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Lies, damned lies and sustainability reports



Ty Lee, senior analyst at WHEB Asset Management, delves into the troublesome world of corporate sustainability reporting, and explains why we must crack the chicken-and-egg problem between companies and investors.

How much is 122 billion tonnes of carbon dioxide? If you think it sounds like a lot, you’d be right – it is more than four times the entire planet’s production of CO2 in 2009.

It is also the amount that Italian energy utility Enel reported that it produced in 2009. As the researcher who uncovered this pointed out, any credible attempt to combat global warming will clearly have to start in Italy.

This is though just one example of the widespread misreporting of data in sustainability reports over the last few years presented by researchers at a seminar focused on the integration of sustainability into investment processes last year.

One of the presenters, Dr Ralf Barkemeyer (Leeds University) and his team have been working with corporate sustainability data for more than 10 years. His findings were particularly shocking, showing the poor quality of reporting even among industry-leading companies.

ABB, a multiple reporting award-winner, was found to have overstated its sulphur oxide emissions by a factor of 1,000 for seven years in a row (many of its awards were won during this period); Ford Motor Company managed to simultaneously halve and double its water consumption – all in the same year (2006).

What perhaps was even more shocking was that no one spotted these eye-catching errors for such a long time. Amazingly, it was found that around six out of 10 large European companies reported incomplete CO2 emission information.

There are various reasons why the quality of sustainability information is so poor when compared with financial data.

One reason is that there is still only relatively limited usage or monitoring of data from stakeholders, including shareholders, investors and analysts. This also resonates with the comments from the discussion panel at the seminar that buy-side analysts generally do not take sustainability information seriously.

Hence, there is a chicken-and-egg problem perfectly summarised by two questions during the presentation: “Why should companies produce high-quality reports if their stakeholders do not really process the information provided?” and “Why should stakeholders read sustainability reports that are fundamentally flawed?

On top of that, it is generally difficult to interpret and compare sustainability data as they are reported in different definitions and metrics. Moreover, the media interest surrounding ClientEarth’s successful challenge to the Financial Reporting Review Panel over Rio Tinto’s 2008 report and accounts, underlined just how rare it is for companies to be held to account for poor quality reporting.

To be fair to the reporting companies, most of them are still on a learning curve of reporting sustainability information and are trying to put the systems and controls in place. Encouragingly, both the presenters and our team have observed meaningful improvements in the quality of the sustainability information in terms of comprehensiveness and standardisation over the past few years.

Setting aside the quality issue, the next question is whether there is value in sustainability reports and how analysts can extract value from them.

Professor Frank Figge (Euromed Marseille) provided an answer by suggesting a value-oriented way of analysing sustainability information. Instead of looking at environmental, social and governance (ESG) data on a standalone basis, they are linked to financial performance such as measuring earnings before interest and tax per ton of CO2 emission, so that ESG performance can be presented in monetary terms and compared against the peers.

Certainly there is more work to be done to improve analysts’ tools to fully appreciate the value of sustainability information but I think it is a good starting point.

Dr Tommy Lundgren from the Centre for Environmental and Resource Economics in Sweden provided further evidence in his study which supported the idea that there is a positive relationship between environmental performance and financial performance, in line with numerous similar studies.

What do all these findings mean for WHEB’s integrated investment process? First of all, it is good to learn that more and more studies suggest that there are positive relationships between ESG factors and financial performance, which further validates our integrated investment process. On the other hand, with the poor quality issue in mind, we have to scrutinise the sustainability data vigilantly when we use them.

In the longer term, we should aim to improve the information quality through our communications and engagements with companies with the hope of cracking the chicken-and-egg problem between companies and stakeholders.

Ty Lee is a senior analyst at WHEB Asset Management. This article originally appeared on WHEB’s blog.

Further reading:

Has CSR reached its sell-by date? Part 1

Has CSR reached its sell-by date? Part 2

We shouldn’t treat corporations and investors like children

Sustainability in the workplace reflects on employees’ personal choices, says study

The Guide to Sustainable Investment 2013

Articles, features and comment from WHEB Group, an independent investment management firm specialising in opportunities created by the global transition to more sustainable, resource efficient economies. Posts are either original or previously featured on WHEB’s blog or in its magazine, WHEB Quarterly.


How Going Green Can Save A Company Money



going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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5 Easy Things You Can Do to Make Your Home More Sustainable




sustainable homes
Shutterstock Licensed Photot - By Diyana Dimitrova

Increasing your home’s energy efficiency is one of the smartest moves you can make as a homeowner. It will lower your bills, increase the resale value of your property, and help minimize our planet’s fast-approaching climate crisis. While major home retrofits can seem daunting, there are plenty of quick and cost-effective ways to start reducing your carbon footprint today. Here are five easy projects to make your home more sustainable.

1. Weather stripping

If you’re looking to make your home more energy efficient, an energy audit is a highly recommended first step. This will reveal where your home is lacking in regards to sustainability suggests the best plan of attack.

Some form of weather stripping is nearly always advised because it is so easy and inexpensive yet can yield such transformative results. The audit will provide information about air leaks which you can couple with your own knowledge of your home’s ventilation needs to develop a strategic plan.

Make sure you choose the appropriate type of weather stripping for each location in your home. Areas that receive a lot of wear and tear, like popular doorways, are best served by slightly more expensive vinyl or metal options. Immobile cracks or infrequently opened windows can be treated with inexpensive foams or caulking. Depending on the age and quality of your home, the resulting energy savings can be as much as 20 percent.

2. Programmable thermostats

Programmable thermostats

Shutterstock Licensed Photo – By Olivier Le Moal

Programmable thermostats have tremendous potential to save money and minimize unnecessary energy usage. About 45 percent of a home’s energy is earmarked for heating and cooling needs with a large fraction of that wasted on unoccupied spaces. Programmable thermostats can automatically lower the heat overnight or shut off the air conditioning when you go to work.

Every degree Fahrenheit you lower the thermostat equates to 1 percent less energy use, which amounts to considerable savings over the course of a year. When used correctly, programmable thermostats reduce heating and cooling bills by 10 to 30 percent. Of course, the same result can be achieved by manually adjusting your thermostats to coincide with your activities, just make sure you remember to do it!

3. Low-flow water hardware

With the current focus on carbon emissions and climate change, we typically equate environmental stability to lower energy use, but fresh water shortage is an equal threat. Installing low-flow hardware for toilets and showers, particularly in drought prone areas, is an inexpensive and easy way to cut water consumption by 50 percent and save as much as $145 per year.

Older toilets use up to 6 gallons of water per flush, the equivalent of an astounding 20.1 gallons per person each day. This makes them the biggest consumer of indoor water. New low-flow toilets are standardized at 1.6 gallons per flush and can save more than 20,000 gallons a year in a 4-member household.

Similarly, low-flow shower heads can decrease water consumption by 40 percent or more while also lowering water heating bills and reducing CO2 emissions. Unlike early versions, new low-flow models are equipped with excellent pressure technology so your shower will be no less satisfying.

4. Energy efficient light bulbs

An average household dedicates about 5 percent of its energy use to lighting, but this value is dropping thanks to new lighting technology. Incandescent bulbs are quickly becoming a thing of the past. These inefficient light sources give off 90 percent of their energy as heat which is not only impractical from a lighting standpoint, but also raises energy bills even further during hot weather.

New LED and compact fluorescent options are far more efficient and longer lasting. Though the upfront costs are higher, the long term environmental and financial benefits are well worth it. Energy efficient light bulbs use as much as 80 percent less energy than traditional incandescent and last 3 to 25 times longer producing savings of about $6 per year per bulb.

5. Installing solar panels

Adding solar panels may not be the easiest, or least expensive, sustainability upgrade for your home, but it will certainly have the greatest impact on both your energy bills and your environmental footprint. Installing solar panels can run about $15,000 – $20,000 upfront, though a number of government incentives are bringing these numbers down. Alternatively, panels can also be leased for a much lower initial investment.

Once operational, a solar system saves about $600 per year over the course of its 25 to 30-year lifespan, and this figure will grow as energy prices rise. Solar installations require little to no maintenance and increase the value of your home.

From an environmental standpoint, the average five-kilowatt residential system can reduce household CO2 emissions by 15,000 pounds every year. Using your solar system to power an electric vehicle is the ultimate sustainable solution serving to reduce total CO2 emissions by as much as 70%!

These days, being environmentally responsible is the hallmark of a good global citizen and it need not require major sacrifices in regards to your lifestyle or your wallet. In fact, increasing your home’s sustainability is apt to make your residence more livable and save you money in the long run. The five projects listed here are just a few of the easy ways to reduce both your environmental footprint and your energy bills. So, give one or more of them a try; with a small budget and a little know-how, there is no reason you can’t start today.

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