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Hedge fund industry thinks investors will force greater sustainability efforts

Tuesday, December 01, 2015
Opalesque Industry Update - With regulators around the world paying closer attention to individual companies’ impact on everything from the environment to global markets, and with 72% of the companies within the Standard & Poor’s 500 Index now reporting on their sustainability efforts, there can be no denying that sustainability reporting is an issue that is unlikely to go away. To see how the growing emphasis on sustainability reporting impacts overall investment practices, The New York Hedge Fund Roundtable recently surveyed its membership about the topic.

Sustainability reporting and its importance for everyone from accounting and auditing firms, to alternative investment managers was the topic of the Roundtable’s November meeting, where featured panelists Erika Karp, CEO & founder of Cornerstone Capital; Arthur J. Radin, a partner in public accounting firms for over fifty years; Barbara Shrager, President of Shrager Communications; Martin Whittaker, CEO of Just Capital; and moderator Sarah Tomolonius, a vice president with Arlon Group each weighed in on the topic.

“When it comes to sustainability finance, my aspiration is that ultimately it will simply be called finance,” Karp told attendees at the Roundtable’s event. “Sustainable capitalism, sustainable banking and sustainability in general are just excellence. And it will be transparency, collaboration and a common language and purpose that drive the next iteration of capitalism.”

Roundtable members believe the issue of sustainability reporting is currently of greater importance for large, international companies. Over the course of the next decade, however, Roundtable members think sustainability will become important for companies across the board, with those who fail to produce sustainability reports likely to risk losing investor support. “As a former practicing CPA myself, I understand the value of Intangibles and I don’t know anybody who would disagree with their importance,” said Timothy P. Selby, President of the New York Hedge Fund Roundtabe. He likened the issue to the “broken windows governance theory” implemented when former New York City Mayor Rudolph Giuliani first took office in the early 1990s. “At the time, I don’t know that anybody thought ‘If I clean the streets and fix the windows my business will prosper.’ But over a period of time it was clear that it actually helped develop an ecosystem within the community,” said Selby.

New York Hedge Fund Roundtable members had the opportunity to weigh in on sustainability reporting at the Roundtable’s November meeting, as well as through an online electronic poll.

*Of the respondents to this survey, 32% were fund managers; 12% were allocators; 10% were risk management or trading; 36% were service providers and 10% were other industry participants.

Following are some of the key findings of that survey:

  • 54% of respondents said that their firms consider sustainability reporting when choosing where to invest, while 46% said their firms do not consider such reports.

  • When asked whether sustainability reporting is worth the added costs and additional time needed to generate such reports, 49% of respondents said it is still too early to know whether investors will eventually hold it against companies that don’t report; 46% said they think such reporting is already important enough to investors that companies that lay the foundation now will have an edge over their peers; and 5% said they think this issue will be short lived and won’t matter at all within in a few years.

  • When asked whether a company’s size influences the importance of whether or not it produces sustainability reports, 59% of respondents said they think it is far more important for large, international companies with global footprints to produce such reports, while 41% think reporting is equally important for all companies, regardless of size or industry.

  • Asked whether integrated sustainability reporting could ever become a common practice without regulatory involvement, 46% of respondents said the issue is important enough to a company’s ultimate profitability that companies now realize such reports are in their best interest; 30% think that while companies may voluntarily produce reports, regulatory involvement will be necessary to ensure consistent, high quality reports; and 24% think regulatory requirements are the only thing that would ever bring about market-wide sustainability reporting.

  • When asked if sustainability reporting will become more or less important within the next decade, 61% of respondents think investors are putting enough emphasis on such reports that companies that don’t produce them will risk the loss of investor support; 21% think investors remain uncertain about how such reporting can translate to stronger long-term performance for companies; 15% think sustainability reports will need to more concise and uniform before they become a critical factor in investors decisions to back specific companies; and 3% think sustainability reporting is a fad that is unlikely to gain any long-term traction.

November’s “bonus” question: Roundtable member were asked what they believe will happen in “Star Wars: The Force Awakens,” the seventh film in the Star Wars series (which is set in the middle of a post-Death Star, post-Ewok war).

31% of respondents think that director J.J. Abrams will take the easy way out and employ time travel in order to skip over some difficult narrative issues; 30% think the good guys will become the bad guys (i.e. Luke Skywalker will become Darth Vader); 22% think Chewbacca will get married; and 17% think Jar-Jar Binks will return.

What do you think?

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