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Hedge fund industry embraces merits of sustainability reporting

Monday, May 23, 2016
Opalesque Industry Update - Sustainability reporting is rapidly moving from a niche issue focused on by a handful of companies to one of global importance. Amidst growing worldwide concerns about the environmental, social and governance impact that businesses contend with internally and the impact their activities have on their stakeholders, institutional investors are putting greater emphasis on sustainability reporting. As the Global Reporting Initiative works to transition its sustainability guidelines into global standards, it is clear that interest in sustainability isn’t likely to diminish anytime soon. Given the rising importance of sustainability, the New York Hedge Fund Roundtable recently held its first day-long Sustainability Investment Leadership Conference, hosted in conjunction with the New York State Society of Certified Public Accountants, where conference attendees were surveyed about the topic.

“How a company makes its money has become a critical factor in the 21st Century, because how it makes its money will have an impact on society,” Mervyn E. King, former chairman of the International Integrated Reporting Council and chairman emeritus of the Global Reporting Initiative, told conference attendees. “Integrative reporting has captured the attention of people around the world… it is an idea whose time has come,” said King, who was among several high profile speakers and panelists at the conference.

Roundtable members are becoming increasingly optimistic about the merits of sustainability reporting, based on a comparison of the survey responses from a Roundtable sustainability panel last year compared to this year. 60% of respondents from this year’s survey indicated that they believe sustainability is worth the additional time and money such reports require, up from a year ago when only 46% of respondents felt this way. Similarly, 65% of respondents think sustainability reporting is of equal importance for all companies, regardless of size, compared with a year ago when only 41% of respondents felt this way. “Though sustainability reporting and the guidelines surrounding it remain nascent areas, there is no doubt that the data within these reports is of paramount importance for understanding how well any individual company is poised to succeed over the long-term,” said Timothy P. Selby, President of the New York Hedge Fund Roundtable and a partner at Alston & Bird.

New York Hedge Fund Roundtable members had the opportunity to weigh in on sustainability reporting both at the Sustainability Investment Leadership Conference as well as through an online electronic poll.

Of the respondents to this survey, 20% were fund managers; 12% were allocators; 18% were risk management or trading; 32% were service providers; 14% were CPAs; and 4% were other industry participants.

Following are some of the other key findings of that survey:

  • When asked whether their firms consider sustainability reporting when choosing where to invest, 54% of respondents said it is a factor, while 46% said it is not something they worry about. These responses were identical to those given by respondents when the exact same question was asked last year.

  • Asked whether sustainability reporting is worth the added costs and the additional time necessary to produce such reports, 60% of respondents believe it is, compared with 46% of respondents who were asked this same question a year earlier; 31% think it is still too early to know whether investors will eventually hold it against companies that don’t report on their sustainability efforts, compared with 49% of respondents a year ago; and 9% believe the focus on sustainability will be short lived, compared with 5% of respondents a year ago.

  • When asked if a company’s size influences the importance of whether or not it produces sustainability reports, 35% of respondents said they think it is far more important for large, international companies with global footprints to produce such reports, compared with 59% of respondents asked this same question a year ago; while 65% of respondents think sustainability reporting is equally important for all companies, compared with 41% of respondents asked this question last year.

  • Asked whether integrated sustainability reporting could ever become a common practice among companies without regulatory involvement, 49% of respondents said the issue has become important enough among investors that companies now realize it is in their best interest, compared with 46% of respondents to this same question a year ago; 26% of respondents think that while companies may voluntarily produce reports, consistent, high quality reports will not happen without regulatory involvement, compared with 30% of respondents to this same ]question a year ago; and 25% of respondents think that regulatory requirements are the only thing that will bring about market-wide sustainability reporting, compared with 24% of respondents a year ago.

  • When asked whether sustainability reporting will become more or less important within the next decade, 43% 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, compared with 61% of respondents asked this same question a year ago; 20% of respondents think investors remain uncertain about how such reporting can translate to stronger long-term performance companies, compared with 21% of respondents a year ago; 33% of respondents think sustainability reports will need to become more uniform and concise before they become a critical factor for investors, compared with 15% of respondents to this question a year ago; and 4% of respondents think that sustainability reporting is merely a fad that is unlikely to gain long-term traction, compared with 3% of respondents a year ago.

  • If sustainability focused more on things like building a company’s reputation, community involvement and good employee relations, versus environmental issue like global warming, 45% of respondents said they would be more likely to embrace the concept; 9% said they would be less likely to embrace the concept; and 46% said their opinion of such reporting would remain unchanged.

What do you think?

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