Sustainability is the Moneyball of the Global Economy
Baseball has always provided Americans a rich mine of metaphors and parables. Then along came Michael Lewis’s book Moneyball, now a movie nominated for a Best Picture Oscar, to knock one out of the park. Its lessons are applicable far from home plate.
Moneyball tells the story of Oakland A's general manager Billy Beane, who two decades ago threw aside commonly held assumptions about how to build a team roster. He proved that deep statistical measurement and analysis are more useful than conventional wisdom, sending the A's to the World Series on one of the lowest budgets in baseball.
Sustainability is the Moneyball of the global economy. Investors are pushing for new kinds of sustainability “stats” to measure an investment's prospects. The protagonist of Greenball isn't the general manager, but rather the prescient fund manager or company executive. Instead of restricting his understanding of a company's value to traditional financial metrics, these investors are looking at environment, social and governance data (ESG).
Like A's manager Billy Beane, sustainability investors are ignoring stolen bases and grand slams and focusing on who is consistently moving forward. ESG disclosure scores are the new OBP. There are dozens of possible ESG metrics. Topics are as universal as greenhouse gas emissions, water use, employee sustainability training or percentage of board members that are women. Measures are also sector-specific, such as number of spills, which are monitored in extractive industries.
Corporate sustainability reporting is still missing the uniformity and ubiquity of traditional financial reporting. Movements are afoot on some stock exchanges to encourage sustainability reporting, including initiatives at the Johannesburg Stock Exchange and Brazil’s Bovespa.
Despite much progress at collecting ESG data, now measured by financial data companies including Bloomberg and Reuters, the current backlog of five years of aggregate data is insufficient to quantify the value of pursuing sustainability. Do sustainability efforts drive better stock performance? What are the best ways for investors to weigh a company's sustainability? The World Series of the global economy will play out over the coming decades, and sustainability rosters are just being filled out.