Companies that effectively manage environmental, social and governance factors may be better equipped to achieve and retain market leadership, according to a new report by Goldman Sachs International, global banking and securities firm.
Presenting his company's first environmental, social and governance investment framework, Goldman Sachs International Managing Director Anthony Ling told the Press on Monday that these factors had become prominent because of the 'changing competitive landscape for industry'.
Consumers, he said, are taking into account these factors as never before, the Internet has ushered in an era of unprecedented communication and more than 3,000 non-governmental organisations are registered with the United Nations.
This has increased the need for transparency for corporations. A weak performance in the environmental, social, and governance area means 'you are going to lose competitive advantage, and this will impact on your stock performance,' and more investors are taking into account such factors when picking up stocks, the report said.
In 2005, Goldman Sachs set up a dedicated team to measure company performance against those factors, covering sectors such as energy, pharmaceutical, insurance, banking and finance.
"The initial signs are very encouraging, and corporations are adopting new practices," Ling said.
Eco-friendly companies such as recycling and nutritional foods are doing particularly well, and the alternative energy industry had shown a five-fold growth in the last three years, which resulted in
But the process of fully incorporating these values in company practices could take five to seven years, Ling said.
He also warned that there was no rigid, one-to-one correlation between adopting such values and economic performance.
As part of its research framework, the Goldman Sachs team used the principles of the UN Global Compact, which engages companies worldwide to subscribe to 10 universal principles on human rights, labour rights, the environment and the fight against corruption.
More than 3,100 businesses from at least 120 countries have so far subscribed to the Global Compact, making it the world's largest voluntary corporate citizenship initiative.
Global Compact Executive Director Georg Kell said the engagement and responsibility of Compact subscribers are increasingly paying off.
More than 1,000 Compact participants from 120 countries would take part in the second Global Compact Leaders Summit in Geneva on July 5 and 6 which would try to establish the business case for engagement.
The summit would be the largest gathering ever held by the UN on the issue of corporate citizenship featuring an international roster of business leaders, government ministers and heads of civil society.
The Global Compact seeks to make global markets more stable through companies adopting the 10 principles as a benchmark for action, Kell stressed.
"As business goes global, the need to manage risks is increasingly understood. Our goal is to make global markets more stable and more inclusive."
