Thu. Apr 18th, 2019

The stock market only 'thinks green' in the long term

La bolsa sólo ‘piensa en verde’ en el largo plazo

The markets are still looking at the short term, also in terms of green investments. This is revealed by a pioneering research article that reflects how companies that invest in what is known as green information technologies obtain worse results in the year of implementation, both in the financial statements and in the stock market valuation.

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On the other hand, the same study concludes that these same companies increase their profitability consecutively in the two subsequent years and improve their valuation in the stock market. Green information technologies are those that derive positive impacts on environmental sustainability from their implementation and also influence other aspects of the company (supply chain, product development ...).


The income of companies with a long-term vocation is 47% higher

The study is based on data from German listed companies. "It is a bigger economy, more involved with environmental issues and with much more data for the preparation of the investigation", justifies the Spanish professor Fernando Gómez-Bezares, one of the three authors of the article, which was published last month. November 2018 in the Journal of Cleaner Production. However, the finance professor at the business school of the University of Deusto ensures that the results can be extrapolated to Spanish listed companies.

The explanation for this behavior of the markets must be sought in the initial economic disbursement implied by investments in green information technologies. "In the short term they represent an increase in costs for companies, which is what investors penalize, although in the long term it is shown that they improve profits," says the professor.

Investors in the New York Stock Exchange

Investors in the New York Stock Exchange
(Richard Drew / AP)

The study Measuring the Economic Impact of Short-Term, developed by McKinsey Global Institute, shows that companies with a long-term vocation generate revenues 47% higher than the rest of companies and have an increase in profits of 36%. "The challenge is to make investors aware of this reality", concludes Gómez-Bezares.

"The penalty in the short term before any type of investment, not only green, is a typical reaction of the markets", explains Jaime Silos, president of Spainsif (association that promotes sustainable investment) and director of corporate development of Forética (entity that brings together companies and professionals of corporate social responsibility / sustainability). "It's rare that a company that invests a lot goes up in the stock market unless they know how to explain it very well to investors," says Silos.

87% of managers say they have great pressure to generate short-term results

Gómez-Bezares laments that the short-term vision of the markets "suppresses this type of investment". The available studies give you the reason: 87% of the managers of global companies surveyed in the report Rising to the challenge of short-termism of FCLT Global declares to have a great pressure to generate results in the short term (two years or less). The solution is to explain "very well to the markets the need and the benefits of green investments", in the opinion of Jaime Silos.

In spite of everything, more than half of the Spanish companies are planning to increase their investments in renewable energy and energy efficiency solutions in the current year, while 37% plan to maintain the same level of investment, according to Johnson Controls Building Technologies & Solutions.

Okay, when not investing causes deaths

The world's leading iron producer has plummeted more than 20% in the stock market after the rupture of its Córrego do Feijao mine, located in southern Brazil. "Analysts had already warned of Vale's risks due to their environmental attitude and lack of investment," says Jaime Silos.

Recklessness has cost the lives of more than 160 people so far, while almost 150 are still missing.

Three years ago, the company already carried out a similar accident that caused 19 deaths.

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