Mainstreaming Sustainable Investing
36 Pages Posted: 23 Oct 2019
Date Written: October 25, 2018
“Mainstreaming Sustainable Investing” is the title, tagline, and guiding principle of the annual Sustainable Investing Seminars run by CFA Society Boston since 2013. In that first year, the idea of “mainstreaming” sustainable investing seemed wildly aspirational to many. Yet by the time the society held its fourth annual seminar in November 2016, aspiration had been surpassed by reality, as the increasing attendance and diversity of the audience reflected the change that was underway in the industry.
To put this development into perspective, though, it is necessary to more clearly articulate what is meant by both “mainstreaming” and “sustainable investing.”
A simple and widely used definition of sustainability is taken from a 1987 report on sustainable development prepared for the United Nations by the Brundtland Commission: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This definition will sound familiar to investment professionals involved with endowments and families as the concept of intergenerational equity.
The purpose of investing is to apply capital to productive use, addressing opportunities and challenges facing societies and economies, thereby building value over time for the investors supplying that capital. But that value-building economic activity does not take place within a hermetically sealed financial system. Value creation takes place in and depends on environmental, social, and governance systems. It requires the assets and resources those systems provide. Economic activity that is not sustainable degrades those systems, diminishing their future viability and value. Sustainable economic activity maintains or enhances those systems, increasing their future viability and value. The future value of the investment depends heavily on the future state of those systems.
The investment profession has a well-developed language and formal system for measuring and assessing the value created (or destroyed) by financial capital. We use these financial factors and indicators in this work. But we do not yet have a similarly robust system for assessing the value created or destroyed by the use or misuse of environmental, social, and governance (ESG) capital. What we do have is an evolving language of ESG issues, factors, and indicators. The core of sustainable investing is incorporating these ESG issues, factors, and indicators into the investment process.
Viewed through this lens, considering the ESG impacts on future value contributes to fulfilling our mandate as investment professionals. As Erika Karp, the opening speaker at the first Sustainable Investing Seminar in 2013, observed, “Sustainable investing is just investing.”
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