Sunday Brunch: can the real sustainable investor please stand up?
Sustainability, Strategy & Finance

Sunday Brunch: can the real sustainable investor please stand up?

The big sustainability questions we all face suggest we need to move to a different relationship between the providers of capital (the asset owners), and the organisation's that invest it on their behalf. One based on a better alignment of interest.

"Consequently, every conversation with (investment) industry executives eventually comes round to the question of how to make themselves more appealing to potential clients" - Brodie & Harnack - The Trust Mandate

The big sustainability questions we all face suggest we need to move to a different relationship between the providers of capital (the asset owners), and the organisation's that invest it on their behalf. One based on a better alignment of interest.

I argue that, to make this happen, we need better informed asset owners (the real providers of capital).

What do they need to be better informed about? It's broadly two things, one obvious and the second less so.

The obvious one is how the sustainability transitions will work in practice. Not just the opportunities, but also the tradeoffs and compromises we need to make. No change will be cost or pain free. Complicating this further is the fact that the changes required in how our agriculture/natural capital, transport, energy, and built environment systems work are interconnected. This is all a complex system. Changing one part on it's own is often not enough.

The less obvious issue is around what drives companies to make different investment decisions? There are broadly five main drivers - threats to their licence to operate, anticipated regulatory changes, technology, new customer demands, and using soft assets (intangibles) to create different types of competitive advantage.

The more informed that asset owners are regarding these drivers, the better placed they are to make decisions about where to invest and how to engage. This is not just about values and ethics. As Schoenmaker and Schramade illustrate in their (free) book, Corporate Finance for Long Term Value, Sustainability can be a material creator of long term financial value as well.

For today's blog I want to start to explore this - starting with how companies make investment decisions, and how asset owners can use this information to make better investment choices. And how asset managers can help in this process, which in turn makes them, in the words of Brodie & Harnack "more appealing to potential clients".


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Can the real sustainable investor please stand up

The people who really care about sustainability, because they are the ones most impacted by it, are what our industry calls asset owners (pension funds, insurance companies, family offices, endowments, high net worth individuals, and retail investors). These are the people who provide the money (capital) that makes the investment process work. And by and large the people they represent are the ones who will suffer if the sustainability transitions fail.

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