Download slides and text of the presentation I gave to the Melbourne Financial Services Symposium March 6th 2007 on sustainable investment.
The audience was composed of analysts and executives from superfunds, asset consultants, fund managers, banks, insurance companies and consultants.
The main idea that I wanted to convey to this audience was this: The impact of sustainability factors–environmental, social and governance–on corporate performance is usually assessed through checklists, called ‘screens’. For example, does a company’s use of energy and water, and its production of waste and emissions, meet the targets it has set for itself? But this information is, in my view, largely hand-waving: it has more to do with reputation and branding than actual performance. In particular, it doesn’t yield anything like the rigorous data that investment and risk analysts require of everything else they look at in valuing a company.
I’ve argued that there are many more sustainability factors influencing a business than is usually assumed. Moreover, they have a big impact on valuation: running the numbers yields variances to the usual valuations of up to 50%, or more. This kind of quantitative work is difficult: it’s multi-disciplinary, and deals with large, complex, highly volatile systems. But I’ve argued we can’t walk away from it. And we do have the tools we need, if we’re prepared to cross boundaries and open ourselves to learning about things we never thought we’d have to know.
Valuation frameworks underpin both management and investment. They are the core of modern business decision-making. They are fundamental to the conduct of modern business. Now it’s critical that they include sustainability factors. It can be done. This is the thrust of my presentation.
Link to my presentation here.