Impact Investing, Sustainable Investing. Double Bottom Line. Triple Bottom Line. Investing for Change. Three years ago, these were big ideas and messages that 99% of the world didn’t understand or even care about. They amounted to doing good and trying to make some money. It was the world of foundations and charities trying to express that they are not all giving money away, but rather are trying to use some of the principles of capitalism.
This year we have seen a major shift in the choice of words used to describe what is going on and what investors are willing to invest in. We are in the middle of the shift to investing in key resources that are under pressure or becoming scarce. We are seeing mainstream capital pay attention to the value of these resources and how they are being used. Sometimes, unfortunately, not for the betterment of that resource but for the exploitation of the opportunity, but we will get back to that later.
We are now seeing the first of the mainstream investors stepping up and realizing that not only can they invest in agriculture, water, energy and real estate, but they can do it the right way and take into account the environmental and social costs: By first investing in asset managers that understand and make more money (enhanced Alpha,) and then the asset class as a whole. This is a huge and significant step for capital management and the environment.
In public and liquid securities, 2011 has been a turning point as well. This week, Generation Investment Management published the Manifesto for Sustainable Capitalism, citing what companies are doing, should be doing and how investors can view their portfolios differently to encourage long term gain through better management of resources, assets, environment and people. Clearly this message is going mainstream and it is not just a negative screen or positive screen: It is a new understanding of how companies think about their impact and use of resources. It is becoming definable, measurable and investable.
One of the largest data providers, Bloomberg Data Services, makes it possible to analyze many factors of ESG that public entities publish now. For instance, we can evaluate how efficiently energy, water, carbon is being used compared and crossed with revenue, employees, sq. ft. of space, etc. It looks at the social metrics as well, such as how a company invests into its communities of interest. Bloomberg also tracks the governance metrics that look at policies, objectiveness and transparency. These are important metrics and can only get better over time. There are 5 to 10 other interesting metric providers and we can expect that many of these will get absorbed into the mainstream investing as well.
This is also a key year for B-Corporations, a new type of corporate classification that says we are in business to make money but also count into the equation of looking at the environment and social issues that the business effects. They promise to publish even more data and have more transparency in their business operations. This year 5 more states (New Jersey, Virginia, Hawaii, California, and New York) have adopted the corporate form from the original two (VT and Maryland) and it looks like 10 more will for 2012.
Major investors such as Pension Funds, Endowments, Wealth Management Firms and Private Banks are all looking for products in agriculture, water, energy, land, real estate as well as other valuable resource investment plays. While this is good, and can be better, they do not completely understand which ones are creating a better environment and social construct versus those that just exploit the short term value: For instance, an agriculture investment that improves the land, the soil and the natural systems versus one that uses the industrial system of agriculture and also can deplete soils and ruin the environment will perform better over the medium and long term.
More time is needed to inform investors of what is possible using best practices and methodologies. More investors need to take the time to learn which are the driving forces that can make all the difference. As we look back on 2011, we will remember many key milestones — in politics, innovation and environment — and hopefully move forward in our goals to be better stewards of our planet.
