Sustainability Reporting is Increasingly Important to Alternative Investment Industry

June, 2017: Sustainability is no longer a niche issue, it is front and center on the global stage.

As society becomes increasingly concerned with sustainability issues, particularly younger generations, more and more companies are choosing to be more proactive in addressing this topic in some way, realizing that if they do not, it can have a negative impact on their bottom line. From environmental concerns such as the climate, to the ethical treatment of employees or animals, consumers have become increasingly focused on how the companies they buy from handle such issues. As a result, investors are also putting greater emphasis on sustainability. Given the growing importance of sustainability within the alternative investment industry, the New York Hedge Fund Roundtable recently held its second day-long Sustainability Investment Leadership Conference (SILC), where attendees were surveyed about the topic.

“Companies need to look at the impact they have on humans,” Anita Househam, senior manager Senior Manager, Global Compact LEAD & Supply Chain Sustainability for the United Nations Global Compact, told attendees at this year’s SILC event. “We’re seeing that not just governments, but organizations at grass roots levels, have the ability to highlight what they see in the supply chain,” she said, adding that while consumers don’t expect companies to be perfect, they do expect them to acknowledge any areas of concern that exist within their supply chains. Added Tensie Whelan, director of NYU’s Stern School of Business’ Center for Sustainable Business: “If there is a consistent intention to mislead, it will eventually come out.”

Roundtable members seem to have embraced the value of sustainability as well. 65% of respondents to this year’s survey indicated that they think sustainability reporting is worth the added costs to companies, compared with 60% of respondents who felt this way in 2016 and only 46% in 2015. “While it is clear that there is still a long way to go before companies produce consistent and high quality sustainability reports to measure themselves to their peer groups and to show their own progress over time, it would be impossible to ignore the growing importance of sustainability within the alternative investment industry,” said Adam Weinstein, President of the New York Hedge Fund Roundtable and a managing director at an alternative asset management firm. “We want to thank all those who were involved in SILC.  The New York Hedge Fund Roundtable will continue to highlight and discuss the important topic of sustainability in the future,” he said.

New York Hedge Fund Roundtable members had the opportunity to weigh in on this topic both at the SILC event, as well as through an online electronic poll.

*Of the respondents to this survey, 28% were fund managers; 17% were allocators; 24% were risk management or trading; 21% were service providers; and 10% were other industry participants.

Following are some of the key findings to this year’s survey, compared with answers to the same questions in recent years:

  • Asked whether their firms consider whether or not companies practice sustainability reporting when choosing where to invest, 51% of respondents said they do, while 49% do not. Comparatively, when asked the same question in 2016, 54% of respondents said it is a factor, while 46% said it wasn’t.
  • When asked whether sustainability reporting is worth the added costs and the additional time needed to produce such reports, 65% of respondents think it is, compared with 60% of respondents in 2016 and 46% in 2015; 32% said they believe it is still too early to know whether investors will eventually hold it against companies that don’t report on their sustainability efforts, compared with 31% of respondents in 2016 and 49% in 2015; and 3% think the focus on sustainability will be short lived and isn’t worth the effort, compared with 9% in 2016 and 5% in 2015.
  • 70% of respondents said they believe sustainability reporting is equally important for all companies, compared with 65% of respondents in 2016 and 41% in 2015; while 30% believe it is far more important for large, international companies, compared with 35% in 2016 and 59% in 2015.
  • Asked if they believe sustainability reported could ever become a common practice among companies without regulatory involvement, 48% of respondents thing that companies may voluntarily product reports, but that regulatory involvement will be necessary to ensure high quality reports and consistency, compared with 26% of respondents in 2016 and 30% of respondents in 2015; 44% think that sustainability can have a big enough impact on a company’s ultimate profitability that companies have started to realize it is in their best interest to focus on the issue and produce reports, compared with 49% of respondents in 2016 and 46% in 2015; and 8% think that regulatory requirements are the only thing that could ever bring about market-wide reporting, compared with 25% of respondents in 2016 and 24% in 2015.
  • When asked if sustainability reporting is likely to become more or less important within the next decade, 51% of respondents said that investors are starting to put enough emphasis on such reports that companies that fail to generate sustainability reports risk the loss of investor support, compared with 43% of respondents in 2016 and 61% in 2015; 22% think there is still enough investor uncertainty about how such reports can translate to stronger long term performance for companies that it is still too early to know, compared with 20% of respondents in 2016 and 21% in 2015; another 22% think sustainability reports will need to become more uniform and concise before they can become a critical factor in the companies investor choose, compared with 33% of respondents in 2016 and 15% in 2015; and 5% think sustainability reporting is only a fad and won’t gain long-term traction, compared with 4% of respondents in 2016 and 3% in 2015.
  • Asked whether their acceptance of sustainability would change if it focused more on things like building a company’s reputation, health community involvement and good employee relations, versus environmental issues such as global warning, 51% said there would be no change in their attitude toward sustainability, compared with 46% of respondents in 2016; 42% said they would be more likely to embrace the concept, compared with 45% of respondents in 2016; and 7% said it would be less likely to accept sustainability, compared with 9% in 2016.

 

Bonus Question: With Elon Musk’s SpaceX making the possibility space tourism a reality, people were asked if they would be willing to assume the risks of flying into space for a trip around the moon if money weren’t an issue. Respondents were equally split, with 50% saying yes and the other 50% saying no.

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