Thinking Outside the Regulatory Box
Studies Demonstrate Benefits of ESG ProgramsThree studies completed by Goldman Sachs, The Global Compact, and McKinsey and Company reaffirm the connection between company financial performance and superior environmental, social and governance (ESG) programs. Goldman Sachs, one of the world’s leading investment banks, has become increasingly confident in the importance of ESG as a predictor of company financial performance and sustained competitive positioning. So much so that they have created an ESG framework from which to measure long-run industry drivers and returns-based valuation performance for investment decision-making.
According to the Goldman Sachs report, which studied six industry sectors – energy, mining, steel, food, beverages and media – companies that are considered leaders in implementing ESG policies have outperformed the general stock market by 25% since August 2005. In addition, 72% of these companies have outperformed their peers over the same period.
These reports corroborate previous information suggesting that well-managed companies that understand the importance of ESG as embedded universal principles and practices are better bets for long-term sustained performance. Goldman Sachs has determined that in today’s market, the most successful companies balance ESG performance with positive cash returns on capital while staying ahead of industry themes such as alternative energy, environmental technologies and biotechnology. There is a clear message from these reports: Companies showing short-term gains that are not actively pursuing ESG initiatives are potential long-term investment risks.
Web links to the three reports can be found in the Affinity Newsroom at: http://www.affinityconsultants.com
Homeland Security to Protect Drinking-Water UtilitiesA massive collaborative effort between the Department of Homeland Security (DHS), the Environmental Protection Agency, and a number of other private, public and not-for-profit agencies, has resulted in a voluntary plan to protect drinking water from terrorist attacks and natural-resource disasters. This is part of an over-arching goal of the 17 sector-specific National Infrastructure Protection Plans (NIPP) completed by DHS. According to the plan, there are approximately 160,000 public-drinking-water utilities and more than 16,000 wastewater utilities in the United States. About 84% of the U.S. population receives its potable water from these drinking-water utilities and more than 75% has its sanitary sewage treated by these wastewater utilities. The drinking water and wastewater sector (Water Sector) is vulnerable to a variety of attacks, including contamination with deadly agents and physical and cyber attacks.
Imagine the impact to a city or region of the U.S. should the water system be harmed. The result could be large numbers of illnesses or casualties or denial of service that would also affect public health and economic vitality. Critical services such as firefighting, health care (hospitals), and other dependent and interdependent sectors such as energy, transportation, manufacturing, and food and agriculture would suffer negative impacts from a denial of Water Sector service.
Like most of the 17 sector-specific NIPP plans, the average American will most likely not feel the effects of the behind-the-scenes implementation of the increased water-protection measures. At the same time, the voluntary nature of the program provides for minimal oversight, which could result in inconsistent implementation – especially within smaller municipalities.
More information on the sector plans can be found at: http://www.dhs.gov/xprevprot/programs/editorial_0827.shtm
The Carbon Dioxide Auction Gavel has been RaisedAttempting to find creative ways to reduce carbon dioxide emissions is the main objective of the Regional Greenhouse Gas Initiative (RGGI), which represents 10 northeastern U.S. states. The goal is an auction model focused on reducing carbon dioxide emissions from electrical-generation facilities similar to the approach used for sulfur dioxide emissions to curb acid rain. The auction works by capping emissions and then facilitating trades on a per unit basis (1 ton of emission) in the free market. This has the effect, according to the economic literature, of creating monetary value for pollution.
Concerns with auction policy are similar to other markets: predictability, price volatility, hoarding, secondary markets, defaults or reneging strategies by bidders and leakage. Leakage is the term used to describe electricity imported to the region from sources not covered by RGGI emissions caps. A number of regulatory schemes are currently being worked on in most of the RGGI states to address concerns. The proposed RGGI program is expected to start up Jan. 1, 2009, and may be the template for other regions of the U.S. IH
More information can be found at: http://www.coopercenter.org/econ/sitefiles/documents/pdf/rggi_interim_report.pdf