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 have been predominantly from the U.S., but in the last four years, non-U.S. ownership has grown to more than 10% as a result of our efforts to globalize our investor base.
GE’s responsibility, legally and ethically, is to provide the best possible return to its shareholders, financially and through its impact on the world today and in the years to come.
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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 have historically played the role of investing what we choose not to spend today.
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 shortsighted views of the capital markets, banks and investment houses. Corporate 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 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 five dollars under professional management in the U.S. is already invested with some application 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.
Such active investing has become more mainstream in recent years. The UN’s Principles for Responsible Investment, for example, with approximately 1,070 signatories representing around $30 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 key indicators of long-term value-creation potential, such as governance and remuneration.
The management of social and environmental factors is increasingly viewed as a test for effectively handling complex strategic and operational challenges. As Trevor Schauenberg, Vice President, Investor Relations for GE, explains, “Investors are increasingly interested in well-managed companies that will create shareholder value over long periods of time, while contributing positively to the society and communities they operate in. With its portfolio of infrastructure solutions and reputation of unyielding integrity, GE is able to respond to these investors and generate value for them.”
GE’s products aim to meet many of tomorrow’s pressing needs, from clean energy and energy-efficient transportation and infrastructure equipment 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 $3.1 billion in 2008 to $4.5 billion in 2012. 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 in “in country, for country” (ICFC) research in Shanghai, Bangalore, Munich and, soon, Rio de Janeiro. The idea is to effectively leverage local expertise and insights to address the evolving societal needs of emerging markets and their nations’ citizens.
In 2011, GE announced the establishment of a new global software center in Northern California, deepening the company’s investment in the Industrial Internet, with the aim of making the physical world of industry more intelligent. This move follows GE’s recent opening of the Advanced Manufacturing and Software Technology Center (AMSTC) in Ann Arbor, Michigan. GE’s Intelligent Platforms unit (GEIP) is already utilizing software and Internet-connected devices to collect and communicate data from manufacturing equipment, increasing efficiencies for GE businesses and customers. GEIP software solutions also measure energy consumption and help manage clients’ environmental footprint.
GE’s approach is clearly aligned with the interests of long-term investors, offering exposure to a portfolio of infrastructure businesses and fast-growing emerging markets, combined with the disciplined management and culture of compliance needed to manage the corresponding risk and complexity.
In 2012, GE’s total stock return, including dividends, was approximately 21%, outpacing the S&P 500 Index, which was up 16%. We outperformed the S&P industrial sector and underperformed the S&P financial sector, which were up 15% and 29%, respectively. 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 of our stock.
Being a good corporate citizen is a critical driver of shareholder value 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. In that spirit, GE undertakes any new energy conservation or sustainability project when it addresses one or more criteria in addition to climate change concerns. Among the criteria that GE uses to evaluate such projects are that they contribute to GE shareholder value, advance innovation, address customer needs, fulfill our legal obligations or promote GE’s reputation.
Developing consistent methods for measuring and reporting on performance in areas such as greenhouse gas (GHG) emissions and water use will be crucial to understanding and rewarding good performance. GE applauds initiatives such as the Carbon Disclosure Project (CDP) as well as the creation of the GHG Protocol by World Resources Institute and the World Business Council for Sustainable Development. We report annually into CDP, and use the GHG Protocol for our own emissions inventory. We have also 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 of successfully addressing global challenges with profitable products and services. GE expects to play a prominent role in this evolutionary process, as it continues to generate value and solid returns for its shareowners.