Sustainable investing is not a trend, it’s a transformation
The investment community is currently undergoing its biggest paradigm shift yet. Global sustainable investment is now over $30 trillion – up a massive 68% since 2014 and over 10 times that of 2004 (McKinsey, 2019). The pressures creating transformation are both pushing and pulling towards sustainability. Business doesn’t exist in a bubble detached from environment and society; the movement towards sustainability is recognition of that.
Not only do we have the desperate need to avert dire environmental catastrophe, there is economic reward for doing so. The two are of course linked. Dire environmental consequences, as the result of being “dire”, have economic consequences and the market arranges financial rewards for solving a problem that threatens it. If the problem is big enough, a shared value exists between environment and economy linked by social implications.
Blue Oceans Capital exists to be a conduit between capital markets and sustainability. Read more about our sustainability and how we invest.
Social consequences bring arch-rivals together
Business, in recognition of social consequences, is now working to save what it once neglected. Awakened as observers of its demise, mainstream society is now very aware of environmental and social degradation at the hand of capitalism and demands the situation be rectified immediately. As I walk to the train station, I see banners of super funds proudly signalling sustainable investments – there is beer to save the Great Barrier Reef and even ethically made, chafe-proof underpants. Consumers are demanding sustainable products and services and they’re willing to pay a little more to get them. McKinsey (2019) has found that over 70% of consumers across a multitude of industries including automotive, building, electronics, and packaging, are willing to pay an additional 5% for green products if they meet the same performance as non-green substitutes.
Companies taking a proactive approach to sustainability are performing better, as we should expect they would. For companies, sustainability means being efficient, reducing risk and building brand image. Cutting waste, reducing pollution, and being efficient with water reduces costs. (Rubel, et al, 2017; Beal, 2019; Stuchtey, 2015). It means having a productive and engaged workforce, motivated through purpose and being part of something bigger than themselves (Guver & Motschnig, 2017; Creary, et al, 2019; Hunt, et al, 2018). It means investing in new products that will be in demand in the future and creating a brand image that resonates with consumers’ social and environmental demands driving repeat business (Henisz, et al, 2019; Bower, 2020; Puri, 2019).
In reality, investing in sustainable companies means investing in those that are proactively addressing problems that commerce has caused and that society now demands to be rectified. Companies doing that are performing better and funds will naturally flow to where returns are optimal. Sustainable investing is not a trend; it is, in itself, inherently sustainable.
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Creary, S.J., McDonnell, M.H., Ghai, S., & Scruggs, J., 2019. “When and why diversity improves your board’s performance.” Harvard Business Review.
Guver, S. & Motschnig, R., 2017. “Effects of Diversity in Teams and Workgroups: A Qualitative Systematic Review.” International Journal of Business, Humanities and Technology. Vol 7, No 2.
Henisz, W., Koller, T., Nuttall, R., 2019. “Five ways ESG creates value.” McKinsey & Company.
Hunt, V., Lareina, Y., Prince, S., & Dixon-Flye, S., 2018. “Delivering through diversity.” McKinsey & Company. Retrieved from: https://www.mckinsey.com/business-functions/organization/our-insights/delivering-through-diversity
McKinsey Quarterly, November, 2019. “Five ways ESG creates value.” Retrieved from:https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/five-ways-that-esg-creates-value
Puri, S., 2019. “Your star salesperson lied. Should he get a second chance? Harvard Business Review.
Rubel, H., Schmidt, M., Meyer zum Felde, A., 2017. “The urgency – and the opportunity – of smart resource management.” Boston Consulting Group.
Stuchtey, M., 2015. “Rethinking the water cycle.” McKinsey & Company.