Sustainability and Valuation

April 26 was a painful day for the global energy industry, wasn’t it? First BP announced that it was adding yet another $917 million dollars to its cumulative cost charges for the 2010 Deepwater Horizon explosion. And then Standard & Poor’s declared that it was downgrading the credit rating of Exxon Mobil from the pristine AAA level at which it had resided since the Great Depression.

Investors are obviously concerned by these events, but should they be surprised by them? After all, BP’s charges are necessitated by the continuing environmental clean-up of its massive oil spill in the Gulf of Mexico. And Exxon Mobil is struggling to adjust to low commodity prices, a challenge that is at least partly attributable to a shift in consumer demand towards the increasingly cost competitive options of renewable energy.

Ironically, on April 22, environmentalists around the world celebrated Earth Day. And then, just a few days later, investors were forced to digest this pair of dismal corporate announcements that implied a causal relationship between sustainability considerations and investment value.

One can hardly imagine a more timely moment to focus on the nexus of sustainability and value, eh? Impressively, on May 1, the Rhode Island Society of CPAs launched its Professional Certificate Program in Sustainable Value. The accounting organization “believe(s) (that it) is the world’s first such program that focuses on the impact of sustainability factors on organization and project valuations.”

I plan to help the Society as it develops the intellectual content of its Program. And later this week, I plan to speak at the Hedge Fund Roundtable’s and the New York State Society of CPAs’ Sustainability Investment Leadership Conference in New York City on the same topic.

The goal? It’s to address the reality that sustainability factors cannot be ignored by the investment community. They are required to understand the causes of statistical variations that must be identified and then quantified by investors and traders.

Indeed, as financial analysts continue to develop standards and metrics that incorporate these factors into their models, organizations will continue to incorporate sustainability considerations into their operating decisions. Not out of a sense of altruism towards the global community, perhaps, but out of a sense of responsibility to their own investors.