Traders on the floor of the New York Stock Exchange March 21, 2012 just after the opening bell.
There seem to be few limits to the number of risks that can circle any new energy project, whether it be an oil well or an efficiency-boosting technology designed for the home. From politics to privacy to financing to a lack of metrics, the obstacles often inhibit needed investment in the US and abroad as infrastructure ages while global demand grows.
Sustainability can (counter-intuitively for many investors) offer an opportunity to evaluate and price those risks so they can be better managed, said financiers, regulators and civil society representatives at the FT Investing in a Sustainable Future conference in New York today.
“Transparency is transformational,” said UBS Global Head of Sector Research Erika Karp at the conference. Even basic efforts to monitor and evaluate risks customarily defined as part of sustainable investing – environmental, social and governance issues – can lead to wide-ranging shifts across businesses.
The conference struck an interdisciplinary tone, with speakers and attendees from disparate industries and sectors underlining how much they could learn from each others’ experience – from phone companies like Verizon discussing their involvement with smart grid to international sustainability coalition groups like Ceres highlighting the work of international mining giant Rio Tinto in valuing water resources.
The system of managing and investing in companies as it exists today is unsustainable, Harvard professor Mihir Desai said in opening the conference. Managers have been rewarded for short-term thinking, and a focus on long-term returns encouraged by sustainability practices, as well as changes to contracting and performance metrics, could spark wider change and even boost the credibility of the capitalist system, said Desai.
Energy projects in particular require long-term thinking that fares poorly in a corporate environment marked by quarterly and annual growth requirements, attendees said. Combined with short two and four-year term political cycles in the US, investment horizons are shortened and companies face down a disconnect between perceptions of shareholder value and the need for long-term projects that could transform the energy sector.
Still scheduled to speak in the day were representatives of BlackRock, BMW, PwC as well as Under Secretary of State for Economics, Energy and the Environment Robert Hormats.