Welcome to the new world of fiscal responsibility
Accountants, investors, stock exchanges, lenders, insurers…. hardly the usual standard-bearers of the green revolution, are they?
Welcome to the new world of responsible finance – a world where business risk and opportunity are being reframed in social and environmental terms.
And it’s not just in a fit of remorse at their role in the ongoing global financial crisis that these groups are developing a social conscience. It’s because they’re the ones that run the numbers on their client companies, and the numbers say that those with better social and environmental performance are not only safer but also higher-yielding bets.
It was way back in 1990 that I saw the first analysis. Someone had looked at America’s best and biggest publicly listed companies – the Fortune 500 – and thought it would be fun to work out what it was that distinguished those at the top from those at the bottom of the list. What fascinated me – I was working in pollution prevention at the time – was the finding that those at the bottom were not only more likely to be polluters, they were also more likely to have extremely bad staff relations, very poor customer relations, problem with the tax department, problems with their lenders and insurers and more... all of which contributed to their poor financial performance.
What does this mean? It means that companies that are bad at environmental management are bad at managing everything, so it’s not surprising that they’re less profitable than their industry peers.
It’s for this reason that the Johannesburg Stock Exchange was the first in the world to require its listed companies to publish an integrated report – one financial, social and environmental report – or explain why they are not doing so, starting on 1 June 2010. Not only does this tell you about a company’s likely profitability, it’s also prudent risk management. Jens Mueller, Associate Professor at the Waikato Management School’s Centre for Corporate and Executive Education, says that ‘if we only report financial data in the conventional sense, we intentionally or by accident, omit the reporting of factors that may have a significant influence on the business’.
Over recent years more and more evidence is emerging to show that companies that are good performers in any one area tend to be all-round good performers – and that sadly, the opposite is also true. Clearly, this is about overall good company management. But in a world full of strident advice about how to be a better manager, it’s not easy to work out how turn around your company’s management: the annals of history are littered with examples of failed change initiatives that did more harm than good.
The good news is that more and more evidence shows that improving a company’s environmental performance improves its overall performance: getting good at environmental management seems to build the company’s management capacity overall.
As the word gets out, we’re reaching a turning point where environmentally and socially responsible business, once seen as a fringe activity and not very profitable at that, is leading mainstream business towards a model that is better for people, places – and profits.