Thematic Thoughts
Thinking about the big issues around how sustainability links into the world of finance
Sunday Brunch: what do asset managers really care about?
For asset managers generating financial returns for their clients is not enough. It's more important that they 'beat the index'. Which means that as well as caring about valuation, they also really care about what 'the market' thinks. This can fundamentally change their response to sustainability.
Sunday Brunch: Climate adaptation is bigger than you think
It's easy to forget that as well as investing in renewables and EV's, we also need to invest to protect our economy (or company) against the negative impacts of climate change - what is commonly called climate adaptation. This is mostly to keep people cool, and to keep agriculture producing.
Sunday Brunch: Forecasting is tough but necessary
Like most of you I am rubbish at forecasting. Which is a problem if you believe (as I do) that the future will not look like the past. Extrapolating history can result in us investing in industries in decline. The good news is that we only need to get the direction of travel right, not the detail.
Sunday Brunch: a financial perspective on sustainability
The financial implications of the sustainability transitions are becoming more important than ever. Over the last few years the pushback to sustainability has grown. We argue that the best counter is using the logic of long term value creation. Plus of course good old fashioned political lobbying.
Sunday Brunch: how does human capital make a difference?
We know that 'people are our biggest asset' but how do we include this in financial investment cases? Traditional financial accounts give only part of the picture (the result), not the how & the why. A framework from Felix Oberholzer-Gee at HBS can help us think about human capital like an investor.
Sunday Brunch: Is self insurance a hidden investor risk?
We are increasingly reading about how many private insurance companies are massively increasing premiums, or withdrawing from some markets altogether. In some cases the government is taking up the slack, but in others it's companies via self insurance. Is this a risk investors should worry about?
Sunday Brunch: What if I cannot afford what I need?
We often mix up what as a society we need, with what we can afford. This is not about blocking sustainability actions. It's about identifying who needs to do what to make something actually happen. And we need to remember that not all decisions are purely financial.
Sunday Brunch: Sustainability, creative destruction, and Nobel prizes
Hoping that incumbent companies will change can lead to disappointment. Incremental is ok, but big changes sometimes need a new entrant. Incumbents have too much to lose. So maybe our first question should be 'will the incumbents deliver the change we want or do we need creative destruction'?
Sunday Brunch: the future is not evenly distributed
It's often hard to get people to worry about the long term when the short term looks fine. This bias is a real challenge in sustainability. It can not only lead us to underestimate the financial risks, it can also lead us to misunderstand them. Global agricultural production is a great example.
Sunday Brunch: being a win/win doesn't guarantee it happens
Some phrases mean different things to different people. Win/win is one of those. Even if an action can be shown to be a win for both a company and society, there are good reasons why management might still NOT act. We need to be clear about how the win will play out when we plan engagements.
Sunday Brunch: Sustainable investing - what is really in the share price?
We 'know' that a company's share price is determined by what happens in the future. And that this is where sustainability issues play their part, changing the likely course of the future. But how the share price responds depends on what investors are already expecting. Consensus matters.
Sunday Brunch: 'Soft' factors are really important for investors
Investors know that soft factors, such as having a happy and motivated workforce, are important drivers of a company valuation. But how do we include factors such as diversity into our investment cases? The first step is to understand the linkages. Not all soft factors are financially material.