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LEAD Companies Tackle the Dilemma of Short-Termism

February 11, 2014

 

Addressing investor short-termism on corporate sustainability and focusing capital on the long-term was the focus of a high-level meeting of chief executives and senior financial sector leaders, held today in Davos.

 

The Global 100 Executive Roundtable Dinner is an intimate gathering of CEOs from Global 100 constituents and Global Compact LEAD companies and finance leaders who are committed to making their organizations part of the vanguard of a sustainable world. Hosted by Corporate Knights, the Principles for Responsible Investment (PRI) and the UN Global Compact, the roundtable engaged participants in discussions on how financial markets can enable long-term holistic value creation.

 

Short-termism in investment markets is a major obstacle to companies embedding sustainability in their strategic planning and capital investment decisions. Investing for the short-term destroys value, yet institutional investors are key sources of short-term pressure. In order to address this issue, a long-term approach makes sense for both asset owners and companies, because it allows for increased focus on long-term value drivers and management of different forms of capital – including physical, financial and human.

 

According to an analysis by McKinsey & Company, active equity asset managers who held their stocks for more than six months on average saw considerably higher returns net of fees over the last 22 years. An HBS study shows that companies with a long-term culture and a focus on sustainability outperformed matched companies in terms of total shareholder return by 4.8 percent per year for a total of 18 years. Still, short-termism is prevalent and may be intensifying.

 

Global Compact LEAD, a platform for companies with advanced corporate sustainability practices, has led efforts to drive the conversation about the challenges of short-termism and opportunities for change. A forthcoming report, to be released next month, will identify strategies and actions that companies can take to reduce the negative effects of short-termism on their sustainability goals.

 

“Short-termism in financial markets is widely seen as breeding obstacles for business to embrace sustainability more actively,” said Georg Kell, UN Global Compact Executive Director. “Addressing this issue is critical if we are going to reposition markets toward more sustainable growth.”

 

For more information about the work of Global Compact LEAD and its strategic linkages to responsible investment, please visit www.unglobalcompact.org/LEAD.

 

Source: UN Global Compact