When we decided to place sustainable development at the heart of Acciona’s renewable energy, civil engineering and water businesses, the financial community generally welcomed this new corporate philosophy. Yet the challenge remains how to reconcile our long-term horizons with the short-term financial returns demanded by investors.
For companies like ours, sustainability means combining economic development with social progress and environmental harmony. As leading developers and operators of renewable energy, we are involved directly in developing and building new green technologies that will help mitigate the effects of climate change.
Desalination, water treatment and recycling are other activities vital for bringing economic and social progress to the developing world while maintaining wellbeing in the rich world. Only three per cent of the water on our planet is fresh water: unless we recycle wastewater and create “new water” from the sea, two-thirds of the world’s growing population will be “water stressed” by 2025.
All of us in this field, and (increasingly) society at large, embrace sustainability. Surprisingly, however, institutional investors – those indispensable providers of capital for the long-term development of our business model – seem less committed to its underlying principles.
The task of making ourselves understood has certainly not been made any easier by the global financial crisis and the scaling back of investment in clean energy and sustainable technologies. The crisis broke just as business models such as ours were starting to deliver good operational results. In the first quarter of 2009, investment in the renewable energy sector fell by 53 per cent compared with the same period in 2008. Investors became preoccupied with sheer survival, maintaining liquidity, and, more recently, pocketing short-term capital gains.
Nevertheless, the flight from sustainable assets cannot be attributed solely to the global financial crisis. The main cause is the fundamental tension between the investment horizons of the financial community and those of companies such as Acciona, whose stated aim is to pursue sustainable development. By definition, the latter is measured by its long-term impact. Nothing is sustainable unless it endures over time. Sustainable projects need time to evolve, to prove themselves and to mature.
Encouraged by asset owners and pension fund consultants, investors seem compelled to place quarterly performance above sustainable, long-term returns. Investment analysts reflect this in their reports, reinforcing the pressure on companies to provide detailed quarterly guidance and then meet it with short-term returns. The long view – over ten or 15 years – may be interesting, but with few focusing beyond the next 12 months, decisions made in this longer time-frame are either penalized when they go ahead, or tend to get postponed.
How best then can we create a supportive framework that allows businesses such as ours (or others strongly focused on contributing sustainable solutions to our social needs, such as Mitsubishi, Suez, GE and Veolia) to remain true to their strategies? And how can we expect more companies to embrace the values of sustainability if their ability to think about the future is constrained by the need to generate returns in the here and now?
Recent G20 stimulus plans that contain varying levels of financial commitment to green investments are a necessary and welcome first step. But we must go beyond shock measures to revive economic growth, extend financial lifelines to banks and businesses, and generate employment. Governments have a role to play in stimulating long-term investment in sustainable businesses via the creation of incentives, such as tax exemptions for long-term focused investments. Only a pool of long-term capital will allow companies to develop the sustainable business strategies that we need to meet the needs of future generations.
José Manuel Entrecanales Domecq is Chairman of Acciona, the global infrastructure, renewable energy, water and services company based in Spain.