Executives Have Eye on Sustainability, But Struggle to Act
Sustainability is on the radar of many public equity firms, but they are also daunted by the meaning of sustainability, how to get policies and programs started, and who should be in charge of such issues.
"You talk about sustainability, and many people jump to the charitable, altruistic aspect of it, and not the economical, rational side of it," said Tim Hartnett, private equity sector leader for PricewaterhouseCoopers (PwC) US. "What sustainability means is not a clear definition that goes across many people, let alone many organizations."
PwC, a professional services firm, polled 175 private equity and corporate executives as part of a sustainability-focused webcast, finding that 88 percent believe sustainability will play a greater role in business decisions and investments in the next two years, and 22 percent are developing sustainability strategies.
Two year ago, Hartnett said, sustainability was barely on the minds of private equity firms, but now it's the exception to not be thinking of it in some way. Investors are asking firms more about what policies they have and what they are doing to monitor their effectiveness.
"In some ways, private equity firms are looking to differentiate themselves based on their sustainability policies," Hartnett said.
Firms are also learning the benefits of the sustainability and environmental performance of companies in their portfolios, particularly from measuring efforts that can increase revenue, cut expenses, maintain market share and retain employees.
"All of those things are economically-rational reasons to take on a sustainability program," Hartnett said.
Policies within firms are varied and evolving, he said, with some starting off as statements of beliefs, and others turning into handbooks, rules and procedures regarding what kinds of industries they will invest in, how they will monitor performance and how they will manage risks when acquiring companies.
In the PwC poll, 33 percent said profit opportunity is driving sustainability in their organizations, while 22 percent cited risk management, 19 percent noted image enhancement and 9 percent pointed to regulations.
But even though compelling cases can be made for the benefits of sustainability -- such as cost savings and efficiency from tactics like reducing waste, fuel and resource use -- firms are still struggling in some ways to get policies and programs started.
Over 50 percent of those surveyed said their biggest barrier is that they have no mandate or enough resources to make sustainability a priority.
One challenge is deciding who will be in charge of sustainability, Hartnett said, with some firms adding sustainability to the duties of people with full plates. Another hinderance is the fact that sustainability is not seen as an immediate problem to deal with.
"There is a natural ability to put this off," Hartnett said. "A lot of companies operate on today's issues, and the forward-thinking, preparing-for-the-future issues get put in line."
By Jonathan Bardelline
Published July 21, 2011