Sixty percent of investment firm board members are willing to divest from companies with a poor sustainability performance, according to a new MIT Sloan Management Review and BCG study
CAMBRIDGE— Sustainability is increasingly important for a growing number of investors, as evidence mounts that companies' environmental, social, and governance (ESG) performance has an impact on their long-term financial success. The findings are part of a new global study by MIT Sloan Management Review (MIT SMR) and The Boston Consulting Group (BCG), released today in a report titled Investing for a Sustainable Future: Investors Care More about Sustainability than Many Executives Believe.
A survey of more than 3,000 executives and managers from more than 100 countries showed that managers’ and investors' perceptions of sustainability are out of sync. Seventy-five percent of senior executives in investment firms agree that a company’s sustainability performance is materially important to their investment decisions, and nearly half would not invest in a company with a poor sustainability track record. However, only 60% of managers in publicly traded companies believe that good sustainability practices have an impact on investment decisions.
“There’s a communications gap,” says coauthor David Kiron, executive editor of MIT SMR. “We found that investor relations professionals in companies are not really talking to investors about the value of sustainability to the bottom line, even though investors place real value on sustainability performance.”
According to the study, data availability is an important driver of increased investor engagement with sustainability. In the past, limited access to information led sustainability-focused investors to develop exclusionary strategies, identifying and shunning, for instance, companies that harmed the environment. Today's investors, armed with richer data and more sophisticated analytics, can take a more inclusive and nuanced perspective. Furthermore, in the wake of this improved data availability, 75% of investment community respondents feel that increased operational efficiency often accompanies sustainability progress.
“Unfortunately, too few companies are prepared to benefit from more-sustainability-savvy investors. This year’s research showed that while 90% of executives see sustainability as important, only 60% of companies have a sustainability strategy in place, and just 25% have generated a clear business case,” says Knut Haanæs, a BCG senior partner and founding leader of the firm’s Sustainability practice. “And a clear business case is at the core of a company’s sustainability story for investors.”
At the same time, the study shows that sustainability indices appear to be losing their luster. Although they have been a mainstay for many years (for example, Dow Jones and NASDAQ sustainability indices date back to 1999), corporate executives seem to care more about these lists than investors. While more than 90% of corporate respondents from listed organizations say their companies promote inclusion on these lists, only 36% of investors say that a company’s inclusion in a major index is an important factor in investment decisions.
The report suggests several steps for business leaders to meet the needs of the sustainability investor:
Join the authors of the sustainability research report on May 26, 10:30 AM ET for a free, live webinar and Q&A. Register for the webinar now.
To arrange an interview with one of the MIT SMR authors, please contact Deb Gallagher at +1 617 253 3967 or firstname.lastname@example.org.
To arrange an interview with one of the BCG authors, please contact Eric Gregoire at +1 617 850 3783 or email@example.com.
MIT Sloan Management Review leads the discourse among academic researchers, business executives, and other influential thought leaders about advances in management practice, particularly those shaped by technology, that are transforming how people lead and innovate. MIT SMR disseminates new management research and innovative ideas so that thoughtful executives can capitalize on the opportunities generated by rapid organizational, technological, and societal change.
Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with offices in more than 90 cities in 50 countries.