As we bid farewell to the financially unstable year that was 2012, it is timely to look again at the role of sustainable investment in our global economy. As environmental concerns are increasingly ushered to centre stage of international diplomacy, we must examine where this form of investment is headed.
Defining sustainable investment
Sustainability is an infamously tricky word to pin down. In the business world, sustainability is the recognition and inclusion of environmental, social and governance issues (ESG) in financial analysis.
Andrew Savitz, author of ‘The Triple Bottom Line‘, defines a sustainable corporation as one that:
“creates profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts”.
The incorporation of ESG issues into the sustainability profile of companies has become a priority for potential investors. They use this information as a proxy for management quality, the rationale being that companies who successfully manage their ESG risks are more likely to outlast others. Besides the business rationale, sustainable investment comes as a sign of the changing times where resource efficiency and long-term foresight are assets. It signals a move by businesses and investors to adapt to stay afloat.
A niche role
Sustainable investment, as a relatively new concept, holds only a niche position alongside traditional investment. Its very conception highlights the many flaws of mainstream investment. By maintaining the status quo, we actively legitimise investments that are by definition not environmentally or socially sustainable. This has created an uncomfortable position where we cannot linger noncommittally at the half way point. If sustainable investment continues to hold only a niche role, it would be both ineffective and injust.
The replacement of traditional by sustainable investment could be envisioned under the conception of sustainable capitalism. Such a transition would see a focus shift from infinite resource based growth to product improvement and overall society and environmental well-being. Sustainable capitalism argues that the current economic system ignores many of the costs that impact businesses. It advocates reforming the system to focus on long-term economic value by addressing the real costs to stakeholders. These costs arise from the multitude of problems we face, such as climate change, resource scarcity, income and wealth inequality. Advocates of the theory argue that it is investors who have the power to mobilise capital to address these issues, and in the process ensure the long-term survival of the economy.
At the core of this discussion is the ‘undebateable’ knowledge that we must prepare for a less resource intensive, post-carbon future. Capitalism in its present form is ill-equipped to support this new reality. It must be altered to adapt to a changing global system; sustainable investment plays an integral part in making this transition viable. The re-channeling of investment into green ventures and businesses aware of ESG issues will not only make this transition possible, but it will aide to secure a profitable future.
This is a must-read for everyone who has a stake in the future of the world, from business executives to environmental activists, from community leaders to the politicians with their hands on the levers of power. Capitalism as if the World Matters
Acacia Smith is a New Zealander now based in London. She holds a bachelor degree and postgraduate diploma from Victoria University of Wellington. She has worked for the Council for International Development (CID) and more recently in Bolivia for CIWY, a network of private parks for the rehabilitation and conservation of Amazonian fauna. Acacia is passionate about sustainability and the role businesses can play in promoting a better, more sustainable future.