If there is one take-away from the recent global economic downturn, it is the fact that there are absolutely NO GUARANTEES in investing. There is not a single investment style that was unscathed from the impact of the capital market crash. From money market instruments to real estate, from value investing to growth investment, from large-caps to micro-cap, from diversified portfolios and index funds to concentrated portfolios, from government bonds to hedge funds — every asset class, asset type, investment style, and investment discipline suffered significant losses. So much so that even that wad of cash underneath your mattress lost value as inflation peaked.
- an alternative investment strategy. Instead, sustainable investing will, or atleast has the potential to, transform and revolutionize your investment style to align it with your values.
- 100% green-chip i.e. a sustainable investment portfolio is not invested only in companies involved in clean technology, wind energy, solar power, organic foods, water management, and alternative energy stocks. While these businesses have a special place in a portfolio following sustainable investing, we will also look at stocks in traditional sectors that are transforming their businesses in order to embrace sustainable business practices.
- exclusionary i.e. you are not required to exclude “sin stocks” such as defense, gambling, tobacco etc. It is about investing in companies that are making efforts to minimize their environmental footprint, care about the social issues and meet positive governance criteria.
- oblivious to long-term financial performance criteria. In fact, according to an AT Kearney report, sustainability-focused companies achieved above-average performance in the recent global economic slowdown. Strong performance in corporate sustainability practices is indicative of good management and innovative companies that are likely to perform better than their less-friendly peers.
- politically affiliated towards selective social and environmental issues such as alcohol, gambling, tobacco, pro-gay versus anti-gay rights, internet privacy, contraception vs abortion, etc. By contrast, sustainable investing is progressive and holds that the best companies and investments are those that act in the public interest and not just their shareholders’ interests by pursuing business strategies focused on the long-term sustainability of the company and industry.
I have to point out that traditional value-based exclusions (such as tobacco, gambling, alcohol, etc) can still play a role in a sustainable investment portfolio but as an additive layer. However, the primary investment focus should be on the sustainability of these corporations and the steps management takes to positively impact our environment and our societies. Sustainable investing is merely a way for shareholders to ensure that corporations align their financial interests with environmental, social and governance interests. As rightly pointed out by Joe Keefe, President and CEO of Pax World Management Corp, in one of his writings, “….we no longer (need to) tolerate poverty, injustice and environmental degradation as the necessary byproducts of market capitalism.”