Beyond the Bottom Line – Why Investors are Valuing Sustainability

Capital Power - Kate Chisholm - Q.C., Senior Vice President, Chief Legal and Sustainability Officer
By Kate Chisholm Q.C., Senior VP, Chief Legal and Sustainability Officer at Capital Power

Every investor is looking for a strong financial return, but today’s shareholders are demanding more from the companies they invest in. Increasingly, they’re choosing to invest in companies that combine strong financial returns with excellence in environmental, social, and governance (ESG) performance – a so-called “triple bottom line”.

Everybody benefits from sustainability.  For example, a recent study by Boston Consulting Group and MIT Sloan Management Review showed that effective sustainability strategies create value for companies and their shareholders by reducing costs, driving growth, and increasing margins. In turn,  I expect that companies that succeed in this sphere will also experience higher valuations and higher stock prices than those that do not.

“What gets measured gets done”, and this shift is causing companies to become more aware of their impact on the world than ever before.

Investors Should Demand ESG Information When Comparing Companies

The shift towards sustainable investing is being driven by younger investors and millennials. In fact, a recent Morgan Stanley survey found that 84% of millennials invest with as much focus on ESG as on financial results – not because they are unrealistically altruistic – but rather because they consider sustainable companies to be less risky, more profitable investments. Since millennials will constitute 75% of the workforce and most active investors by 2025, companies that ignore this trend do so at their peril.

Being able to compare companies on more than just their financial performance makes it possible for investors to find companies that are both successful and aligned with their personal values. However, every company currently presents its ESG information differently, and this makes it difficult to directly compare companies’ performance in the same way we can with financial performance.

Already, initiatives brought forward by the UN and the Canadian Securities Administrators, as well as the rise in popularity of integrated reporting, are setting the groundwork for a more standardized approach to reporting that will enable investors to make apples-to-apples comparisons between companies. The result is that more companies than ever before are reporting ESG information. In 2011, less than 20% of S&P 500 companies reported ESG data. In 2017, that number had increased to more than 85%.

Powering a Sustainable Future

Increased ESG reporting affords the power industry with an unparalleled opportunity to explain how proactively it’s responding to climate change and other important ESG issues. My colleagues and I are all members of our community, and we recognize the role we play in building and powering a more sustainable world for future generations.

At Capital Power, we’re committed to being part of the climate solution and we’ve made ESG an integral part of our business success. On the environmental side, we’ve invested in innovation and new technologies to continually improve the emissions performance of our thermal generating assets, to grow our renewable generation portfolio, and to support the development and deployment of carbon capture utilization and storage that will achieve zero-emitting natural gas generation in the not-so-distant future.

On the social side, we’re actively building partnerships with businesses across industries to tackle systemic challenges, such as climate change, diversity and inclusion, wildlife protection and health and safety. By working together with other leaders in ESG, we’re able to move the needle faster and create more lasting results that benefit more people.

From a governance perspective, we’re constantly ensuring that decisions are made in the best interest of shareholders, and that effective processes and controls are in place to assess and manage risks, capitalize on opportunities to position us for the long term and build relationships with our other key stakeholders.

We’re more than just a power company. We’re a good neighbour and we’re taking a leading role in improving ESG across the board.

ESG – More Than Just the Bottom Line

Driven by the rise of sustainable investing, many investors are now choosing their investments on the basis of companies’ ESG performance in addition to their financial results. All other things being equal, investors want to place their capital with the companies that best align with their personal values. This trend is creating a demand for more standardized ESG reporting requirements for companies, and has incentivized companies across industries to take real, meaningful action.  Capital Power looks forward to the time when ESG reporting requirements are standardized because we’re confident we’ll succeed in the apples-to-apples comparisons.

To learn more about Capital Power’s long-term sustainability strategy, targets and performance, view our 2018 Corporate Sustainability Report.