Short-termism has been a bad habit to shake, both for the markets and those companies trying to appease jittery shareholders. However, there is a growing understanding that, in order to thrive, businesses need to be managed with a much more holistic – and long-term – view.
While the idea of the Triple Bottom Line – People, Planet and Profit – has been around since the 1990s, it is only in recent years that we have really seen companies’ social and environmental impacts given due consideration alongside their profit & loss accounts.
Companies that ignore material economic, social and governance (ESG) issues are courting real risks – as well as missing out on opportunities to widen their competitive moats. From a dividend growth and safety perspective, this is of real consequence.
A more complete picture of the true cost of doing business gives a greater insight into whether a company is generating real long-term value for shareholders.
Take the global financial crisis (GFC), at its heart was poor governance – with aggressive sales cultures, misaligned incentives and poor risk management. More than 10 years on, we are still learning the lessons from this turbulent episode. Now, nearly 20 years into the millennium, investors simply can’t ignore some really pressing issues: climate change, the proliferation of plastic; or the thorny issue of water scarcity. These are themes which are already impacting companies’ bottom lines and will only become more relevant in the years to come.
Research shows that companies with better sustainability practices tend to demonstrate better operational performance, which ultimately translates into cash flows and dividends. From my perspective, there are some very good examples out there of companies which are making real strides in embedding sustainability into their day-to-day operations and long-term strategies – and they are reaping the benefits of this approach.
Hear Mark Whitehead from Martin Currie Investment Management Limited talk at the annual investment conference on March 5th. For more information and to book your place follow this link.
Past performance is not a guide to future performance. Information correct at time of publication. This information is issued and approved by Martin Currie Investment Management Limited. The opinions contained in this article are those of the named manager. They may not necessarily represent the views of other Martin Currie managers, strategies or funds.
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