Boost sustainability performance to attract investment

New research among 3,000 respondents across 100 countries has found that nearly half of investors say that they won’t invest in a company with a record of poor sustainability performance, which means, if you're looking to raise investment capital, you need to raise your sustainability performance first.

Among the key learning points from the research, conducted jointly by the Boston Consulting Group and MIT Sloan Management Review, were:

Investors believe that sustainability creates tangible value

Seventy-five per cent cite improved revenue performance and operational efficiency from sustainability as strong reasons to invest. More than 60 per cent believe that solid sustainability performance reduces a company’s risks. Nearly the same number also strongly believe that it lowers a company’s cost of capital.

Although a sustainability strategy is considered important, few companies have developed one

Nearly 90 per cent of respondents say that a sustainability strategy is essential to remaining competitive. However, only 60 per cent of corporations have such a strategy. Although a clear business case is central to the strategy, only 25 per cent of respondents say that their companies have developed one. Business model changes are also central. Organisations that have made a sustainability-related change to their business model are twice as likely to report profit from sustainability than companies that haven’t.

The message is clear: investors make decisions based not only on the financial strength of businesses but also on sustainability performance because they recognise that it can add value by reducing costs, boosting profits and avoiding risk.

Understanding and then improving sustainability performance

If you're thinking about raising fresh investment, whether that be debt or equity finance, it makes sense to first understand your current level of sustainability performance and to think about how you can improve it given its growing importance to investors.

There are lots of tools out there to help. Here at Remsol, we’ve developed a unique maturity model that we use to evaluate sustainability and resilience performance across up to 30 separate measures, codifying that performance as either Beginning, Improving, Succeeding or Leading.

When you report your performance, it's important to remember that investor-friendly language is a comparative language. Sustainability is only relevant if it can be compared to a competitor, past performance, or new market development.

In March 2010, the United Nations Environment Programme (UNEP) and the World Business Council for Sustainable Development published the results of a study that attempted to better understand how ESG (environmental, social and governance factors, including sustainability) can be translated into sustainable business value. Their report identified a number of ‘investor wants’ which include:
  • Companies should provide data on how ESG factors influence their operations and commercial performance.
  • Companies should provide a clear link between ESG factors and financial materiality in annual reports.
  • Companies should show ESG as a means to reduce volatility.
  • The recommendations for businesses are unequivocal: draw clear links between ESG factors, sustainability, financial performance and strategy.
Takeaways for businesses seeking investment

If you’re thinking of exiting your business or leveraging in new sources of finance to help you grow, you need to better understand how your sustainability performance can affect your chances of success. Remember, poor sustainability performance = lower business valuations and reduced investor confidence, and so you need to:

  • Evaluate your sustainability performance, identifying and fixing weaknesses.
  • Track your performance and link it to KPIs and your financials.
  • Report your performance and show how it strengthens your financials.
Timing is everything. It makes sense to consider these actions at the very early stages of planning your exit strategy or investment and growth plans, so you have time to evaluate, understand and improve your sustainability performance ahead of seeking buyers or investment partners.