November 3, 2006

"Wall Street Doesn't Get It"

Companies are facing pressure to go green from all over. Unfortunately, one of the biggest, most important stakeholders, Wall Street investors, is lagging — or at least that’s the message I’ve been hearing for a few years. During my research for Green to Gold, I would ask executives, “What’s the biggest hurdle you face?” I often got a variation on the same answer: “Wall Street doesn’t care.”

Last week I spoke at a “dialogue” in NYC held by the World Business Council for Sustainable Development . The conversation focused on three areas: consumers, governement, and capital markets. At this meeting of CEOs and other bigwigs, this third area was clearly a sore spot.

Julio Moura, CEO of GrupoNueva (and featured in our book), told a discouraging story. When he came to New York recently on a road show for a subsidiary he was selling, he wanted to put in a slide about sustainability — especially since GrupoNueva was founded to work toward sustainability. His bank told him not to bother, but he insisted. Out of 40 meetings with analysts, only 2 even stopped briefly on that page.

John Manzoni of BP, put it more bluntly and said Wall Street is ‘indifferent’ to this stuff. And recently-retired Alcan CEO (and WBCSD chairman), Travis Engen made the subtle distinction that the buy side is interested, but not the sell side. Allen White from Tellus said it’s even worse — hedge funds and private equity, the most dynamic areas in the financial community, are moving in the opposite direction and are “the epitome of short-term-ism.”

And the mood on this subject was similarly dour at the Corporate Climate Conference I attended this week. Bob Monks, a well-known shareholder activist, summed up recent headlines on climate change with this: “Main street gets it, Wall Street doesn’t.”

Is there a solution to the quarterly focus that pressures companies to ignore long-term issues like sustainability? Not an easy one. I think there are partial answers. One is knowing the audience — telling wall street about efficiency efforts that cut costs immediately, or new eco-products that drive revenues, works well. Stakeholder relations and other long-term reputational investments are hard to sell. But putting sustainability in the context of business health in general is one way to go. When Wal-Mart says that selling energy-efficient products will help their customers save money — money that they can spend at Wal-Mart — it’s hard to argue with the business logic (see my last post on this).

I also feel there’s a need for institutional change. Part of why Wall Street doesn’t care is the lack of clear metrics and guideposts. We need some form of sustainability accounting standard — equivalent to GAAP and FASB for financial tracking and reporting. Not sure how we get there, but accounting and those institutions were invented; why not invent the structure we need to speak to Wall Street?

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