Affirmative Thinking - Winter 2012 Full Version
Posted on Wednesday, May 16, 2012
Culture of Sustainability Linked to Strong Performance
By Sara Laks
A recent Harvard Business School working paper adds to the growing evidence linking a corporate culture of sustainability to performance. The study tracked 180 companies over an 18 year period. It found that "High Sustainability" companies-those with "solid commitments to environmental and social performance"-substantially outperformed "Low Sustainability" companies over the long term, both in terms of stock market and accounting performance. Of course, past performance is no guarantee of future results.
The High Sustainability companies were more likely to be engaged with their stakeholders and more likely to tie executive compensation to environmental, social, and "external perception" metrics. In addition, High Sustainability companies had a high level of disclosure of nonfinancial information and, as a whole, were more likely to take a long-term approach to profit maximization.
The evidence contradicts the widely held misconception that more responsibly managed companies necessarily underperform due to self-imposed constraints. Instead, this finding suggests that a corporate culture of social responsibility enhances shareholder value and has a positive impact on corporateperformance. This Harvard study was cited in a subsequent Wall Street Journal opinion piece in which former U.S. Vice President, Al Gore, and former Goldman Sachs CEO, David Blood, urged that "global businesses must adopt 'sustainable capitalism' to create long-lasting value in the face of global challenges such as climate change, poverty, and disease."
Enough with the Short-Termism!
Adopting environmental, social and governance standards improves companies' profitability over the long term and makes them more attractive to investors, Gore and Blood co-wrote.
To improve returns, investors should push companies to stop issuing quarterly earnings guidance that encourages management to prefer short-term gains and instead concentrate on longer-term sustainable value creation, according to Gore and Blood. "The dominance of short-termism in the market fosters general market instability and undermines the efforts of executives seeking long-term value creation."
Green Building Up, Energy Costs and Emissions Down
By Holly Testa AIF®
According to the Green Building Market and Impact Report by GreenBiz Group, Inc. LEED (Leadership in Energy and Environmental Design) certified buildings now comprise over 20% of new floor area in the United States.
LEED is a certification program developed by the U.S. Green Building Council (USGBC). The program provides building owners and operators with a framework for identifying and implementing practical and measurable green building solutions. It took about 10 years for LEED to hit the 1 billion square foot mark, but at current growth rates, by the end of 2012, an additional 1 billion square feet will have come online in just three years, and that's just in the U.S.
Since its launch in 1998, the LEED certification program has evolved, incorporating new energy efficiency and construction technologies. Buildings built to the newest standards show energy and water savings of roughly 30%. And while building orrenovating to LEED standards may cost more up front, the evidence of long-term financial, environmental, and productivity benefits is mounting.
• Employee Productivity: A study from CB Richard Ellis and the University of San Diego found a self-reported increase in productivity of almost five percent across 500 tenants in 124 buildings. A follow-up study of 75 LEED projects showed productivity gains of nearly five percent, and an average of three fewer sick days taken per worker when businesses move from a non-LEED to a LEED environment.
• Reduced Environmental Impact: LEED promotes reuse of existing buildings and encourages waste reduction, resulting in over 80 million tons of waste being diverted from landfills. Buildings are located to minimize vehicle miles traveled. Minimization of site disturbance, erosion, and storm water run-off are emphasized. There are many buildings that are not LEED certified that are, nevertheless, incorporating standards developed by the program, leading to an overall improvement in building practices.
• Enhanced Building and Rental Values: A recent " green value" study, published in Real Estate Economics, found that green buildings command both a rental premium-4% for Energy Star, and 5% for LEED-as well as a building value premium-26% for Energy Star and 25% for LEED. Other studies confirm these findings, citing similar rent and market premiums.
The Better Buildings Challenge
President Obama joined former President Bill Clinton on December 2,
2011 to announce that $4 billion in private and federal funds will
be invested to upgrade commercial and federal buildings over the
next two years as part of the Department of Energy sponsored
Better Buildings Challenge. Sixty CEOs, mayors, labor leaders
and university presidents pledged $2 billion in capital to make
major upgrades to commercial buildings, and a matching $2 billion
has been made available through a Presidential Memorandum to
finance energy upgrades of federal buildings.
This $4 billion-dollar investment will be paid back quickly through energy savings. The Department of Energy estimates that about 30% of the energy used to power commercial, industrial, and school facilities costs is wasted by failing to implement cost-effective energy technologies. It is estimated that U.S. businesses can save $40 billion a year by improving energy efficiency by the stated goal of 20% by 2020.
The U.S. Treasury Building in Washington, DC is a very recent example of an old building (built between 1836 and 1869) that's been retrofitted to LEED Gold standards. Upgrades have improved daylighting and reduced electricity consumption by 7%, among many other benefits.
Hydraulic Fracturing: Opportunities and Perils
By Holly Testa
Media stories about hydraulic fracturing-a.k.a. "fracking" range from glowing to apocalyptic. Does fracking represent the American Petroleum Institute's vision of " America's New Energy Frontier" promising the U.S. a 100-year supply of natural gas, or is Vanity Fair's headline of " A Colossal Fracking Mess" closer to the truth? As is usual with complex issues, there are no easy answers.
The Opportunity: Abundant, Cleaner, Domestic
Energy
Shale gas deposits are being exploited throughout the Northeast
United States, the Mountain West, and Texas, with further expansion
expected across the country. Abundant natural gas supplies hold the
promise of reduced dependence on imported oil, lower energy prices,
improved economies in depressed areas, and lower greenhouse gas
emissions (as compared to the current dominant way to generate
electricity, coal).
The Peril: Unaddressed Problems, Unknown
Costs
The promise of natural gas as a transition "bridge" fuel to a
cleaner energy economy is compromised by inadequate environmental
practices, community impacts from drilling activities, and
inconsistent state regulations-with states struggling to keep
up.
Shale deposits are often beneath populated areas, and wells are often drilled in close proximity to homes. There have been numerous complaints alleging on-site chemical spills, contaminated drinking water, and air quality degradation; and even "flaming faucets."
Industry executives insist that there is no evidence that fracking has ever polluted groundwater, but an EPA investigation into groundwater contamination in Pavilion, Wyoming may prove otherwise. "When considered together with other lines of evidence, the data indicates likely impact to ground water that can be explained by hydraulic fracking," said the preliminary EPA report.
States are struggling to update regulations governing fracking operations. Colorado recently adopted the nation's toughest disclosure rules. Many states are struggling with regulatory structures that have not been significantly updated since World War II.
The "Known Unknowns"
In the rush to secure new energy sources, significant risks that
are not well understood remain unaddressed-including groundwater
contamination pathways and the possibility of triggering
earthquakes.
Also at issue-how much cleaner is natural gas, really? Natural gas
burns cleaner than oil, but substandard procedures used to extract
the gas reduces the advantage. The extent of greenhouse gas
emissions produced by flaring, and fugitive emissions is
inadequately measured and therefore unknown.
Investor Engagement
Investors Environmental Health
Network (IEHN) and Interfaith
Center on Corporate Responsibility (ICCR) have joined forces to
press for changes. Recognizing the need for improved corporate
disclosure and a uniform standard of best practices and performance
metrics, these groups have collaborated on "Extracting
the Facts: An Investor Guide to Disclosing Risks from Hydraulic
Fracturing Operations."
According to Richard Liroff, Executive Director of IEHN and primary author, the Guide offers a "road map for companies to respond to the heightened concerns around fracking, and articulates industry best practices that will reduce the risks, and consequently, the impacts."
As an active investor member of IEHN, First Affirmative is engaging with companies for the 2012 proxy season on behalf of clients.
Business for the Common Good
By Sara Laks
First Affirmative has proudly joined the ranks of the nearly 500 For Benefit Corporations in the United States.
B Corps offer an alternative to "business-as-usual." A new class
of corporation, B Corps are legally required to pursue the creation
of a material positive impact on society and the environment, while
meeting higher standards of accountability and transparency.
Current law requires most corporations to prioritize the financial
interests of shareowners over the interests of workers,
communities, and the environment.
B Corps are structured to maximize profits for society, not just
for their shareowners. With the growing public demand to move away
from corporate greed and corruption, B Corps offer a much needed
solution to better serving the "99%."
In December 2011, New York became the seventh state to legally recognize B Corps; joining California, Hawaii, Virginia, Maryland, Vermont, and New Jersey. Similar legislation is pending in North Caroline, Pennsylvania, Michigan, and Washington DC, and will be introduced in Colorado in early 2012.