My finances, my projects, my life
August 5, 2020

The mother of all disruptive thematics: sustainability

  Olivier Goemans myINVEST January 23, 2020 58

A recent myLIFE article, “From benchmarks to themes: investing with a focus on the future”, positioned thematic investment as a forward-looking framework. It is based on the perspective that in an increasingly globalized world, it should be advantageous to give priority to companies and sectors that will benefit from structural growth opportunities, while the registration or listing place of those companies is of little importance. This is especially true when considering the mother of all disruptive thematics: sustainability.

Whether its niche or more mainstream, thematic investing usually requires a long-term mindset and patience to be successful. Constantly reminding ourselves that the purpose of any investment is to maximize return, not to minimize boredom, calls to mind the famous quote of Paul Samuelson who said: “Investing should more like watching paint dry or watching grass grow”. Thematic investment is the perfect match for those with a stronger and more resilient investor mindset.

One of the most pressing issues of our time, climate change, threatens the lives and livelihoods of billions of people, if not humankind. On the opposite front, the frightening global rise of agnotology1, or the fact that ignorance and doubt could be culturally constructed by special interest groups to suppress the truth about critical issues is a reality.

Like it or not, our society faces today critical issues “that make a mockery of all national borders, and that can be solved only through global co-operation2”. Who will take ownership of trying to address global problems with protectionism and local priorities? It is obvious that with a nationalist mindset, one cannot offer a solution to climate change. Therefore, it serves their agenda to deny the problem while questioning the relationship between causes and effects.

We are all suffering from a case of the ‘rabbit caught in headlights’ syndrome, not knowing which way to run. When something doesn’t work, we are cognitively wired to go back to the point where we felt comfortable and secure. Retrograde vision is instinctive but could lead to false narratives, except for those really eager to get back to age where life was a daily battle to survive. Most generations enjoy higher living standards than their parents, making their lives more comfortable.

We should understand that the transfer of power to millennials will shift investment priorities and the new leitmotif will become transparency.

According to the IPCC3, we have 12 years left in order to avert catastrophic climate change. The consensus of scientists is that we are already locked into 1.5°C of warming. This is not climate change but a climate breakdown. A positive future is a concrete possibility if, and only if, people in positions of power everywhere step up their level of ambition.

As such, the challenge goes way beyond climate change. Our society is clearly waking up and engaging in collective responsibility and sustainability is the way forward. Referring to younger generations, millennials are showing us the way to empathy. We should understand that the transfer of power to millennials will shift investment priorities and the new leitmotif will become transparency. Companies taking care of all stakeholders and not just shareholders.

Meeting the UN Sustainable Development Goals and the climate change ambitions of the Paris Accord means that an unprecedented level of capital needs to be mobilized over the coming years.

Realistically it will be impossible for governments and companies alone to resolve those issues, investors also have a role to play. Multiple studies have demonstrated embedding sustainability in the business model, has a strong correlation with shareholder value creation.

Multiple studies have demonstrated embedding sustainability in the business model, has a strong correlation with shareholder value creation.

Sustainable and responsible investment is not hype, it’s a prerequisite for the future. Sustainability is by far the most pressing issue facing investment professionals in the 21st century. Environmental, Social and Governance (ESG) factors are changing the way we approach investing. ESG investment processes are becoming mainstream and paving the way towards investing with purpose.

Information is now more readily available. It is inexpensive, barriers have been abolished by ea. technology developments. This means that the key recipe for a successful business will become transparency, honesty, integrity and comparatively superior value of their service or product offering. This will not suppress moral hazards, the free-rider phenomenon, sin industries or more globally bad behavior. It simply means that hiding illegitimate value will be extremely precarious.

As rightly said by Morgan Housel4: “There have always been three (legal) ways to run a business:

  • Solve someone’s problem.
  • Scratch someone’s itch.
  • Exploit someone’s weakness or misunderstanding.

The new age of transparency means the latter two are becoming more difficult, and the last one is becoming nearly impossible in some industries.”

1 The agnotology word was coined by Stanford University professor Robert Proctor as the study of ignorance, trying to answer to the question of “why don’t we know what we don’t know?” Describing what keeps ignorance alive, he explained that ignorance is often more than just the absence of knowledge; it can also be the outcome of cultural and political struggles, deliberately used by media and politician as an instrument. Please read Barry Ritholtz article on https://ritholtz.com/2016/06/frightening-global-rise-agnotology/

2 Yuval Noah Harari – The Economist: Moving beyond nationalism

3 IPCC – Intergovernmental Panel on Climate Change

4 « You can see where this is going » by Morgan Housel and the Collaborative Fund Team