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The New, New World: The Investment Logic for Sustainability

March 19, 2015

 

In this 12-minute video Chris McKnett lays out the logic for investing in sustainability.  He argues that financial data alone often excludes environmental, social and governance structures, which can cause institutional investors to overlook high growth areas.

 

 

“Investors aren’t paying enough attention to important drivers of change, especially sustainability.” – Chris McKnett, head of State Street Global Advisors' Environmental, Social and Governance Investing (ESG).

 

Key Info:

  • Earth’s population is set to hit 10 billion by the end of the century. That is 3 billion more people than now.

  • That makes a global middle class of 4 billion, all demanding food, energy, and water.

  • We consume natural resources faster than they can be replaced.

  • Carbon emissions keep increasing.

  • The natural human reaction to these concerns is to deny them. (The psychology of this is explained in the introduction to the book Abundance: The Future Is Better Than You Think, by Peter H. Diamandis , Steven Kotler.)

Link to the video:  The Investment Logic for Sustainability

 

Sustainability:  When he says sustainability, he does not mean just Environmentally, but includes Social issues and corporate Governance in that term. 

 

E.S.G.

  • Environment:  Electric, water, waste, and efficient use of resources.

  • Social:  Human capital, employee engagement, innovation capacity, supply chain management, labor rights, and human rights.

  • Governance:  Oversight of companies by their boards and investors.

ESG are economic issues, which makes them relevant to risk and return.

 

 

 

Major Points:

  • Environmental leadership is compatible with increased returns.

  • Sustainable investing is:

                 - Less complicated than you think,

 

                 - Better performing that you believe, and 

 

                 - More important than you can imagine.

  • Ignoring sustainability jeopardizes long-term returns.

  • Large Institutional investors are best situated to take advantage of this and lead the way.

  • There is tremendous opportunity in sustainability, and the private sector is taking notice:

                   - 80% of global CEOs see sustainability as important and crucial to growth.

                   - 93% of global CEOs see it as important to the future of their business.

 

 

Sustainable investing: A combination of financial and ESG.  Limit future risk by minimizing harm to people and planet, and providing capital to users who employ it towards productive and sustainable outcomes.

 

Blue is the performance of 500 largest global companies.  In gold is a subset of companies with best practice in sustainability.

 

The Point 1:  Sooner or later sustainability will be legally mandated.  The companies who make the transition voluntarily now, will be far ahead in the game, and able keep their lead and pull farther ahead.

 

The Point 2:  Whether you believe in Climate Change, or not, is beside the point.  Creating 100% sustainable companies will help make the world a nicer cleaner place for you and your family, and be profitable.

 

Three excuses most investors give for not getting onboard with sustainability are:

     

     1. We are required to maximize returns, so we don’t go for this fad.

 

     2. We don’t want to use our investment portfolio to make policy statements

 

     3. If you want to do something about this, then give your profits to charities.

 

Have you used any of these excuses?  If so you may be jeprodizing the future long-term returns of your enterprise.  Is it not worth a second look?  Wouldn't it be great to go down in history as the first CEO in the Czech Republic to make their company sustainable?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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