Sustainable Investing

The new economic model accounts for the natural capital provided by ecological systems and their contribution to maintaining life on earth.

Consumers and investors are coming to realize that investing in the marketplace is a creative act, an empowering vote for the kind of world you want to live in.

Evolution of Business and the Economy

When the first Pilgrims made it to the shores of the new world the first impression voiced by the sailors was delight over the unlimited amount of straight virgin timber for use as masts in the sailing vessels of the time. Great Britain had all but exhausted its forest reserves for mast timber and America promised a seemingly unlimited supply ready for the taking. The economy in the land of plenty rewarded those who were best able to extract the vast wealth of natural resources. The consequences for poor stewardship were relatively minor as there was always more to draw from if you fouled your own nest or had used up the existing supply. The values held by these early pioneers eventually evolved their way through the political economy, creating an economic model of ever expanding consumption based on the exploitation of seemingly unlimited natural resources.

Now fast forward to the year 2012, we are presented with a number of sobering facts: financial turmoil in the global markets, excessive sovereign government debt, ecological degradation and pervasive unemployment are the nagging consequences of this economic model based on limitless growth and the single-minded pursuit of maximizing profit. According to Lester Brown's recent book, World on the Edge: How to Prevent Environmental and Economic Collapse, every ecological system that supports industry and the global economy is in decline. While there can be no doubt that the developed world's standard of living has soared during this period, what is also clear is that these gains have been made at great cost to the environment and resulted in an extreme global economic disparity. Further, it’s unlikely that the underlying ecological systems fueling that growth can be sustained for yet another round as developing countries move to improve their own standards of living. ‘Business as usual’ for both developing and developed nations is simply not sustainable and a new model for business and the economy is an imperative. Investors in companies that assume the status quo and ignore this changing economic landscape do so at their own peril.

Business and Commerce: A New Model for a New Economy

Humans, being a highly adaptive lot, are addressing these consequences by evolving new value systems. These in turn are creating the foundation for new economic and green investing models that more sustainably manage human and natural resources.

The emerging new model for business and commerce has come to be known as investing for the Triple Bottom Line. The three bottom lines are: People (social equity), Profit (rate of return) and Planet (environment). The traditional model exploited the environment considering it a wholly owned subsidiary of business, extracting natural resources with little regard for sustainability, efficiency or social equity. Success under the old model is narrowly defined in terms of rate of return on monetary capital. The new economic model still places high importance on Profit while also optimizing for restoration of the natural capital provided by planetary ecological systems and the impact the business has on social well being. This Triple Bottom Line approach is rooted in the reality that business is dependent upon and nested within ecological and social systems. The companies that embrace this directive of the new economy see the inevitability of adapting to this hierarchy. They are building manufacturing models along with business and human resource practices that seek to harmonize with and restore natural systems. This is the essence of sustainability.

Implementing the Triple Bottom Line

Many examples of companies pursuing the Triple Bottom Line model exist. One such example, based in Atlanta, is the world's largest commercial carpet manufacturer. The CEO reinvented the company’s business model from selling carpet to leasing floor covering services. They also reengineered their product line using a new material that is more attractive, requires 97% less raw material input, is cheaper to produce, and is completely recyclable. Investors seeking to capitalize on this sustainability trend should pay attention to companies like this.  Focus should specifically be put on management teams who understand the huge potential for taking advantage of the inefficiencies within their industry and who are redefining business objectives and building value across the Triple Bottom Line. (For more examples of companies that are leaders in this bottom line model see the references at the end of this article.) Time will tell which companies survive and which fail in this transition into the new economy. One constant can be counted on and that is change, the pace of which is likely to pick up in direct proportion to the crisis levels experienced at the ecological level. Within every crisis, however, is the seed of opportunity. As always, it will be the creative innovators who most readily capitalize on the needs of the time that will survive.

Reference Materials

1. Embedded Sustainability: The Next Big Competitive Advantage, by Chris Lazlo & Nadya Zhexembayeva
2. Green to Gold: How smart companies use environmental strategy to innovate, create value and build competitive
    advantage, by Daniel C. Esty and Andrew Winston
3. Natural Capitalism: Creating the next industrial revolution by Amory Lovins, L. Hunter Lovins and Paul Hawken.
    Little Brown Copyright 1999