Monday, February 20, 2006

Quantification

The sdEffect was mentioned in two places recently, the WBCSD and GreenBiz. The authors of the report worked to quantify sustainable development activities in the language of finance; company valuation. This is extremely important to continue the movement of sustainable business activities into the "mainstream" thoughts of our capitalist business leaders. I found this excerpt interesting in its assessment of what the future holds for these studies:
Several important trends are converging to help facilitate more of this type of analysis in the future. 

  • First, as more and more measurement of corporate SD and its impacts takes place, an increasing amount of data suitable for translation is becoming available (e.g. continuously improving sustainability reporting, Corporate Knights Corporate Citizenship Database, etc.). 

  • Second, as stakeholder pressure continues to build to better understand the actual quantitative financial impact of corporate SD practices, and to more fully engage the financial community on SD, additional support is being provided for innovative projects such as this one. 

  • Third, global environmental issues such as climate change, which are now being commonly recognized as posing huge financial risks, are forcing unprecedented integration of considerations of sustainability in financial decision-making and in the operation of world capital markets (e.g. EU Emissions Trading Scheme).
Perhaps the largest opportunity lies in helping companies NOT on the leading edge of sustainability understand what they can do to maintain their competitiveness in their markets. These companies will need guidance to decipher the sustainable reporting methods available to them.

This Environmental Finance
article introduces the challenges facing large corporations seeking to report both the financial and social affects of their sustainability efforts. The importance of quantifying the financial impacts of sustainable activities, as demonstrated by the folks at sdEffect, will only grow as shareholders demand information.

An article from
The Christian Science Monitor's tackling "Bad Growth" (is the term "bad" used in a moral context?) contains an important piece of information from an energy company's senior executive. Carbon regulation is only a matter of time. The risks to a power generator investing in a power plant with a thirty year lifespan with regulatory uncertainty in the next 5-10 years is real and worrying. Do we start to see the need to quantify sustainable business activities financially?

Why should ethical investors worry about zoning battles?
Shapiro: As investors, we are concerned about the financial and reputational risk of the companies that we invest in. So if a big-box store is going to start encountering problems with placing their stores in an area ... this ends up being litigated, [or at least] slows their whole process down, at a great cost to the company and to its shareholders.

Are companies starting to change their growth strategies?

Shapiro: In
[Target's] 2004 sustainability report, they state that they, on average, are adding 100 new stores a year. And they delineate their decision processes for placement of those stores. So I think more and more companies are becoming cognizant of the concerns from the investment side as well as the public side. [And] a bank in North Carolina - BBandT - has recently issued a statement that it will not provide funding of private development of land that was acquired through eminent domain. It's the first bank to do so.

Are there other examples?

Seitchik: One area that investors are getting very focused on right now is the area of global warming and the risks that are associated with the potential regulation of global warming. The CEO of
Cinergy [a leading electric utility] has come out and said: "We know that greenhouse gases are a problem. We know they're going to be regulated in the future. And when we go to invest in a plant, it has a 30-year investment horizon. So there's a real risk to us - not only as managers of a company but also as investors - if we don't take into account the potential regulatory and litigation risks that come with that." So we're starting to see a lot more research in the area of risk-management around environmental issues.
John Elkington was interviewed recently, and I found some of his words most interesting and even reassuring. As the founder of SustainAbility Mr. Elkington feels that the challenges are numerous, varied, and complex, but there are many people working to overcome them.

I had lunch with a friend today. He helped me realize that the thoughts and ideas I have about career fulfillment and sustainable business are not irrational ideas to be stamped out by my inner critic, but were to be coddled and nurtured to help me find my clear way. As I continue to investigate sustainable business activities it is clear that it is an emerging discipline presenting many opportunities for learning and growth.

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