The SCRC research team has recently been conducting a series of studies, whereby we try to link improvements in share price performance, with higher scores on sustainable supply chain performance. In a series of research studies conducted by MB students, we set about developing a set of Sustainable and Labor/Human Rights Scores, to identify companies that were doing more in this area. And then we have been trying to link these to higher share price outcomes using regression time series.
Much to our consternation, our research efforts have not produced any statistical findings. We seem to be coming empty every time.
I ran this by a friend, who is a private hedge fund manager, and expressed my frustration. His response: “I’m not surprised”.
He then related to me a recent meeting he was at with a group of institutional investors:
“Investors often state they reward sustainability. But they don’t. They only care about share price performance. So it doesn’t surprise me that there was no relationship between LHR and SRM.
I stood in front of a group of investors, and I told them: If you really care about sustainability, you would look at the companies that have these big pension fund obligations, and reward them for honoring their commitments. You would reward companies who have good sustainability practices, even though it is costing them more money to be compliant, and you would reward companies who have lower incidents of labor human rights violations. You would buy their stock, which would lower their cost of capital, and help them overcome the additional costs of being a sustainable enterprise. But you don’t do that. You penalize companies who have higher pension obligations, you sell the stock of companies who have lower margin returns, and you gripe about the companies who don’t do these things, even though you own billions of their stock!”
“And after the presentation, one of the big investor group heads came up to me, and said simply: ”You’re right.”
So do investors really care about sustainability? Or in the end, are they just worried about performance. Tell me what you think….