October 18, 2001
Sustainability in the U.S. Sees Hurdles, Future Growth
by Mark Thomsen
Symposium discusses market hesitance and corporate attraction to embracing sustainability.
Yesterday, representatives from the private sector, academia, and government gathered at a
symposium to discuss how companies and the financial markets value sustainability, and how
companies are benefiting from their sustainability initiatives. The event was organized by
Fairleigh Dickinson University's Corporate Communication Institute and was entitled "Symposium on
Sustainability - Profiles in Leadership." It was held at the New York City offices of the
investment firm Neuberger Berman.
The invited panel, along with the moderator and
audience, grappled with the issue of how sustainability is valued in the market. Symposium
participants generally defined sustainability as a company's ability to achieve its business goals
and increase long-term shareowner value by integrating economic, environmental and social
opportunities into its business strategies.
Speakers said there is evidence that
sustainability policies can impact a company's bottom line, and that there are some investors that
specifically look at sustainability issues. Nevertheless, most financial analysts still are not
viewing sustainability criteria as important, and consequently most companies do not see
sustainability as a priority issue.
Ingrid Dyott, a Vice President at Neuberger Berman (ticker: NEU),
offered some reasons why analysts may be reluctant to consider a company's sustainability
performance as relevant to their assessments.
"Efficient market theory says sustainability
is already in the price of the stock," said Ms. Dyott. "And the long-term nature of sustainability
conflicts with analysts' concern with the short-term investment horizon."
participants agreed that analysts seem to assume that all well-managed companies are already
implementing best practices with regard to such issues as the environment, employee relations, and
community relations. The also agreed that analysts tend to be interested in these issues only as
they affect the next financial quarter.
But at the same time, it was agreed that a
company's market value is based on its future prospects. This is especially true for companies
such as pharmaceutical manufacturers, who make products that take years to develop. These
companies are trying to achieve growth year after year, but they know that selling the long-term
message to analysts can be difficult. Similarly, sustainability in terms of social and
environmental criteria is also difficult to sell to analysts.
Companies can realize
concrete benefits from implementing sustainability policies, as some of the private sector
representatives affirmed. Diane Morefield, Senior Vice President of Investor Relations at Equity Office Properties Trust (EOP),
explained that her company's thorough analysis of energy use in its buildings enabled the company
to realize more savings than expected. For example, a simple innovation of having cleaning crews
work in teams on the same floor, instead of being dispersed in the building, cut after-hours energy
use from four hours to one and a half hours.
Dr. Andrew King, Assistant Professor of
Management and Operations Management at New York University's Stern School of Business, said that
the positive results of sustainability initiatives often exceed company expectations. He
attributes these better-than-expected results to what he called "innovation benefits." By taking a
hard look at their sustainability-related business practices, companies often find innovations that
lead to savings or benefits that were previously unknown or not thought possible.
Representatives of DuPont and
Novartis both talked about how a
commitment to sustainability facilitated the trust of society in the company's business practices.
Ann Gualtieri, DuPont's Vice President of Investor Relations, called it DuPont's "freedom to
operate," and Novartis's Executive Director of Health, Safety and Environment Jim Thomas called it
"freedom to innovate."
Sustainability is a growing concern of various stakeholders in
corporate operations, including consumers, nonprofit groups, and the government. Representatives
from the U.S. Environmental Protection Agency discussed how their Energy Star program was helping
some companies see the value in embracing sustainable practices, resulting in a win for the company
and a win for the public good.
Dr. Michael Goodman, Director of the Corporate Communication Institute and moderator of the
symposium, said that the involvement of various stakeholders necessitated that companies view
sustainability as intertwined with corporate communications. He noted that Credit Suisse,
Switzerland's second largest banking organization, has incorporated its sustainability operations
within its public relations department.
When asked about how the events of September 11th
would change perspectives on sustainability, most panelists said that companies need to look at the
root causes of why the attacks happened. And further, companies not only had an interest, but a
role in promoting socio-political stability over the long term. That role would not be unilateral,
however; it would involve working with other companies, governments and international organizations
on a cooperative basis.
While the value of sustainability may continue to be lost in the
markets for the near future, the panelists agreed that U.S. corporate interest in sustainability is
not a flash in the pan. It will continue to grow, and that is good news for social investors.