability will be the business approach of the future depends on the political will expressed by the driving forces of global governance. In this context seems to be reason to be optimistic: As sustainability is increasingly regarded as a societal imperative, political agendas react. It will become difficult for both financial institutions and companies to evade the challenge of sustainability. Thus, companies should analyse possible impacts of this evolution to develop answers to the question: What, if sustainability turns from a "nice to have" in a "must" in finance?
Literature
Nachhaltigkeit,
Globalisierung und Finanzm�rkte
by Professor E.U. von Weizsaecker, 2001 (in German only)
Whether or
not sustainability will be the key concept of the future world economy
increasingly depends on the behaviour of financial markets, Professor
E.U. von Weizsaecker says in this recent paper. Once they have realized
that today's economies are unsustainable they could act as a catalyst
for sustainable development. Signals for such change already exist in
the financial markets.
Visit von
Weizsaeckers website or 
the paper.
Sustainable
Finance
by Niki Rosinski, diploma thesis, 2001 (in German only)
Greening
the Financial Sector
by F. Hinterberger, D. Bannasch, K. Schlegelmilch, H. Stiller, T. Orbach,
A. M�ndl
Background Paper, CDG International Business Forum, 1998.
Academia
Chair of
Corporate Sustainability Management, University
of Lueneburg
Competence centre for sustainable finance. Publications.
Resource Centres
Business
for Social Responsibility
http://www.bsr.org
BSR�s mission is to help companies be commercially successful in ways that demonstrate respect for ethical values, people, communities and the environment
Dow Jones
Sustainability Group Index (DJSGI)
http://www.sustainability-index.com
More information on the world's first index to track the performance of sustainability-driven companies world-wide.
Eco-Reporter
(in German only)
http://www.ecoreporter.de
Site for profitable investment in ethics and ecology. Interesting Newsletter on sustainable investment issues.
Global
Reporting Initiative
http://www.globalreporting.org
The Global Reporting Initiative (GRI) promotes international harmonization in the reporting of relevant and credible corporate environmental, social and economic performance information to enhance responsible decision-making. The GRI pursues this mission through a multi-stakeholder process of open dialogue and collaboration in the design and implementation of widely applicable sustainability reporting guidelines.
OEKOM
Research (in German only)
http://www.oekom.de
Corporate responsibility rating, research, sector analysis etc.
SAM Sustainability
Group
http://www.sam-group.com
Sustainable Asset Management (SAM) is an independent asset management company. SAM manages institutional and private mandates in line with sustainability criteria. SAM offers sustainability-driven investment vehicles such as the Sustainable Performance Group and various mutual funds. And together with Dow Jones & Company, SAM launched the world's first index to track the performance of sustainability-driven companies world-wide.
SustainAbility
http://www.sustainability.co.uk/
SustainAbility is an internationally established strategic management consultancy dedicated to promoting the business case for sustainable development. The three main areas of operation are foresight, agenda-setting and change management.
World
Resources Institute (WRI)
http://www.wri.org/capmarkets/
Among others you will find WRI publications aimed at improving the management of environmental issues by the private sector.
Link Lists
SustainableBusiness.com
http://www.sustainablebusiness.com/links/
Publications, events and links on sustainable business.
UNEP Financial
Institutions Initiative
http://www.unep.ch/
This Initiative of the United Nations Environmental Programme (UNEP) aims at promoting the integration of environmental and sustainability considerations into the business choices of the financial sector. In addition, this site offers a comprehensive link list.
Magazines
Greener
Management International
http://www.greenleaf-publishing.com/
Greener Management International is a leading quarterly management journal drawing together strategic environmental and sustainability issues as they affect organisations world-wide.
Sustainable
Business Investor
http://www.sbi-e.com
In co-operation with Euromoney and Dow Jones Sustainability Group Indexes SAM publishes a magazine on Sustainability Investments.
Tomorrow
Magazine
http://www.tomorrow-web.com/
Tomorrow is an independent magazine focusing on the integral relationship between business and the environment. It is dedicated to providing up-to-date, objective information on environmental business issues that affect all major industries.
Contact
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