Female leaders; a better investment.

When talking about sustainable investing, people usually think about things like climate change and recycling. They don’t often mention gender equality. However for many, workplace gender inequality is a major issue which should be simple to fix, but frustratingly still exists today.

One of the ways it can be fixed is to invest in companies which are finding a new balance through diverse workforces and higher numbers of female executives.

Doing so might also turn out to be a better investment. According to Sustainalytics, one of the world’s largest independent ESG data providers, ‘gender diverse’ companies can produce 3% higher returns per annum than their less diverse counterparts.

One reason, according to Stoxx, is that the “percentage of women on the board has a risk reducing influence on stock prices”.

For companies, money and reputation talks. So actively showing your support for companies that align with what’s important to you and disinvesting from those that don’t, can help shape the world you want to live in.

With the right information, you can make investment decisions based on issues that are important to you and it doesn’t mean you have to sacrifice returns.

Image: Brooke Larke

Money matters.

Money matters. It always has and probably always will. But when it comes to investing, environmental and social impact now matter more.

The times are changing. Because today, contrary to years gone by, building your personal wealth and doing good are not mutually exclusive concepts. In fact you can do better when thinking about them together.

Traditionally, decisions concerning where to invest your hard earned money have been based purely on financial return. However, this method doesn’t align with the way most of us think and it isn’t the only criteria by which you can measure success.

Environmental, Social and Governance (ESG) is a three-pronged model gaining momentum worldwide. These measurable values centred on sustainability and ethics aren’t a new phenomenon, but the rise of the Internet has brought it to the fore. As a result we are now seeing a surge in its popularity among a more ethically minded generation.

Overwhelmingly, 86% of respondents in Deloitte’s Millennial Survey 2017 believe that the success of a firm should not be judged purely with regards to financial performance. A survey by Standard Life Investments shows that nearly 70% of 25–34-year-olds were concerned less about financial returns than social and environmental issues when investing.

Importantly, the Deloitte survey also revealed that Millennials consider conglomerates to be just as powerful in shaping the global positive impacts as that of countries, or global institutions (such as the World Bank or International Monetary Fund). With the increasingly global reach of corporations, investing in the ones that take their environmental and social responsibilities seriously is a strong lever to shape a more sustainable future. As of course, is disinvesting from those that don’t. There is also mounting evidence that sustainably minded companies actually perform better, meaning you can make money and do good.

Clearly, citizens think organisations big and small are to be held accountable for issues of worldwide concern. Businesses should pay attention not only for the sake of consumer loyalty, but also for the economic benefits. The upshots of preventing land degradation, becoming more energy efficient and producing less waste are reducing costs and increasing profits. Furthermore, according to one UCLA study, employees of companies that implement environmentally friendly practices are 16% more productive than the average worker, adding another benefit to the bottom line.

Considering the complete picture, by adding sustainability considerations, is proving to have an upside for all: the planet and the corporations that exist within it. Which is good news, at a time when we could really use some.

Image: Neonbrand

Good money, makes good

Investing in good business doesn’t mean sacrificing investment returns. In fact, according to Bryce Doherty, UBS’s Head of Global Asset Management, investing based on your Environmental, Social and Governance (ESG) values actually makes for a better investment.

“It is not just people wanting to make a statement about how they invest. ESG investing does not equal underperformance, ESG investing ­enhances the return for the ­investor.’’

Doherty goes on to explain why, “About 70–80 per cent of a company’s value is represented in non-financial data — the ESG data. Fast forward 10 or 20 years and ESG will be part of the investment process everyone has to use.”

Further supporting this is The Carbon Clean 200 report, Q3 2016. It ranks the largest publicly listed firms worldwide by their total clean energy revenues, as rated by Bloomberg New Energy Finance. The companies on the list are said to be outperforming their more polluting counterparts by as much as three times.

Toyota, Panasonic, Tesla, Vestas and DONG Energy are among the top-ranked companies in the first ever Carbon Clean 200 list.

Toby Heaps, CEO of market research firm Corporate Knights and report co-author, said: “The Clean200 nearly tripled the performance of its fossil fuel reserve-heavy counterpart over the past 10 years, showing that clean energy companies are providing concrete and measurable rewards to investors.”

“What’s more, the outstanding performance of this list shows that the notion that investors must sacrifice returns when investing in clean energy is outdated. Many clean energy investments are profitable now, and we anticipate that over the long term their appeal will only go up as technologies improve and more investors move away from under performing fossil fuel companies.”

More than 70 of the companies included in the list receive a majority of their revenue from clean energy, with most of the 200 from China (66 entries) and the US (40), although there is also strong representation from Japan (20), Germany (8), India (7) and Canada (5).

Toyota Motor tops the list closely followed by Siemens, while there are also strong showings for Schneider Electric (4), Panasonic (5), Vestas Wind (7), Philips Lighting (8), DONG Energy (11), Tesla Motors (17), Gamesa (18), First Solar (19) and Samsung (23).

The list excludes all oil and gas companies and utilities which generate less than 50 per cent of their power from renewable sources, as well as companies which engage in “negative climate lobbying” or profit from tropical deforestation, weapons manufacturing, and the use of child and/or forced labour.

All of which is a great sign for those interested in investing in good business. No longer should people consider investing in sustainable industries a profit sacrifice, as all the signs are showing it as win win.

Image by: Jon Tyson

Corporations not Government lead to a sustainable future.

The last time an Australian Prime Minister served a full-term without being ousted, the iphone had not been invented. Whilst this might not be the case in every country, what stands true is that governments change regularly. Every time they do, incoming leaders undo policy often as a matter of party principle. So progress made on important issues by one government — like creating a sustainable future — can be quickly undone by another.

When it comes to a global issue like sustainability, change needs to come with momentum, scale and power. If it occurs within the borders of a single country, it doesn’t necessarily impact on the outcome — one country can undo the good work of another. Just look at emissions targets. The reality is sovereign governments cannot make the change on their own, so rely on global consensus which is disrupted by a carousel of leadership and their changing agendas.

We need to look to another source. The Corporation.

Not subject to ever changing leadership (the average CEO tenure of the Fortune 500 is now nearly 10 years), party politics, or the burden of a myriad of domestic issues under a government’s remit, the Corporation is better placed to work across international borders and force change. They also have the size and power to do so.

If you consider that 51% of words largest economies are corporations and that Walmart alone is bigger than 161 county’s combined economies, you can see my point. The combined sales of the top 200 corporations is bigger than that of 182 countries, which makes you realise that on a global scale it is the corporates who really have the power of influence. Imagine the potential impact of a company like GE; which employs over 300,00 people in more that 100 countries.

On a more individual level, consider the power of Lars Rebien Sorensen who has been the CEO of the global pharmaceutical firm Novo Nordisk for over 15 years (and this years top global CEO as ranked by Harvard Business Review). Novo employ 40,000 and operates in more than 70 countries world wide. Overall Sorensen has been at Novo for 33 years and his tenure has enabled him to embed a deep respect and engagement with social and environmental issues. So much so that they now even factor in to Novo’s financial calculations. “Corporate social responsibility is nothing but maximizing the value of your company over a long period,” says Sørensen, “In the long term, social and environmental issues become financial issues.” (HBR 2015)

But we can’t sit around waiting for every CEO to have the same epiphany. Just like we can’t sit back and wait for our governments to legislate for a sustainable future. So how do we do something as ‘average joes’?

Kofi Annan recently highlighted the power of the consumers to help influence a more sustainable future — through purchasing power. On the 20th of January this year he said, “Every time you buy a product or service, you are supporting a company. Before you decide which sneakers to buy or financial services to use, consider its business practices. There is a wealth of information out there on how businesses behave. Through our collective buying power, we can set the agenda and drive up standards”.

But equally, as investors we can force all global corporates to engage positively in social and environmental issues by rewarding the right companies to do the right things through investment. Importantly, we can also punish those who do not, by not investing in them.

The upshot, beyond a brighter future, is that there is increasing evidence that companies guided by a purpose beyond making money, return more to shareholders than explicitly profit-driven rivals. It’s a win, win…win.

A little known truth — sustainable investing can be more profitable.

For me, it is that sustainable investing can be more profitable. A truth a lot of investors would find challenging to accept. There is a commonly held view that companies who behave responsibly tend to do so at a cost to profits, and therefore their investors. So people conclude, that whilst investing for the greater good would make them feel warm and fuzzy, it isn’t really why they invest. They invest to make money. So they continue to fund companies with poor social, ethical and governance behaviour.

Which is tragic, because investing can and should be a force for positive change. But by investing in corporations with bad ethical behaviour, you’re not just accepting the status quo, you’re powering it.

Luckily, this doesn’t have to be the case. You can invest to make money and do good. Here is the main reason: Ethical behaviour can reduce costs for the company, making them more profitable.

Many global corporations, although still the minority, are making significant reductions in their bottom line through a focus to their social, environmental and ethical policies. Some are doing it due to CSR policies, some from consumer pressure and some, if you want to be cynical about it, simply for greater profit. But the net result is the same.

By focussing on recycling, self sufficient electricity generation and more efficient and environmentally friendly supply chains (among other things) these corporations are becoming more efficient. In doing so they decrease their costs and yes, make more profit. Whilst they might not score a full 10/10 on their ethical performance, businesses like IKEA and even Unilever, have reduced costs through more sustainable practices. Benefiting both themselves and the world around them.

You can also argue that as they become less reliant on other companies for their energy and resources they have greater control of their own destiny and are therefore less of an investment risk. A good indicator of long term sustainability.

As an investor, and good citizen, this is great news. Ultimately it’s your money and you are investing it for a reason. To make a profit and grow your own personal wealth and hopefully also to support your higher purpose. If you are smart about it you can both earn a profit and help secure a more sustainable future for us all.

Don’t underestimate the power of investing. Investors are the lifeblood of most big companies and by choosing carefully which ones to invest in you can help influence the output of all corporations. The ones that don’t get your money will have to improve or die.

Image: Evan Kirby

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