corporate responsibility

Does sustainability matter to investors? Depends who you ask

May 2, 2013: 4:02 PM ET

Do investors care about a company's environmental risk? Three high-profile investors debated this topic at Fortune's Brainstorm Green conference.

By Leigh Gallagher, assistant managing editor

Abby Joseph Cohen

Abby Joseph Cohen

FORTUNE -- A trio of high-profile investors debated the investment community's acceptance of environmental risk in a late afternoon panel at Fortune's Brainstorm Green conference in Laguna Niguel, Calif., earlier this week. David Blood, cofounder of Generation Investment Management, Goldman Sachs' Abby Joseph Cohen and asset manager-turned-environmentalist Tom Steyer, the founder of Farallon Capital Management who is now focused on finding solutions to climate change, all agreed on one thing -- the risks are huge. But they had different thoughts on whether investors care or not.

Cohen pointed out that for years many investors took as gospel academic research that came out in the 1990s that showed that portfolios based around socially responsible investing didn't do well. "For several years the results of these academic papers were used by university endowments for why they shouldn't be investing in a green manner," she said. "We thought that work was probably not right."

Goldman (GS) did work in the mid-2000s, she said, that showed that investors were indeed paying attention to carbon energy intensity and other factors; Goldman's research showed that a "cleaner" company had a higher p/e and lower cost of debt capital: "There was a premium on being more sustainable company in this space."

Read more from Brainstorm Green

During the financial crisis these correlations went away, Cohen said, adding that she sees movement back towards such correlations -- and that her division has committed significant resources to think about these issues. One such way: a framework to evaluate companies called Sustain, which looks at metrics like ESG (environmental, social, and governance) factors, quality of management, community issues, and the like. Cohen has said this framework has revealed a high correlation between companies that are financially sustainable and those that are paying attention to such issues. And she said the company's analysts study these results. She pointed out, however, that the company's portfolio clients in the U.S. are not as interested in these issues as they are in other parts of the world.

Blood said the markets are very efficient and "good weighers" of information and that right now, they are suggesting there won't be a global price on carbon anytime soon and that the probability of fossil fuel reserves being burned is high. "The markets have judged that they don't care," he said.

Both Blood and Steyer said that the markets may have realities forced upon them in ways that will be significant. "If the scientists are right and events occur the way they're predicting them," Steyer said, "it will bring political reactions that will be dramatic."

He said he was confident in the private enterprise in finding solutions, but only if the incentives and parameters and rules for them to do so exist.

The panelists made the point that the problem is global. But Steyer said responsibility still lies with the U.S. to lead. "We are the essential problem," he said. "We are the biggest historical polluter and biggest polluter per person. If we're going to go overseas and ask people to accept rules, we're going to need to lead and accept sacrifices."

"We are the essential country for technology, for money, and for morality," Steyer said.

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