Sustainability Indexes are often criticized for catering to
superficial moves by large companies to paper over bad behavior. Companies in
industries that pollute or companies that have suffered reputational crises are
often the ones who pump the most money into “sham” sustainability or CSR
strategies to make themselves look good, say critics.
But this is a gross generalization, followed by the dangerous
conclusion that they should be ignored or banned .
There are any number of reasons for a company to focus on
sustainability. Sometimes a crisis can indeed spark introspection and change,
or consumer complaints can play in, or an opportunistic desire to jump on a
popular bandwagon. In Europe, sustainability investors (sometimes known as SRIs
– socially responsible investors, or ESGs – environmental, social, and
governance investors) have grown to become a significant force urging companies
to pay attention to sustainability. Whatever the reasons, no one should argue
that refocusing corporate attention in a more sustainable direction is a
negative trend.
It is important to keep in mind the definition of
“sustainability”. Something sustainable is something supposed to last over
time. The idea is to refocus attention from quarterly profits to strategies
more concerned with the well-being of people, the planet, and profits (yes,
profits!) over a longer period of time. Why profits? Because profits are
important for companies to be able to pay salaries, among other things, to
share the wealth with all their stakeholders (including local communities), and
to invest.
Sustainability Indexes are an instrument that is helping
raise the bar, showcasing best practices so that others will be induced to
follow suit. Because of their own reputational concerns, indexes like the Dow
Jones Sustainability Index are very careful not to just take the word of a
company, but follow very stiff criteria, monitor and audit in person (the DJ
Sustainability Index, for example, starts with a 75 page questionnaire).
Sustainability is not just about “green”. The environment is
one aspect, but other aspects are all about checks and balances: the indexes
would never want to showcase a company that is in the wind energy business, for
example, but turns out to be another Enron. Sustainability investors and
indexes urge companies to spread good practices to their supply chains and, for
example, refuse to purchase materials from suppliers who haven’t signed on to
ethics and human rights policies and practices. Good labor practices are also
encouraged, as well as corporate citizenship.
On the environmental side, we live in an age where all of us
depend in some way on fossil fuels, and it would not be realistic to demand
that we drop all use of them overnight in favor of renewable energy. The
biggest energy companies are wealthy enough and strategic enough to be some of
the biggest investors in alternatives, as well as in ways to make their own
businesses cleaner. They should be encouraged in this direction, at the same
time as lawmakers should be encouraged to speed up the transition through
legislation.
Meanwhile, the UN Global Compact and others who have
launched sustainability indexes are doing the world a great service: they are
drawing the attention of investors to the fact that long-term sustainable
management of corporations may be more profitable in the long run than a
short-term focus that ignores the well-being of people and the planet. We are
reaching a moment in history where the interests of profit-driven investors may
be starting to align with a model of management that is cleaner, kinder, and
includes more checks and balances. The UN Global Compact is working with the
signatories of PRI (Principles for Responsible Investment) to further this
alignment.
This sort of evolution needs to be encouraged, not shot
down.
