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Alternative investment team views sustainability reporting as increasingly important

Wednesday, July 17, 2019
Opalesque Industry Update - The importance of sustainability remains front and center both on the world stage and social media -from images of countless marine animals washing up dead after ingesting large quantities of plastic, to ongoing fights over the pollution caused by fracking sites across the U.S. and global efforts to rein in the damage from pollution such as the Paris Climate Accord. With more and more attention being brought to such issues, investors are taking note of the impact these things could ultimately have on the investments they make.

Give this reality, The New York Alternative Investment Roundtable recently sponsored its fourth day-long Sustainability Investment Leadership Conference (SILC), where attendees were surveyed about the topic.

"The whole spirit behind integrated reporting is effective disclosure that meets the needs of your investors… it's about communicating a more holistic story," said Kristen Sullivan, a partner at Deloitte & Touche. "Because the market is becoming so much more sophisticated and highly scrutinizing there is the opportunity with this type of reporting," she said.

Sustainability reporting remains a major area of concern for companies, particularly as more and more attention is being paid to the extent of damage that businesses around the world are doing to the environment and, in some cases, to the individuals that help produce their products. This SILC event highlighted the fact that the United States is falling behind other capital markets around the world when it comes to integrated reporting and the fact that doing so could eventually have a major impact on U.S. businesses. "We're seeing disclosure laws start to proliferate around the world. So it's something to be conscious of, but it's just scraping the surface," said another panelist. "It's a trend that we're not going to see go away."

Roundtable members believe that sustainability reporting is becoming increasingly important for companies across the board, regardless of size or industry. Of the respondents to this year's survey, 77% said that they believe sustainability reporting is equally important for all companies, compared with 73% of respondents in 2018, 70% of respondents in 2017, 65% of respondents in 2016 and 41% in 2015; while only 27% of respondents believe sustainability reporting is more important for large, international companies, compared with 30% in 2017, 35% in 2016 and 59% in 2015.

New York Alternative Investment Roundtable members had the opportunity to weigh in on this topic both at the SILC event, as well as through an online electronic poll.

*Of the respondents to this survey, 28% were fund managers; 24% were allocators; 11% were risk management or trading; 14% were service providers; and 23% were other industry participants.

Following are some of the key findings to this year's survey, compared with answers to the same questions in recent years:

  • Asked whether their firms consider whether or not companies practice sustainability reporting when choosing where to invest, 60% of respondents said they do, while 40% do not. Comparatively, when asked the same question in 2018, 68% said it is a factor in determining the companies they invest in, while 49% said it is not; in 2017 51% of respondents said it is a factor, while 49% said it wasn't; and in 2016 54% of respondents said it is a factor, while 46% said it wasn't.

  • When asked whether sustainability reporting is worth the added costs and the additional time needed to produce such reports, 77% of respondents think it is, compared with 61% of respondents in 2018, 65% of respondents in 2017, 60% of respondents in 2016 and 46% of respondents in 2015; 23% of respondents said that they believe 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 35% of respondents in 2018, 32% of respondents in 2017, 31% of respondents in 2016 and 49% in 2015; and no respondents think that sustainability will be short lived and isn't worth the effort, compared with 4% of respondents who felt this way in 2018, 3% in 2017, 9% in 2016 and 5% in 2015.

  • 56% of respondents said they believe sustainability reporting is equally important for all companies, compared with 73% of respondents in 2018, 70% of respondents in 2017, 65% of respondents in 2016 and 41% in 2015; while 44% believe it is far more important for large, international companies, compared with 27% in 2018, 30% in 2017, 35% in 2016 and 59% in 2015.

  • Asked if they believe sustainability reporting could ever become a common practice among companies without regulatory involvement, 50% of respondents think that companies may voluntarily produce reports, but that regulatory involvement will be necessary to ensure high quality reports and consistency, compared with 40% of respondents in 2018, 48% of respondents in 2017, 26% of respondents in 2016 and 30% of respondents in 2015; 39% think that sustainability can have a big enough impact on a company's ultimate profitability that companies have started to realize it is in their best interest to focus on the issue and produce reports, compared with 22% in 2018, 44% in 2017, 49% of respondents in 2016 and 46% in 2015; and 11% think that regulatory requirements are the only thing that could ever bring about market-wide reporting, compared with 38% in 2018, 8% in 2017, 25% of respondents in 2016 and 24% in 2015.

  • When asked if sustainability reporting is likely to become more or less important within the next decade, 47% of respondents said that investors are starting to put enough emphasis on such reports that companies that fail to generate sustainability reports risk the loss of investor support, compared with 48% of respondents in 2018, 51% of respondents in 2017, 43% of respondents in 2016 and 61% in 2015; no respondents think there is still enough investor uncertainty about how such reports can translate to stronger long term performance for companies that it is still too early to know, compared with 26% of respondents who felt this way in 2018, 22% of respondents in 2017, 20% of respondents in 2016 and 21% in 2015; 24% think sustainability reports will need to become more uniform and concise before they can become a critical factor in the companies that investors choose, compared with 17% in 2018, 22% in 2017, 33% of respondents in 2016 and 15% in 2015; and 29% think sustainability reporting is only a fad and won't gain long-term traction, compared with 9% of respondents in 2018, 5% of respondents in 2017, 4% of respondents in 2016 and 3% in 2015.

  • Asked whether their acceptance of sustainability would change if it focused more on things like building a company's reputation, health community involvement and good employee relations, versus environmental issues such as global warning, 40% said there would be no change in their attitude toward sustainability, compared with 39% of respondents in 2018, 51% of respondents in 2017 and 46% of respondents in 2016; 45% said they would be more likely to embrace the concept, compared with 48% of respondents in 2018, 42% of respondents in 2017 and 45% of respondents in 2016; and 15% said they would be less likely to accept sustainability, compared with 13% of respondents in 2018, 7% in 2017 and 9% in 2016.

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