U.N. group discusses groundbreaking Goldman Sachs study on green business
Posted on July 5th, 2007By Nathanial Gronewold
Greenwire: Companies with solid environmental, social and governance (ESG) performance indicators are the best long-term investment choices, according to a Goldman Sachs study released this week.
The groundbreaking study will be the first subject of debate among the 1,000-plus corporate representatives and CEOs from over 90 countries gathered in Geneva for the U.N.-sponsored 2007 Global Compact Leaders Summit, which kicked off today.
Launched in July 2000, the U.N. Global Compact started when corporate chiefs from 47 companies gathered in New York to organize a scheme to promote socially responsible investment (SRI) and ESG concepts in their boardrooms.
Today the Global Compact is the world’s largest voluntary corporate citizenship initiative, with more than 4,000 member companies from 120 countries “organized increasingly in local networks in different co
untries around the world,” said executive director Georg Kell.
Global Compact members are required to publicly adopt 10 core principles addressing labor standards, concerns over corruption, human rights and environmental protection. Members must report regularly on what they are doing within their companies to advance the 10 principles.
This year’s summit is designed as an opportunity for peer review, where corporate leaders can get together to demonstrate some of the initiatives they have taken and to share ideas. The Geneva conference will be the largest-ever gathering of corporate officers devoted solely to the topic of corporate social responsibility.
Today the Global Compact launched the “Caring for Climate” project, an effort at setting targets for reductions of carbon emissions and efficient energy use, in cooperation with the World Business Council for Sustainable Development and the U.N. Environment Programme.
Despite lofty goals, the program is voluntary
The Global Compact has no way of enforcing its standards on members, short of simply delisting them when they become inactive. So far, about 600 companies have been removed from the U.N. group’s rolls for failing to abide by the reporting requirement.
Once populated primarily by European companies, the Global Compact is now growing quickly thanks to an influx of new members from Asia. Kell notes that about 100 Chinese corporate leaders are expected to participate in the Geneva meeting.
There is worry that many of the Chinese companies flocking to the Global Compact could be motivated by nothing more than cheap public relations in the wake of worsening pollution. But Kell hopes that the majority are actively engaged and that the self-reporting requirements and peer review will in the end encourage better business practices.
U.S. companies are still comparatively underrepresented, however. When the Global Compact was first launched, it immediately faced difficulty recruiting U.S. firms to its ranks. Kell and his staff admit that they still struggle with this, but they say they are confident the situation will eventually turn around.
“There’s still the issue with this country being so overly obsessed with legal liabilities we are not even aware of, but we are confident that we are on an upwards trend,” Kell said.
Goldman Sachs releases list of top green performers
On Tuesday, Goldman Sachs launched “GS Sustain,” a new list of companies they believe will be the top corporate performers over the coming decades as determined primarily by how well they integrate SRI into their businesses.
The list is designed to help aid investors in identifying companies that are strongly positioned to survive and thrive over the long term in an ever-competitive business environment. Rapidly rising populations, greater urbanization, increased demand for resources, changing customer attitudes and even climate change will all bring new challenges for corporations.
“If you are not taking these factors into consideration and investing … you’re going to lose competitive advantage,” warns financial analyst Anthony Ling of Goldman Sachs. “The success ratio of stocks picked [in the report] is in excess of 70 percent. On a long run average I think the best hedge funds and investors are typically looking at around a 50 percent or 55 percent success rate.”
The list of 44 companies includes such household names as Kellogg, PepsiCo, Bristol-Myers Squibb and Roche. Some less familiar U.S. companies included are solar power producer SunPower Corp., geothermal technology manufacturer Ormat Technologies, and environmental tech manufacturers LKQ Corp. and Pentair Inc.
The list is dominated by U.S. and European companies and divided evenly between companies in “mature industries” such as fossil fuels, mining and steel, and “emerging industries,” specifically biotechnology, alternative energy and environmental technology.
“We would start off from very much a bottom-up perspective in terms of understanding what are the core environmental, social and corporate governance issues that are integral in the sector,” said project head Sarah Forrest.
Goldman Sachs’ hyping of alternative energy and green industries is further accentuated by the complete absence of some of the best-known oil companies from the GS Sustain list. Brazil’s Petroleo Brasileiro and Norway’s Statoil are included, but Exxon Mobil Corp. and BP are not.
In the investment firm’s view, major oil companies that continue to focus primarily on their core business will find it increasingly difficult to maximize returns from projects, thereby limiting potential gains from stocks and dividends.
“Delays, cost increases and fiscal pressures as a result of more complex projects, higher political risk, environmental concerns and the lack of skilled labor have depressed oil company returns and companies will need to overcome these challenges to deliver the legacy of these projects,” warns the report.