Chris McKnett: The investment logic for sustainability

Speaker

Chris McKnett is a Vice President of ESG Investing at Boston-based State Street Global Advisors, the world’s largest institutional investment manager

Summary

Sustainability is the investment logic looking at social, environmental and governance (ESG) issues. The main players to influence this are institutional investors, and Chris promises to prove sustainable investments are easy, and high performing. Investors currently tend to focus on economic metrics, but with depletion of natural resources, increasing pollution and an increasing population, it is hard to ignore the economic impacts of sustainability metrics.

The private sector is also seeing the need: 80% of CEOs see sustainability as an innovative, competitive advantage, while 93% see it as important for the future of their business. On the share market, stocks with good sustainability (ESG metrics) perform as well as other stocks, and the large blue chip stocks with high ESG outperform their low-ESG rivals.

Some institutional investors are taking ESG into account in the investment process, for example Calpers is the second largest investment fund in the US and moving towards 100% sustainable investment. The philosophy is that value comes from a combination of financial, human, and physical capital. On the flipside, plenty of other funds claim they are focussed only on high returns, or don’t want to use the fund to make political statements. Chris counters that returns are compatible with sustainability, and it doesn’t need to be seen as a trade-off.

Institutional investors hold 8 times more money than the US GDP, so have plenty available. If we could channel that towards companies that improve social and environmental causes it could have a huge impact towards solving problems such as hunger, or access to clean water.

John F Kennedy stated “There are risks and costs to a program of action, but they are far less than the long-range risks and costs of comfortable inaction”. It makes sense to invest sustainably so that we can retire wealthy, but also into a better world.

My Thoughts

I thought this talk was a little light on details, especially examples of what a sustainable company is. It didn’t seem clear whether sustainability had to be a core product of the company (eg delivering water infrastructure to developing world), or whether it could be a bank / resources company with a strong sustainability culture. I tend to think the latter, but a lot of the benefits seemed like they only made sense if the company actively solved ESG issues.

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Ray Anderson: The business logic of sustainability

Speaker: Ray Anderson

Length: 16:39

Summary

In 1973, Ray read from “The Ecology of Commerce” that business and industry is

  1. the major culprit of the decline of the biosphere, and
  2. the only institution large and powerful enough to fix the problem.

The environmental impact equation is Impact = Population x Affluence x Technology. Ray’s focus as CEO of a carpet manufacturer was on the ‘Technology” side – his goal was to use technology to improve the environment, turning impact into Impact = Population x Affluence / Technology. Since embracing this goal, his greenhouse gas has dropped by 82%, while sales have risen by 2/3rds and profits doubled. His goal is still zero impact – mission zero, which is even better for business, as an important market differentiator.

His achievements so far have shown the following benefits, and mission zero is going to increase profits considerably by the same action

  • Decreased costs: $400million savings and zero waste – this alone has paid for the project, and products have continued to be produced at similar high quality
  • Design for sustainability has attracted high quality candidates and galvanised them around the shared goal for zero impact
  • Goodwill of the market: the drive for zero waste has given them much more sales than pure marketing.

If Ray’s carpet company- a petroleum intensive manufacturer, can achieve these goals and recognise the benefits, then any business can do the same. His idea is to further extend the Environmental Impact equation, decreasing affluence to be less reflective of pure wealth and more what is necessary to stay happy.