Sustainability metrics: why it's time investors look in the mirror

This piece is from a blog series written by members of the Global Future Council on Investing exploring factors shaping the investment portfolio of 2040.

You can further explore the themes discussed in this article by reading our community paper.

In recent years, investor demand for “non-traditional” or “stakeholder” metrics has led companies to the disclosure of a wealth of new information beyond traditional accounting statements. Investor and corporate communities increasingly agree that long-term performance and stakeholder strategies are intertwined.

How companies manage their people, use the planet’s resources and affect the communities around them all factor into their success in the long run. “What gets measured gets managed,” says the old adage and the corporate world is moving towards measuring what matters

Today, investors are typically the users rather than producers of this non-traditional information. Most institutional investors seek information on sustainability issues to better assess companies’ adaptability and resilience and monitor their risk management to inform investment decision-making and votes. Investors want to get to the core of what really drives businesses over time.

This begs the question: shouldn’t investors be looking at the same issues in their own organizations and portfolios? Couldn’t investors benefit from a similar evaluation?

While investors are looking for sustainability and other non-traditional metrics from the companies in which they invest, leading asset owners are increasingly recognizing that the benefits of similar accountability. Focusing the sustainability lens inward will allow the fund to better anticipate and adapt to new risks and opportunities in the years ahead. The potential impact is massive: our analysis shows that on a global level, assets under management from public pension funds and sovereign wealth funds alone have grown from $31 trillion to $53 trillion between 2009 and 2018. In such a large and growing space, investor sustainability metrics become critical.

For those asset owners that have yet to assess their own sustainability practices, measuring several critical focus areas will be a significant first step. Doing so can provide a core set of analyses that could be included alongside more traditional investment reporting and give investment committees, boards and, in some cases, beneficiaries a clearer view of the sustainability profile of their capital. Organized around the World Economic Forum’s four categories of company metrics and drawing from metrics and standards organizations (such as GRI, SASB and TCFD) as well as FCLTGlobal’s work, here are some examples of metrics and disclosures that are relevant for an asset owner and its portfolio:

Investors’ desire for new metrics is undeniable. Now, we are seeing leading asset owners turning that demand inward to help themselves better anticipate emerging risks and opportunities. By focusing on these four crucial areas, asset owners can incorporate forward-looking information into a thoughtful look at themselves – better equipping them to deliver sustainable returns during the investment timeline that are aligned with their purpose.