Bill Baue

At a United Nations summit on corporate responsibility in July 2007, Goldman Sachs released a report that breathed yet more life into the maturing body of sustainable investing. The venerable investment bank had been nurturing growth in this field over the past several years: in 2004 it released its first sustainable investing report, in 2005 it issued a company-wide environmental policy, and in 2006 it invested $1.5 billion in clean energy. At first glance, it may have disappointed sustainable investing advocates to see Goldman analysts saying that it was too early to correlate sustainability performance directly to financial performance.1

Of course, this coy assertion assumed that such a link—considered the Holy Grail by some advocates of sustainable investing— unquestionably exists. In the meantime, until empirical evidence could prove a direct connection between sustainability and financial performance, Goldman integrated sustain-ability factors into its traditional financial analysis. The report found that sustainability leaders outperformed the general stock market by 25 percent over the previous two years and outperformed their same-sector peers by almost 75 percent over the same period.2

Such numbers turn heads. And more important, they draw ever more money into sustainable investing, as it has come to be known—increasing the amount of capital pegged to environmental, social, and governance performance. (See Box 13-1 for a definition of sustainable investing.) These commitments are increasingly of interest to a broad range of investors—from individual shareholders and businesses engaged in project finance to venture capitalists and nonprofits promoting microfinance. (See Table 13-1.) Together, these investors control significant assets that can steer societies toward

Bill Baue writes on socially responsibility investing for SocialFunds.com and on corporate social responsibility for CSRwire.com. He co-hosts and co-produces the nationally syndicated Corporate Watchdog Radio show and podcast and teaches at the Marlboro Sustainability MBA program in Vermont.

Box 13-1. Definition and Scope of Investing for Sustainability

Investing for Sustainability

"Investing for sustainability" is an umbrella term used in this chapter for all the various forms of investment that promote sustainability in one way or another. The term "sustainable investing" applies to the most prominent subset of investment practices that promote sustainability: socially responsible investing and mainstream investing that integrates environmental, social, and governance factors into investment decisions. The lion's share of project finance for major infrastructure projects such as dams and mines now operates according to the Equator Principles, which integrates sustainability factors.

Other investment practices that promote sustainability fall outside the definition of "sustainable investing" as it is currently developing, however. "Green" investing, or support for environmentally beneficial companies and projects, is all the rage in private equity and venture capital, though these investments rarely take the full range of sustainability considerations into account. And microfinance is growing rapidly, but it focuses primarily on social factors, with less emphasis on environmental sustainability.

sustainable development.

Indeed, building sustainable economies will necessarily have investment at its core. Currently, modern industrial economies rely on pillaging the past at the expense of the future, burning through solar energy that has fermented for millennia forming fossil fuels that release eons worth of carbon dioxide that turns the atmosphere into a veritable pressure cooker. Changing course requires applying strong leverage from many different directions—especially investment. The scientific consensus, for example, is that carbon dioxide emissions need to be reduced 50-80 percent by 2050 in order to avert catastrophic climate change—essentially requiring a complete overhaul of carbon-intensive economies and lifestyles. (See Chapter 6.) Because investment decisions help shape an economy's infrastructure decades into the future, investor engagement is essential in turning economies away from conventional paths and toward a sustainable one.3

Luckily, sustainability and investing share a common horizon: both focus on the future. Sustainability considers how to meet people's needs today as well as in the future.

Table 13-1. The World of Sustainability Investments

Sector

Description

Contribution to Sustainability

Socially responsible investment (SRI)

Project finance

Private equity and venture capital

Microfinance

Values-based investment opportunities, shareowner advocacy, and community investing

Funding for major infrastructure or extractive projects such as dams or mines

Speculative financing for promising innovative startups

Very small loans, as little as $50, that help small-scale artisans and craftspeople develop markets for their wares

A large share of SRI focuses on environmental and social sustainability; some investments, however, focus on values unrelated to sustainability

More than 85 percent of project finance capacity globally falls under the Equator Principles, which factor in social and environmental sustainability

Attention increasingly focused on green energy and other green products

Largely focused on income generation and poverty alleviation

Investing for Sustainability

Investing is essentially a form of delayed consumption that uses current capital to generate future financial support—particularly after retiring from active income earning. Traditional investment strategies in current use support business practices without regard to social or environmental impacts, arguably defeating the purpose of saving, as they contribute to the destruction of the future. Sustainable investing necessitates deep consideration of social and environmental implications, always assessing and measuring whether business practices can sustain social equity and ecological balance while maintaining profitability.4

Viewed through this lens, sustainability and investing can reinforce each other. A shift in worldview toward sustainability investments is already well under way, but its continued growth cannot be taken for granted. The challenge is to structure investment options so that outcomes promote both sus-tainability and strong returns.

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