Sustainability, Bottom Line and Investment: Solving this Decade’s Equation

Sustainability, Bottom Line and Investment. Paul R. Herman, CEO, HIP Investor

Sustainable Brands Barcelona. March 2016. The million-dollar question for many companies thinking about embracing sustainability is what impact it will have on their bottom line and in their capacity to attract fresh investment. Sustainable Brands Barcelona’s speaker  R. Paul Herman, Ceo + Founder at HIP (Human Impact + Profit) Investor Ratings (@HIPinvestor), starts to clear the equation for us in an exclusive interview. 

#SB16bcn: What impact has sustainability in financial results?

R. Paul Herman: Sustainability can improve profit for many firms when they treat People As an Asset; thus, innovation by people can spur more revenue growth and high services can secure customer loyalty and generate referrals for new customers.  Also, natural resource efficiency or applying a circular economy model can bring costs down, and remove the risks of spikes in energy and water prices.  Transparency of information enlightens investors on the risks managed by the Company.  Thus, we observe increased potential for revenue, reduced costs and lesser risk, all of which can deliver higher profit and financial returns.

Applying a sustainable business model increases potential for revenue, reduces costs and lessens risk, delivering higher profit and financial returns.

Which are the main barriers that investors may have towards investing their money in sustainable companies? 

Many investors trained in the 20th century think that treating employees better costs more money (which it may), but ignore the benefits or return on investment of that approach. But the Best Companies to Work For frequently outperform the market averages. So the evidence is real that doing good can also make money.

Investors need to unlearn what they think they know.  For many Millennials, women, engineers and entrepreneurs, sustainable companies are attractive to invest in, as they already know that these firms are smarter at managing people, efficiently manage natural resources, and are future focused on innovation and transparency.

What are the intangible assets of a company? Why are they so important for financial results? 

Accountants have defined intangible assets as those you cannot easily touch. Tangible assets are buildings, computers and land.  Yet, the assets that create products and serve customers are people. And people are “intangible” according to accountants and financial statements. Inventions and intellectual property are also classified as intangible, but that is the only way to generate new growth, higher revenue and attractive margins. For the S&P500 firms, intangibles are up to 84% of the stock market value.  But that 84% is essential to creating value for investors, customers and stakeholders. Measuring these intangibles, like we do with the HIP Ratings, can help investors allocate to portfolios that are stronger and more resilient.

For the S&P500 firms, intangibles are up to 84% of the stock market value.  That 84% is essential to creating value. At HIP we measure these intangibles to help investors allocate to portfolios that are stronger and more resilient.

You run a company called HIP Investor which provides to investors with proven data about profitable investments. How do you link Sustainability and financial return? What are the main indicators?

At HIP Investor, we analyse 5,000 companies globally on more than 30 metrics of performance – including customer satisfaction, employee retention, Board diversity, and greenhouse gas emissions intensity. These metrics are leading indicators of future risk and potential return. When investors use the HIP Ratings, a 100-point scale, they can improve their opportunities for lower risk, higher return portfolios. The HIP Investor book, published in 2010 and in 24 universities globally, describes the 30 metrics in detail, including the products and services and management practices as well as operating metrics – all of which connect to the financial statements.

Why do you think events such as Sustainable Brands Barcelona are important?

Sustainable Brands globally is important to showcase how investing in people as an asset, using natural resources efficiently, and being transparent about opportunities and risks are a winning strategy for your Brand, your firm and your bottom line. In Barcelona, this is essential to create a vibrant economy and opportunities for citizens, business leaders and investors to build a better world.

Investing in people as an asset, using natural resources efficiently, and being transparent about opportunities and risks are a winning strategy for your Brand, your firm and your bottom line.

What would you like to come out of this international event, what result do you want most?

At SB 2016 Barcelona, my hope is that business and financial leaders will see HOW sustainability can add value NOW. Investments in people can pay back positively. Nature can inspire new products and services. Collaboration in building a better world can be positive for human impact and for profit. Come join!

 

 

R. Paul Herman will lead a plenary session at Sustainable Brands Barcelona Professional Meetings entitled How to Achieve a Top Sustainability Ranking Now, on How your company can lead in sustainability, and be recognized by The Dow Jones Sustainability Index or by the Newsweek Green Rankings’ Global 500 globally or regionally. 

Last batch or early bird tickets are now on sale at Sustainable Brands Barcelona’s web site.

Articles from  HIP Green Revenue Ratings of Global 500 and US 500, part of 2015 Newsweek Green Rankings, and How Green Is the US Economy? · HIP featured in New York TimesForbes and Institutional Investor · Learn more about: Impact-Rated Bonds * Going-Fossil-Free Portfolios * Sustainable 401(k)s · Celebrate 5 years of The HIP Book: listen to the Audiobook or read at amazon.com