Investors, sustainability, and trucking

May 23, 2014

Many in trucking might rightly wonder why they should care if investor groups are beginning to attach far greater importance to the issue of “sustainability” than ever before.

I mean, let’s face it: debating the importance of sustainability at shareholder meetings held in nice air-conditioned hotel conference rooms in major metropolitan cities bears zero resemblance to the tough business of hauling freight out on America’s roadways.

Yet from a “big picture” perspective this new focus on sustainability by investors is something trucking should eye carefully – but not always in a negative light.

For if carriers engage in “sustainable” practices that can be documented to save fuel or operating “greener” maintenance shops, such efforts could very well not only help them win more freight but even perhaps get paid more to haul it – a philosophy that underpins the Environmental Protection Agency’s SmartWay program to a degree.

[For an example of how “sustainability” gets increasingly mixed together with “risk management” and even “corporate ethics” in the business world, check out the interview below with Rico Ferrarese, senior strategic risk manager at Denmark’s LEGO Group.]

From that point of view, then, take a look at the findings from a recent survey of institutional investors conducted by global consulting firm PricewaterhouseCoopers (PwC).

"The purpose of this survey was to gain a deeper understanding of whether sustainability issues are affecting the decisions being made by investors," noted Kayla Gillan, the leader for PwC's Investor Resource Institute.

"Our research sought to gain insight from investors about how they are incorporating issues of climate change, resource scarcity, extreme weather events and evolving corporate responsibility expectations into their investment decisions and strategies,” she added. “We found significant evidence that an effect is occurring today—and that it is likely to increase in coming years.”

PwC polled a wide mix of institutional investors responded, representing more than $7.6 trillion in total assets under management (AUM): asset managers (45%), pension funds (33%), mutual funds (7%), hedge funds (5%) and a variety of other organizations (10%).

Some of the firm’s findings regarding the impact of sustainability issues on investment strategies include:

  • Four out of five investors consider sustainability issues to be relevant. About 80% of responding investors say that they considered these concepts in one or more investment contexts during the past year. The majority of these investors considered sustainability issues when they were voting proxies and deciding whether to engage directly with a portfolio company about a subject of concern—and this is particularly true when investors are considering matters of corporate social responsibility or good citizenship.  Very large investors (that is, those with AUM of over $100 billion) are most likely to incorporate sustainability issues into their investment strategy.
  • Sustainability is becoming increasingly relevant. PwC's research found that most investors anticipate considering these concepts in at least some aspect of the investment decision-making process. In the last 12 months, 82% considered climate change and/or resource scarcity in future investment decisions, while 79% of investors considered social responsibility and/or good citizenship. These issues will continue to factor into investors' future decision-making, with 87% expecting to consider climate change and/or resource scarcity over the next three years and 84% of investors expecting to do the same for social responsibility and/or good citizenship.
  • Direct engagement is likely to dominate the investor’s “playbook.” Most investors who identified sustainability issues as relevant say it is "very likely" they will have some form of direct communications with their portfolio companies about this topic in the next 12 months. Of these investors, nearly 90% indicate they will "very likely" just request information directly from the company. More than two-thirds of investors in this group are "very likely" to seek a meeting with the companies' boards or management. Use of proxy—whether it is through shareholder proposals or "vote no" campaigns targeting company directors—is less likely.
  • Reducing risk is top driving force. Nearly three-quarters of investors say the primary driver for considering sustainability issues is risk mitigation (73%). Enhancing performance returns (52%) and avoiding firms with unethical conduct (55%) rank as other key drivers.
  • Common standards are needed. Two-thirds of investors say that if common standards were used, they would be more likely to assess the materiality of environmental or social factors when making investment decisions. With Europe being the exception, investors in both the U.S. and other regions around the globe are dissatisfied with current reporting.
  • Demand for better information. Investors are significantly dissatisfied with the current level of transparency and reporting of sustainability information with respect to US-listed securities, according to PwC's survey.  This disparity is most pronounced in the context of risk and comparability: 82% of investors were dissatisfied with the financial quantification of risks and opportunities, with the comparability of information (79%) and relevance and implications of sustainability risks (74%) following close behind.

Again, though, why should trucking care? Well take a look at this interesting program jump-started about four years ago canned the Wisconsin Profitable Sustainability Initiative (PSI).

This is an effort started by the Wisconsin Manufacturing Extension Partnership (WMEP) to demonstrate the range of economic, social and environmental benefits that can be realized by small and midsize manufacturers through the implementation of sustainable business practices. That program includes revamping transportation and logistics to achieve more “sustainable” operations as well.

So it seems at least to me that whether or not one necessarily agrees with this growing focus on “sustainability” in the corporate world, it’s going to impact trucking in some shape or form. Thus perhaps it’s best to find ways to demonstrate one is engaging in “sustainable” business practices in order to make one’s services more appealing to potential customers.

Just a thought.

About the Author

Sean Kilcarr 1 | Senior Editor

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