Responsibility to Shareowners
GE is one of the most widely held stocks in the world. Ownership of the Company can and does benefit millions of people through flows of dividends and capital benefits, both to individual shareowners and through such intermediaries as pension funds and insurers. In fact, about half of GE’s issued shares are owned by individuals, including many of the Company’s current and past employees, who have helped to shape the Company’s success over decades and generations, and whose savings for retirement continue to create value through their investment in the Company. Historically, GE’s owners were predominantly from the U.S., but in the last four years non-U.S. ownership has grown to more than 10%, a sign of the globalization of capital markets.
GE’s responsibility, legally and ethically, is to provide the best possible return, financially and through its impact on the world today and in the years to come.
“There is a significant universe of long-term investors who want greater exposure to well-managed companies and emerging markets. GE is able to respond to these investors and produce better value over the long term.”
TREVOR SCHAUENBERG, VICE PRESIDENT, INVESTOR COMMUNICATIONS FOR GE
The Roles of Capital Markets
Capital markets facilitate the use of today’s resources to realize future benefits. Such benefits are most usually measured in financial terms, or more exactly, risk-adjusted returns to the investor. In our society, capital markets play the historic role of investing what we choose not to consume today. The objective is to provide economic opportunities strengthened by secure sources of energy, water and physical safety.
Over the past decade, capital markets have come under increased scrutiny for their effectiveness in these areas. The recent global recession, along with its destruction of economic value and jobs, has been attributed in large part to the short-termism of the capital markets, banks and investment houses. Citizenship, or the ethical pursuit of business success—achieved by delivering affordable products that help address pressing challenges—requires “patient” capital that rewards businesses whose strategies and practices align with these long-term, value-creating opportunities.
While the debate continues on the pros and cons of various approaches to financial regulation, a new breed of shareowner has emerged with a greater focus on citizenship and long-term concerns. Nearly one in eight dollars under professional management in the U.S. is already invested using some form of social responsibility criteria. Responsible investing itself is evolving beyond “negative screening” to a more positive engagement that identifies and promotes those social and environmental factors that can drive superior financial performance.
“Research shows that on average, positive, opportunity-focused application of environmental, social and governance investment criteria leads to outperformance.”
CARY KROSINSKY, SENIOR VICE PRESIDENT, TRUCOST
Such active investing has become more mainstream in recent years. The UN Principles of Responsible Investment, for example, with nearly 850 signatories, representing around $25 trillion in assets, reflect these changing criteria. Stock exchanges around the world are also taking steps to promote and require greater transparency on environmental, social and governance performance and risk factors, with the BM&FBOVESPA Exchange in Brazil, the Johannesburg Stock Exchange and The National Stock Exchange of India taking steps in this area. The London Stock Exchange, NASDAQ and NYSE Euronext all have stock market indices that focus on companies that exhibit “best in class” performance or that provide solutions to sustainability challenges.
Major institutional investors focus on such key indicators of long-term value-creation potential as governance and remuneration.
The management of social and environmental impacts is increasingly viewed as a test for effectively handling complex strategic and operational challenges. As Trevor Schauenberg, vice president, investor communications for GE, explains, “There is a significant universe of long-term investors who want greater exposure to well-managed companies and emerging markets. Because citizenship is a key component of GE’s operational excellence, GE is able to respond to these investors and produce better value over the long term.”
“I am confident that GE will continue to be successful in the years to come.”
Solving Big Problems
GE’s products aim to meet many of tomorrow’s pressing needs, from clean energy to energy-efficient infrastructures and transportation to clean water and affordable healthcare.
GE is investing in technology. Over the last five years, the Company’s research and development budget has increased by more than 40%, from $2.8 billion in 2006 to $4 billion in 2010. These investments have focused increasingly on core societal challenges, such as those exemplified by two programs, ecomagination and healthymagination. These initiatives have established measurable commitments for creating products that, respectively, improve our customers’ energy, carbon and water efficiency footprints and the affordability, accessibility and quality of healthcare.
While the core of GE’s critical knowledge platform resides in the U.S., the Company has accelerated investment into “In country-for country” research in Shanghai, Bangalore, Munich and, soon, Rio de Janeiro. The idea is to effectively leverage local expertise and insights to address the evolving needs of emerging markets and their nations’ citizens.
GE’s approach is clearly aligned with the interests of long-term investors, offering exposure to a portfolio of future industries and fast-growing emerging markets, combined with the disciplined management and culture of compliance needed to manage the corresponding risk and complexity.
As GE prepares for the future, our cumulative earnings and cash flow over the last decade rank in the top 10 of all the companies in the world. In 2010, GE’s stock price grew 21%, outperforming the S&P 500 Index, which grew by 13%. And, while GE is widely acknowledged as a sustainability leader in its products and processes, the traditional “socially responsible investment” community, primarily because of its aversion to nuclear technology or defense-related activities, holds very little stock.
Citizenship is a critical value driver for GE, and it will continue to be an important differentiator to investors in the future. This is true for many other companies as well, as businesses adjust their products and processes to meet growing environmental challenges and the sustainability demands of customers and communities around the world.
Developing consistent methods for measuring and reporting on performance in areas such as greenhouse gas emissions and water use will be crucial to understanding and rewarding good performance. GE applauds the work of initiatives such as the Carbon Disclosure Project, the World Resources Institute and the World Business Council for Sustainable Development in creating the Greenhouse Gas Protocol. We use the GHG Protocol for our own emissions inventory and have worked with other companies in road-testing a new standard to help measure the emissions associated with products and supply chains.
Today’s capital markets are in the early stages of responding to such signals. Competencies, information flows, analytic models and remuneration approaches will continue to be reshaped in the years to come to deliver long-term financial returns. The challenge is not to measure the financial return for doing good, but rather the financial rewards from successfully addressing global challenges with profitable products and services. And GE expects to play a prominent role in this evolutionary process as it continues to generate value and solid returns for its many shareowners.