Resource Efficiency
The first global business to voluntarily release detailed corporate sustainability data in the form we know today was The Body Shop in 1995. By the millennium, there were 44 firms that voluntarily disclosed sustainability data according to the guidelines of the Global Reporting Initiative (GRI). Today, there are nearly 2,000 and that number is growing steadily.
There are a variety of reasons that companies choose to produce these reports, but at their core they are intended to be vessels of transparency and accountability. Essentially, they are meant to improve internal processes, engage stakeholders and persuade investors. It also happens that responsibility plays well with the public, so the public relations benefits of transparency and engagement is an additional factor.
As investors, what does this data tell us? Well, for starters it provides insight into an organisation, insight that is deeper than the actual data itself. The voluntary disclosure of material environmental information requires a significant investment in time and effort at all levels of an organisation, increasingly up to the board of directors.
In order to produce data for disclosure, companies must measure the inputs and impacts of their operations in a very detailed manner. It follows that company’s which measure data, by default monitor the data and they tend manage it in greater and greater detail as they become more fully aware of its impact on the business.
THE MODEL OF RESOURCE EFFICIENCY
Even better, environmental and sustainability information can be used to create valuation metrics which demonstrate the link between resource efficiency and shareholder value. There are more than 700 environmental effluents disclosed in sustainability reports every year. Clearly, all organisations are different, even within the same industry. And most do not use or report on the bulk of the more esoteric effluents.
However, nearly every company in the world will consume or create some measure of three basic factors; water, energy and waste. It is not surprising therefore, that details on these factors are the most widely reported. What may be surprising is that the disclosed information on these factors reveals a great deal about a company.
Companies that are more resource efficient across every sector of the economy tend to display greater operating margins and better asset yields than their peers. It is intuitive that they would, given the premise that resource efficient companies produce more from less. They also tend to show greater return on assets and greater return on equity. Unfortunately, the transition from linear to circular will be a long process despite the dangers of resource constraint and climate change. The politics of compromise will almost guarantee this. Too many large corporations, governments and influential people have too much invested in the current
50 entrepreneurcountry
system. Change will surely come, but will not do so at the speed that many would prefer.
But as the transition proceeds to a more sustainable circular leaning economy, companies that use less resource in the creation of value will display the resource efficient characteristics of higher operating margins and better asset yields. Linear, circular or somewhere in between, they will fare well within the parameters of the Model of Resource Efficiency. And the markets are very likely to continue to price them accordingly.
ABOUT OSMOSIS
Osmosis came together, deeply experienced in the City and other financial centres around the world to identify opportunities as the financial community grappled with the enormity of capital required to address the very compelling issues of constraint, consumption and environment.
Osmosis develops investment strategies address these issues in a pragmatic, practical manner, with a philosophy based on the economic imperative that permeates global business. At its core, resource efficiency leads to shareholder value. In its many forms, it is a catalyst to the transition to a more sustainable future.
Osmosis Investment Management is an owner managed independent UK registered Limited Liability Partnership (LLP). The company directly and entirely owns all of the assets of the business, including all of the intellectual property created and utilised by the business to conduct its operations.
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