The right message to shareholders.
A number of years ago, an executive gave a very far-seeing speech on public issues entitled "Rivers and Boats." Boats, in his definition, were temporal issues -- issues of the moment -- which were carried from side to side by the prevailing winds of the day. Rivers, on the other hand, were generic issues -- those broadly based concerns of the body politic that remained impervious to the tides and currents of public opinion and the gale force gusts of media frenzy. Where boats could be measured in days or weeks or months, rivers were timeless in their sustaining impact on the human condition -- and while the rivers rise or fall in relative terms, basically like the Mississippi, "they Just kept rollin' along."
Our individual, societal, and corporate concerns for the environment are clearly a river, and not a boat. The environmental movement -- given all its hyperbole, its excess zeal, its frequent failures to accept legitimate economic concerns, and its sometimes mindless military -- still remains a fundamental force in our society and our economy, and will remain so for succeeding generations.
So when we are about to consider the priority of conveying a company's "green" message to shareholders, we are not just crystallizing another debate over accounting principles or responding to the latest blow-up over executive compensation. We are addressing a physical and human concern of substantial dimensions that has invested itself through sheer momentum into the basic fabric of all our institutions, both public and private.
A fundamental question we need to address is, "Do shareholders care?" If they do, what is it they specifically want to know about a company's green side? And does it make a difference?
The first of these questions -- do shareholders care? -- divides itself again by two: into individual investor and institutional investor considerations. The answer in both cases is, they care -- first and foremost about the potential financial impact of environmental performance, and then, close behind, about the environmental policies and actions of individual companies.
I say policies and actions because discerning investors -- particularly those at the institutional level -- are keenly aware that, in the future, environmental deeds will speak much louder than environmental words. These investors realize that it is not sufficient just to have a policy; it must be a policy reflected in specific, measurable accomplishments, related to the letter and spirit of compliance, and audited and disclosed on a regular and forthright basis.
Common Communications Themes
Having established at least a beginning case for the proposition that shareholders care about environmental responsibility -- whether induced by the carrot or the stick -- let me offer an introductory list of 10 common themes that institutional investors consider as central to stakeholder communications on the environment. Stakeholders in this context represent the broader audience concerned with environmental communications, including all those who have a "stake" in a company's successful financial performance. I am indebted for the list to two organizations: the Investor Responsibility Research Center, which did the survey of investors and compiled the data, and the Global Environmental Management Initiative, which commissioned the study in the first place.
Here are the 10 communication themes, developed from sessions with in-depth focus groups with institutional investors:
* Corporations must understand what stakeholders want to know and why they want to know it.
* A corporation's environmental policy should take into consideration the needs of its stakeholders.
* A corporation should be cognizant of what its compliance record suggests to its stakeholders.
* A corporation's outreach activities should be relevant to its stakeholders.
* The results of environmental audits should be an important source of information to stakeholders.
* Corporate environmental reports, if developed carefully, can be an important tool for demonstrating progress.
* An environmental report should convey not only factual data, such as emissions and incidents, but also the corporation's guiding principles and a statement of management commitment to environmental stewardship.
* A clear statement of the corporation's environmental goals should be stated in any outreach materials as well as a description of how the corporation measures its progress against its goals.
* Written materials should describe the corporation's management systems that support its goals for environmental, health, and safety issues, including compliance systems, organization structure, and audit systems.
* Environmental reports should have a logical format, one that tells the corporation's story from beginning to end, including current challenges. Brevity is critical.
Socially Responsible Investing
Let me turn now to two other aspects of the influence of environmental performance on the attitude of shareholders.
The first of these is the rising phenomenon called socially responsible investing, or SRI. Socially responsible investors include individuals and institutions such as public employee pension funds, universities, and churches. In addition to looking at financial performance, these investors screen companies on such factors as the public health impact of the company's products; employment and health care policies; environmental record; ethics; where the company does business; and many other factors.
Ten years ago this was a tedious and often frustrating exercise: Research on individual companies was scanty at best, and packaged products -- such as socially responsible mutual funds -- were few and far between. But what a difference a decade makes. In 1991, according to the Social Investment Forum, based in Minneapolis, more than $650 billion was invested in "socially responsible" companies -- up 25% from a year earlier and nearly 60% from 1988 levels. A major component of these SRI dollars is related directly, if not exclusively, to a company's environmental performance record.
To take but a single example from among the many available, the restricted asset management portfolio of U.S. Trust in Boston stood at $7 million out of a total of $100 million in 1980. As 1992 drew to a close, this socially responsible investment portfolio represented $1 billion out of a total of $2.5 billion. That's four out of every 10 invested dollars.
A major force behind socially responsible investing is public employee pension funds. With environmentalism riding high on the public and political landscape, these pension funds will not be shy about pressing changes in corporate behavior on the environment.
They have already had a measurable impact on corporate governance.
Environmental concerns -- as a visible part of the growing social sensitivity -- are no longer a peripheral consideration. They are becoming a measurable, mainstream factor in directing the flow of future investment into the marketplace. As such, they represent a commanding reason why progress in environmental management needs to be up in the headlines of corporate communications, and not relegated to the footnotes of the annual report.
As a footnote to the above, think about who else impacts your financial statements by their actions: governments that levy fines; individuals and groups who litigate; insurance companies that raise rates and refuse to insure; and banks that refuse to lend.
Making Prevention Pay
The second aspect of the influence of environmental performance on the attitude of shareholders is one that can be best described by a program successfully carried out by the 3M Co. called "Pollution Prevention Pays." This program was established in 1975 on the basis that prevention is more environmentally effective, technically sound, and less costly than conventional control procedures.
Costly natural resources, energy, manpower, and time are all used in building conventional pollution control facilities, and more resources are consumed in the process of operating them. Furthermore, at best, conventional pollution removal facilities only constrain a problem, not eliminate it. It is toward pollution elimination, not pollution control, that the 3M program is dedicated.
The bottom-line question, of course, is, "Has it worked?" The bottom-line answer is, "In spades." During the first 15 years of the Three P program at 3M, the measurable, documented savings to the company amounted to $500 million -- dollars that translated very directly into the southeast corner of the profit-and-loss statement.
The implications are obvious in terms of shareholder communications. Not only can 3M point with pride to that fact that it is complying with environmental requirements and taking steps to eliminate future pollution sources, it can demonstrate in dollars-and-cents terms that this effort has made a documented contribution to the company's bottom line.
A Message for All
What this suggests is that by undertaking a major effort within your company to prevent pollution before it occurs, you can not only make a visible difference in the environment but in your future profitability as well. To me that's a message that every shareholder, every institution, every analyst, every employee, and every community would like to hear.
Part of the communications problem in all of this is, first and foremost, an internal one -- convincing managers and employees that they have to rethink the way they look at environmental management. Where many see only additional problems, you need to show them opportunity; where they see unacceptable risk, you have to quantify the benefits; where they think only in terms of added cost, you have to demonstrate the potential savings.
It is a matter of culture and it is a matter of conversion. And finally, it is a matter of leadership, commitment, and communication.
Peter Osgood is Managing Principal of the Osgood Global Group, a strategic management consulting firm that counsels clients in communication strategies. research and analysis, corporate positioning, marketing, issues management, and crisis preparedness. He began his public relations career in 1965. From 1986 to 1991 he served as Vice Chairman, International, of Hill and Knowlton.
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|Title Annotation:||Leadership in Environmental Initiatives|
|Publication:||Directors & Boards|
|Date:||Sep 22, 1993|
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