I am delighted to share with you the results of Polestar’s sustainably survey. We had a great response from businesses and investors. They shared their real views on sustainability, and whether they see it becoming integral to their businesses (or indeed otherwise) and, ultimately, affecting company valuations. All sectors were well represented and nearly 25% of the responders were private equity firms.
We have compiled the results, crunched the numbers and have a final report that you may find interesting. What did you tell us? Here is quick summary.
Firstly, more than 9 out of 10 respondents are keen to implement sustainability measures into their businesses, of which 83% have already started. What is holding them back? Difficulty in measurement and reporting rank as top factors. It is interesting that Private Equity certainly has more of a handle on this – 75% say that they are already measuring sustainability in their portfolio companies.
Unless you have time to invest, it can be hard to know where to start. Why? I think it is because the industry is in its infancy and often highly technical. It has not yet been “consumerised” – there are no easy-to-access solutions a company can buy for measuring carbon reduction, for example. Where sustainability measures are more highly developed, and perhaps have a clearer link to business requirements, as in employee reward and recognition for instance, then there is very high take up of those services (72% of respondents).
Another reason for the inertia seems to be/that whilst more than 80% of respondents agree that pursuing sustainability initiatives is a good idea, they feel the case has not been fully made for the financial benefit of investing time and money. So, we see the younger cohort pushing on regardless, whist the more “experienced” respondents are more sceptical. One PE veteran actively riled against the whole lot. I have some sympathy; he is seeing a huge weight of reporting and an expensive industry popping up for which he sees no tangible benefit. His view is that if an action would make business more profitable because it is greener, it will do so regardless: “incessant reporting is diverting time the board’s time”. I do, however, think that these are teething issues and it will become as normal as doing your financial accounts in time.
Corporates are less convinced than PE that a more sustainable business will drive a higher valuation. Given the investment that is being made by PE, who know how to add value, then maybe founders should take note. Many have said that they see an extra 1x or 2x EBITDA being paid for businesses that have this extremely well covered, so why leave this value on the table? For instance, why pay more for your energy than you need to, if investing in low-carbon technology will drive savings?
An interesting finding is that Software, Media & Technology businesses often appear to be the least engaged. This is probably because they have the least to gain, while Manufacturing & Distribution firms are typically all over this due to their high material and energy costs.
Finally, what is also clear is that regulation and legislation is what will drive improvements, it seems that maybe we all need a bit more stick, and less reliance on the carrot to motivate action. Like everything in life, it is hard when we are learning something new and easy after practice. Businesses that can help simplify this process will thrive!