Sustainability hits the bottom line: PwC

The greening of corporate finance can no longer be considered a fast fad or temporary trend, advised a panel of accountants and analysts from PricewaterhouseCoopers during a breakfast seminar on sustainability on Thursday.

“Corporate social responsibility is now a mainstream paradigm,” said Peter Johnson, director of the sustainable business solutions practice at PricewaterhouseCoopers (PwC) in Toronto. “It is applicable to all sectors and all businesses and during all stages of a company.”

Johnson and his colleagues were attempting to convince a packed room of human resource personnel, finance managers, accountants and board executives to consider taking up the challenge of sustainability before it becomes a corporate financial burden.

“The fact is a company’s ability to understand, manage and communicate their environmental, social and governance policies is a crucial aspect of business that can create competitive advantage,” explained Mike Harris, a partner and leader of the sustainable business solutions and corporate governance practices at PwC. “Not managing sustainability factors can have a negative impact on a company’s financial performance.”

He added that by developing initiatives, a company can create sustainable long-term value, while mitigating any negative social or environmental impacts that the firm may cause.

The two major reasons for examining and developing sustainability practices and initiatives, according to Susan McGeachie, manager of sustainable business solutions at PwC, are to reduce or neutralize a company’s carbon footprint, thereby reducing potential costs as cap-and-trade systems and carbon tariffs become established, and to reduce or negate negative media exposure.

“Reputation is a major driver in why businesses are becoming proactive about sustainability,” said McGeachie. “How you think about your business is not how you are perceived.”

Nowhere is this more evident than in how pension funds and retail investors are beginning to think about and respond to their investments.

Until a few years ago, institutional and retail investors were not provided analytical reports on companies or industries that went beyond the industry standard of quarterly projections. However, a group of pension funds from around the world changed this by agreeing to pool 10% of their research budgets to prompt the development of research reports that considered the implications of social and environmental factors for each company, sector and region for the next five to 10 years.

Subsequently, an international law firm successfully challenged the notion that fiduciary responsibility was only about the bottom line. By redefining what elements contribute to fiduciary responsibility, British and European courts have set a precedent that allows fund managers to consider longer-term impacts, such as environmental and social impacts, when considering their investments.

Most recently, the Ontario Securities Commission released Staff Notice 51-716, which signalled a shift in the mindset of Canada’s oldest market regulator, according to Paul Cassidy, an environmental law expert at Blake, Cassels and Graydon LLP.

The OSC was no longer ensuring disclosure but also taking into consideration the often-debated, and yet-to-be quantified environmental factors that can affect a corporation’s bottom line (and, subsequently, its stakeholders). Cassidy believes that the release of this notice indicates the OSC is turning its attention to environmental factors and businesses should anticipate future enforcement of environmental infractions.

“We will see the Dow Jones Sustainability Index outperform MSCI World as we go forward,” said Johnson. “The question of sustainability may be starting on the largest corporations with the greatest impact, but it will drill down to all sectors and all businesses. It will come to you.”

Johnson emphasizes that each business needs to ask, “Are we prepared?” And, he says, that starts with “dialogue with all your stakeholders,” including your investors.

Originally published on Advisor.ca on April 17, 20o8