The biggest conversation in most businesses right now will be around how to maintain or lift profits in depressed market.
The latest research indicates that firms which have made “true commitment to sustainability” are enjoying share prices 10 to 15 percent above those that have not.
Global business consultancy T Kearney tracked the stock price performance of 99 firms on the Dow Jones Sustainability Index and the Goldman Sachs ‘Sustain’ focus list of green companies for six months to November last year.
In 16 of 18 industries included in the review, businesses deemed “sustainability focused” outperformed industry peers over three- and six-month periods and were “well protected from value erosion”.
During the three-month period, September through November, the performance differential was 10 percent; over six months, 15 percent.
Kearney says: “Most sustainability focused companies may well emerge from the current crisis stronger than ever.”
The performance differential: an average of US$650 million in market capitalisation per company.
Kearney’s report cites the performance of global consumer packaged goods company which began sustainability efforts more than 10 years ago. It has since changed its business model to incorporate sustainability practices in every link of the value chain.
Since 1988 it has: increased production volume by 76 percent; cut greenhouse gas emissions 16 percent, water use 28 percent, and energy use three percent.
In 2007, improvements in energy
efficiency led to $30-million savings.
Says the Kearney report: “Many corporate drives to reduce waste and emissions, use renewable energy and produce goods that have less of an impact on the environment have seemingly become ‘me too’ efforts in recent years. Yet companies with history in green innovations have reaped the most benefits.
“And those that continue to make meaningful investments will continue to prosper, both in terms of business results achieved and public perception.”
In New Zealand we have already seen some of our biggest exporting businesses reap major rewards from major authentic commitment to sustainable practices: One has found 200 points of energy saving, improved production processes, cut emissions 45 percent – while adding another $10 million year to the bottom line. Concerted effort by Fonterra, for example, in energy efficiency over the past decade is now saving the firm the equivalent of the annual power bill for Hamilton.
In that conversation on how to lift profitability in depressed market, the best place to start is convincing staff to reduce their impact on the environment and make the world better place.
A conversation about simply increasing profits for shareholders won’t enthuse.
Neither will talk of employment insecurity.
The February ShapeNZ national economic survey of 2850 New Zealanders shows just four percent of business people and professionals who fear they’ll lose their jobs think they’ll have trouble finding another, compared with nine percent of the national sample of those in work.
There is overwhelming public and executive support too for long-term solutions to stimulate the economy, with extra investment in road, electricity and rail, for example, topping the list of New Zealander business decision makers’ investment preferences in the ShapeNZ survey.
When asked if rail and coastal shipping of goods should increase, 70 percent of New Zealanders say yes, including 73 percent of National party voters.
The quiet times in business are often the best times to make major changes. It’s often the only time when resources are available.
As President Obama’s chief of staff likes to say – never waste crisis.
The depressed market may be the ideal time to focus on new, sustainable, long-term directions which help keep, attract and motivate staff, save money, win new markets, enhance recruitment and brand value, provide leadership to consumers globally who expect and want this from business – and put up profits.
Peter Neilson is CEO of the New Zealand Business Council for Sustainable Development.
The latest ShapeNZ economic survey is at http://www.nzbcsd.org.nz/story.asp?StoryID=967.
The AT Kearney study source: http://atkearney.com/shared_res/pdf/Green_Winners.pdf
