According to the Global Sustainable Investment Alliance’s Global Sustainable Investment Review, at the start of 2016, global sustainable investment reached $22.89 trillion, compared with $18.28 trillion in 2014, an increase of 25 percent. Driven by trends like population growth, availability of investment dollars in developing nations, an appreciation for the limited availability of natural resources, and more interest in social responsibility through corporate stewardship, global sustainable investing is on the rise. Sustainable investments include a variety of businesses such as:
- Companies that meet specific environmental, social, governance (ESG) criteria
- Companies whose businesses address some environmental challenge (clean energy, clean water, reduced carbon footprint, etc.)
- Investments targeting under served regions and communities
For companies that wish to pursue sustainable investment dollars, ESG data and reporting are essential. Companies must also effectively prioritize and track sustainability initiatives, which can be tricky when working across regional offices, tens of thousands of employees, disparate data systems and distinct regulatory environments.
The Challenge
Burdened with the arduous task of completing surveys and reporting, sustainability professionals often have little bandwidth remaining to pursue more strategic work and new initiatives. In some cases, the tactical methods for reducing waste, conserving energy, or managing water use are best understood on the operations floor, among employees who are not involved with sustainability planning. In other situations, enormous companies find tracking environmental impacts across multiple geographies and locations extremely taxing, if not impossible. Many find goal-setting difficult, and - with no frame of reference - propose overly aggressive targets that are not realistic in the given time frame. To make matters more complex, every company and every situation is different, making it difficult to implement a simple series of ‘best practices’ that will lead to success.
A Quantitative Approach
Whether you’re attempting to deploy more efficient reporting solutions or implementing niche programs to attract thematic investors, this 3-step process can support the smart and successful implementation of realistic sustainability programs.
Step 1: Assess the portfolio
Start by taking a closer look at your company’s current sustainability programs, future sustainability objectives and overall business objectives. What do you want to accomplish and what, if any, processes or resources are currently in place to support these efforts? Are sustainability goals tightly aligned with overall business objectives to ensure longevity and continual support? You may start with a very specific objective in mind such as enhancing your current reporting capabilities. Or you may envision more aspirational goals like achieving environmental results that will attract thematic investors. Regardless, it is helpful to benchmark against competitors to understand how you compare with your peers and where you excel. It’s important to begin by considering the entire universe of potential solutions.
Step 2: Prioritize
The prioritization phase involves digging into the realm of possibilities and - through the use of solution modeling - evaluating the costs associated with each outcome and the likely performance outcomes. This quantitative modeling is also accompanied by a qualitative assessment, which considers things like what kind of information and claims could be put out in the marketplace as a result of the program. Programs should be ranked by business value, impact abatement, and ease of implementation for easy prioritization. This prioritization directs efforts and resources to the most promising initiatives to optimize opportunities for success.
Step 3: Validate
In the validation phase, you should build out scorecards to assess current performance, establish targets and validate those targets. Outline detailed, line-by-line initiative activities, determining which are in progress and which must be put in place. A pass/fail scorecard is useful for gaining a visual understanding of the likelihood of accomplishing the initiative in the given time frame.
This methodical approach to prioritizing and executing sustainability initiatives is proven to ensure outcomes that better match projections. It also helps companies prioritize their initiatives, saving money and resources on failed programs that are not a good fit for the organization. In addition, this approach is also likely to deliver ancillary benefits such as increased compliance and insight into potential challenges or inefficiencies across the business. Best of all, companies can get ahead of the curve with ESG reporting and sustainable practices that are likely to become requirements over time. Take the smart approach and meet sustainability targets in this new age of sustainable investing.