News December 1, 2019

Past the tipping point with customers and stockmarkets

Companies drag their heels on addressing climate change because many managers believe that for the planet to win, profits must fall. Others believe the issue is not as relevant for their customers. This report argues the opposite using evidence from both stockmarket returns and our own primary research into the unexpected shift in customer purchase habits over the last 12 months.

To analyse the stock impact, we programmed our artificial intelligence platform, α-DIG, to map company stock prices after reading the five million pages of company announcements released by the 1,600 MSCI World companies over the last two decades, along with every Dow Jones news article written over the period (something that would take a human over a century to complete!)

The results were startling. Companies that experienced positive press and announcements on climate change saw share price outperformance of 1.4 percentage points per year over the MSCI World index – outperformance of 26 per cent. Conversely, bad press results in underperformance. Furthermore, it was not the energy, materials, and utilities sectors that were the most affected.

Lessons from history

For the second half of this report we commissioned an exclusive survey that analysed data from 1,100 customers in the US and UK. It explains why the historic ‘gap’ between green purchase intentions and actual purchase behaviour has suddenly shrunk.

Some unexpected results included the finding that, over the last 12 months, twice as many customers in the UK have actively purchased more products from companies that address climate change compared with those who have not. A similar (but more polarised) trend exists in the US. Even more surprising is how middle-income groups frequently lead the way, not the wealthy, while the urban/rural divide largely determines whether a customer shuns a product and how long it takes them to forgive the company and repurchase.

Overall, the big question is whether the recent conflux of climate change prompts in society, such as high-profile documentaries, election results, and a Swedish teenager sailing across the Atlantic, will maintain the attention of customers, investors, and the public at large. History suggests it will. Once social movements hit a tipping point, they have proved very difficult to stop. And as government regulation on the issue continues to increase, climate change mitigation will become a normal part of doing business. Customers have spoken, investors have spoken. Those companies that do not listen will certainly be left behind.

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