Companies will need to learn how to cope with damaging investor short-termism, for now at least, according to a new report from the Principles for Responsible Investment (PRI) and the United Nations Global Compact.
They have teamed up to advise companies on how they can tackle the problem, recommending that they adopt a strategy of ‘coping, shifting and changing’.
Firstly, to help them cope, firms are advised to develop and implement sustainability strategies that, as far as possible, provide clear financial benefits over the short-term. And they should communicate the short- and the long-term financial benefits of their sustainability efforts by highlighting metrics that are of relevance to short-term investors. They should also articulate how longer-term investments positively affect net present value.
In the medium term they have to shift to a more long-term oriented investor base, the report says. They can do this in a variety of ways, such as via showing how sustainability creates long-term value, remuneration strategies, ending quarterly earnings guidance and publishing formal statements of corporate stewardship.
Then, over the medium to long-term, they need to support wider systemic change in the capital markets,for example by showing policymakers how investor short-termism has affected them.
The PRI and the Global Compact’s LEAD corporate sustainability platform published the recommendations in a joint report presented at the ‘Realizing Long-Term Value for Companies & Investors’ event in Rome this week. In total, the report contains 15 recommendations.
“Short-termism in investment markets is a major obstacle to a company’s ability to fully embed sustainability in strategic planning and capital investment decisions,” the two bodies argue.
The 34-page report is called Coping, Shifting, Changing: Strategies for Managing the Impacts of Investor Short-Termism on Corporate Sustainability. It was written by Rory Sulllivan, the former Head of Responsible Investment at Insight Investment who is now Senior Research Fellow at the University of Leeds and Senior Advisor at Ethix SRI Advisors. The project was overseen by the Global Compact’s Ole Lund Hansen and Rachel Stark and the PRI’s Danielle Chesebrough and Helene Winch. The UK’s Universities Superannuation Scheme and consulting firm McKinsey & Company are among those who helped shape the report, having commented on an earlier draft.