Green investments also known as social responsibility investment and quality corporate governance over the time has shown to be a bedrock upon which business success is hinged – corporate bodies build their success by hybrid investment strategy that is a product of social responsibility screening of investment and good corporate governance.
Investors that is mindful of their environment screen shares using both financial and social responsibility measures (non financial measures). The implication of this is that the days when companies simply concentrate on financial criterion (which can be achieved through earnings management technique) are waving goodbye. Sound business ethics should be the compass that drives modern day business if they are to attract and retain savvy investors that are becoming more environmental friendly.
This article is written to serve as a guide to managements seeking ways to socially screen their investment appraisal process.
OBSERVE THE LAW
Ignorant of the law is not an excuse; the greatest investment choice blunder a management can make is to invest in projects that are against the law. This singular act can ruin loads of quality investment decisions that business has made in the past. This is why we advice our clients to have at least one lawyer in the three levels of management of a company. The cost of keeping those attorneys on payroll will definitely not be compared with what the company stand to lose if things should go wrong legally- financial and reputation wise. Investors now closely pay attention to court cases involving a company they want to invest in. It is cheaper to obey the law than break it.
SEEK WHAT THE LONG-TERM HEALTH IMPLICATION WILL BE
The service of experts should be engaged when making capital budgeting. It is not enough to come up with brilliant idea that can put good money in the pocket. Additional care should be taken to evaluate any possible side effect that will be directly or indirectly linked to the project. Be warned that investors are tracking news about products released for at least five years. It does not matter which industry your company operates in.
HAVE A TRANSPARENT FINANCIAL REPORTING SYSTEM
Corporate Social Responsibility reporting is one relatively new aspect of financial statements that fundamentalists look at when doing their fundamental analysis of a company they are interested in. It is right for a company to tell investors how it interacts with its immediate environment- which contributes greatly to her fortune or demise. In as much as management of companies may want to cook this statement, the fear of being challenged by the general public is enough disincentives for making false representation. Have plans in place to take care of any unexpected outbreak that a potential investment will have on the environment. It is for instance difficult for a business to claim investing in environmental equipment when the community can hear the large noise coming from the locomotive and see the black smoke pumping into the air.
HOLD CONSULTATION WITH INTEREST GROUPS
A company that is socially responsible will from to time hold consultation with various interest groups that operate in the community where they operate. This can however backfire when approached the wrong way. One essential thing that must be done first before going into consultation with any group is to verify their legal status. A company has to be sure that a group is properly registered and when possible, inspect their MEMOS.
AVOID THE USE OF SUBTLE CLAUSES
Crafty companies and business people always think it is better to lure clients and customers into business by using subtle words. This approach worked in the past when people do not invest time into reading the fine print of contractual agreements. Not only do customers and clients spend time to read these fine prints now, but investors also look out for such words or phrases before they invest in a venture. Financial services retailers largely engaged this ugly practice in the past but have come to realise that it just doesn’t help matters- though a good number of them still practice such today.
The mission statement of a company should be clearly written in a simple manner so as not to cause confusion in the mind of present and potential investors.