Attention to social and environmental issues key to business success - UN report

Environmental and social issues need to be integrated into business practices or companies across the globe risk a long-term threat to shareholder value, says a new report released today by the United Nations Environment Programme (UNEP).

Launched in conjunction with the Global Compact Leaders Summit at UN Headquarters in New York, the report is the first to study the financial impact of environmental, social and corporate considerations as they relate to the portfolio management of mutual, pension and other institutional funds.

The report, "The Materiality of Social, Environmental and Corporate Governance Issues to Equity Pricing," covers 11 business sectors and was compiled by a dozen fund managers representing $1.6 trillion in assets.

Produced for UNEP's Finance Initiative Asset Management Working Group, the study finds that environmental, social and corporate governance issues affect long-term shareholder value, in some cases profoundly. It also concludes that financial research is hindered both due to the lack of reporting on the part of many companies concerning those issues and because of insufficient disclosure in annual reports.

According to the report, aviation, insurance, oil and gas, and utility companies already face material threats linked to climate change, while some sectors are witnessing evolving opportunities in the form of new "carbon markets."

"All that we are discussing about the Global Compact has direct repercussions," UNEP Executive Director Klaus Toepfer told a press briefing on the report's launch.

Anthony Ling, Managing Director of Goldman Sachs and an author of one of the industry reports, said there was an "extremely clear" link between companies that perform well on such issues and those that succeed in the long run within their industries and therefore give better than average stock market performance.

The release of the report coincided with the announcement by 10 stock exchanges - with a combined market capitalization of $3 trillion - of their support for the Global Compact's principles, which traditionally related to human rights, labour issues and the environment. An additional principle, on corruption, has since been added.

In addition, the Brazilian stock exchange Bovespa and the Jakarta Stock Exchange both announced they were joining the Compact, becoming the first two bourses to do so.

Welcoming the commitment from financial institutions, the Executive Head of the Compact, Georg Kell, said their message was a timely reminder that "financial markets are awakening to the fact that environmental and social issues have important financial impacts."

The Global Compact Leaders Summit is being hosted by Secretary-General Kofi Annan, who launched the initiative in 1999. More than 1,500 companies from 70 countries participated today.