Why The Sustainable Investor?
"If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes" (Warren Buffett).
Building a better understanding of why and how sustainability related issues can impact finance, investment, and company strategy.
Sustainability can be a long term value creator for investors
Long term financial value creation is at least partly about anticipating and preparing for future changes, trends and events. The more dramatic the change, the greater the need to prepare.
“In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live in a world that no longer exists.” - Warren Bennis
Some of the most material changes that companies face relate to sustainability. These include the direct and indirect impacts of climate change, and the social issues around how companies relate to their workforce and their local communities.
Some of these changes will be driven by regulation, the will of the people expressed via the politicians. But much of the change that companies face will happen regardless of what governments do.
The changing climate will impose on companies new costs and risks - driving the need for adaptation. And when combined with technological advancements, it will also create new opportunities. New ways of providing the goods and services customers want, and are willing to pay for. Many incumbent companies could fall by the wayside, trying to operate in a world that increasingly doesn't exist anymore.
The other big changes will be social. Part of this will come from changing consumer demands, such as healthier foods. The other part will relate to the relationship with local communities (a different licence to operate) and with those who work for the company. It might be a cliche, but for most companies their people really are their biggest asset. The days of value being created by tangible assets like factories have largely past. Intangibles are the value creator now, and for this to work to their advantage companies need to find better ways of incentivising their workforce.
Companies will act on these sustainability issues if there is a long term financial benefit.
From the perspective of investors, if we want companies to become more sustainable we need to do at least two things. First, we need to link the impact of the upcoming sustainability transitions directly to the company's sources of competitive advantage and their financial strategy. How do they create value now, and how will this likely change in the future.
Second, we need to highlight the long term financial risks and opportunities. What are the financial consequences of action (or inaction)? Why is business as usual not a financially viable option?
Companies and investors will not become more sustainable just because it's the right thing to do. They need to see a financial benefit.
Our focus is on the sustainability issues where there are material gaps between the likely future outcomes and how companies are positioned now.
For some sustainability opportunities, the future path is becoming much clearer. This includes the shift to Electric Vehicles, the electrification of home heating (and cooling), and the shift in electricity generation to renewables.
But for many other sustainability related issues, the link to long term company value creation is still confused and poorly understood. This includes agriculture and our food supply, the construction and operation of our buildings, human rights, and how companies manage human capital (the people that work for them and those that provide them with their important goods and services).
It's this second group we focus on. Our best way to add value is to reveal the less than obvious links. And how investors can make a real difference.
Sustainability Strategy Investing Finance.
Team with decades of experience
Steven Bowen
Membership is free
