With all the occupying going on, and dissatisfaction everywhere, I thought I might do my part to give the movement some direction.
Last I checked, one of the best ways to influence a corporation is to impact its bottom line.
With the ability of social media to influence behaviour, there is now greater power than ever for consumers to quickly support one company over another. Is there a way for investors to get in front of the curve on this?
I believe there might be, but first we need to understand how a company can be affected by being seen as a ‘good’ company versus a ‘bad’ company.
If you want to see this influence in action, check out Goodguide. This site has been gaining a lot of attention from the media and from large, multi-national companies, as it rates consumer products on their “degree of sustainability practice compliance,” against their competition. The site and others like it can potentially have a huge impact on sales by educating shoppers about the ramifications of buying a particular type of soap, shirt, car, investment, or other good.
Now that these types of sites or social movements can act so quickly and in such scale, a smart company might start focusing more attention on ways to make their products and services more sustainable – in a way that this large segment of the market will approve of. If as an example, the “Occupy” movement, believes that Bank A is the best of the big banks and Bank B is the worst, based on how they treat employees, how they treat the environment, the companies they partner with, and other measures, there is a real possibility of Bank A gaining market share. This can apply to grocery stores, gas stations, deodorant makers, and car manufacturers. Almost any consumer-related business. Keep in mind that these opinions can now take shape very quickly.
So what is sustainability and how might it impact how one invests?
According to David Wright, a leading sustainability and brand expert, “Sustainability not only looks at how an organization impacts the environment, but it also looks at its human resource policies, its social and community support initiatives, what company it keeps in terms of partners, and how its business efforts will influence others positively or negatively.”
Mr. Wright is president of Toronto-based Corbrico Consulting, and works with Canadian companies on their sustainability strategies, branding and implementation. “Sustainability has gained significant traction in Asia, Europe and the U.S, but has been slower to take hold in Canada. This is starting to change in a big way,” Mr. Wright said.
Of particular interest to investors is the growth of sustainability indexes across the globe. In Canada, there is the Jantzi Social Index, and globally you would find the Dow Jones Sustainability Index, the NASDAQ OMX CRD Global Sustainability Index and the FTSE4Good Index (U.K.), with all at differing stages of maturity.
As an example, the Dow Global Sustainability Index (DJSI) has been in existence since 1999. On their 40-company North American index, you will find six Canadian companies (Bank of Nova Scotia, Manulife Financial, Potash, Royal Bank of Canada, Suncor and Toronto-Dominion Bank).
Now to the bottom line for investors. Does sustainability lead to investment performance?
Certain studies claim that corporate sustainability practices correlate positively with investment return. Why might this be? Here are some potential reasons:
- It is generally indicative of good management
- It helps companies take advantage of new trends and new markets
- It mitigates regulatory and legal risks
- It reduces costs by reducing waste
- It builds brand loyalty
- It boosts employee enthusiasm and retention
Well, so far in many cases, the numbers have not clearly shown outperformance.
For instance, the DJSI-United States Index has had a five-year performance of -1.56 per cent. versus the Dow Jones Industrial Average which performed at -1.4 per cent over the same period.
The DJSI-World Index, has had a 10-year performance of 3.79 per cent in U.S. dollars. While the Average World Stock Fund returned 4.75 per cent over the same period, according to Vanguard.
Over the past five to 10 years, the numbers wouldn’t suggest any investment magic, but I think that might be changing. With greater awareness, and most importantly the speed of Twitter and Facebook to alter public opinion, I believe that sustainability can be a tool for outperformance in the future.
Companies that want to impact what is important to a growing segment of their market, will be placing more time, resources and attention in this space. Of course, the service industries and web-based businesses that support the sustainability movement may be some of the best places to invest your money.
If the “Occupy” movement wants to focus its efforts on impacting share prices – they may just have the ability to do so. Then they will have definitely Wall Street’s attention.
Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.
Follow Ted on his blog at The Canadian Financial Planner.
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