Despite Regulatory Uncertainty, Investors Intensify Push for Corporate Sustainability Data
How the investment community views enterprise energy strategy will have a significant impact on businesses facing a potential shift in US energy policy and regulations.
The incoming administration of President-elect Donald Trump has suggested it will take a sharp turn away from President Obama’s efforts to reduce greenhouse gas emissions, causing uncertainty regarding the factors that have made energy strategy a top priority among businesses in recent years. For example, recent reports showed that the Securities and Exchange Commission has been increasing pressure on businesses to account for their exposure to climate change-related regulations. If the new administration relieves that kind of regulatory pressure on businesses, will investors follow suit?
However, rather than adjusting their priorities in the face of this transition, investors appear to be doubling down on the financial value of corporate sustainability.
Earlier this month, a New York Times article pointed to “socially responsible investing” as a reflection of business trends that are likely to continue unabated. While the US commitment to the Paris Agreement to limit the effects of climate change remains up in the air, the report says that the business trends that created such ubiquitous international support for the agreement are likely here to stay. Specifically, the decline in renewable energy prices and innovations in battery storage are examples of market trends that have helped businesses embrace the efforts to reduce emissions, according to the report. The increasingly favorable economics of renewable energy will also help businesses meet the expectations of an increasingly environmentally minded market, as the number of consumers willing to pay more for products and services from companies demonstrating a commitment to sustainability continues to grow.
Check out this infographic to learn more about the "perfect storm" of trends transforming the energy world
Even if the federal government does reverse course on its efforts to demand more transparency into the energy and sustainability strategies of large businesses, it’s entirely possible that investors could fill the void.
"If investors can't count on regulators to enforce transparency on sustainability, says Sonia Kowal, the president of Zevin Asset Management, they may take matters into their own hands," the New York Times article reads.
In fact, investors worldwide are preparing to do exactly that. GreenBiz reported last week that “as many as 21 stock exchanges across the world could introduce sustainability reporting standards in the coming months.” Currently, just 17 stock exchanges “recommend” reporting data on environmental, social, and governance (ESG) efforts, according to the report. And the emerging reporting standards will be based on the Sustainability Stock Exchanges platform, an initiative that currently includes more than 30,000 companies over 60 exchanges, and which will provide “model guidance to participating companies,” GreenBiz reported.
With more sustainability reporting tools and guidance available to businesses, investors will come to expect access to the data. Of course, this means businesses will need to establish an effective method for reporting accurate data reflecting their sustainability efforts. But just as important is ensuring that the data actually drives value for your business. Sustainability means different things for different organizations, and pursuing efforts that are not material to your business could actually have a negative impact over the long term. If your organization's energy consumption is a significant value driver, for example, investors will want to see what you're doing to capitalize on it.
What businesses need is a comprehensive strategy to enable them to identify their most valuable energy opportunities, ensure they are capable of capitalizing on them, and equip them to provide accurate data reflecting their efforts. As investors continue to push for this kind of performance data, the ability to show real progress in energy management will become a competitive advantage.