Sense And Sustainability

A CEO in the wealth management industry asked me what “sustainability” was last year: he wasn’t joking! Oh, he thought he knew what it was (fluffy tree hugging investments of some kind, I am guessing) but didn’t have a clear definition. And if he didn’t, I am sure many (most?) other people don’t either.

Does sustainable investing matter? Is it a fad? Is it real? What is it? Who knows? What I know is that it is today’s hottest topic globally. Anytime a topic is this hot there will be all types of people and brands jumping on the bandwagon trying to capitalize on the hype.

According to ADEC Innovations, sustainable investing is “an umbrella term for investments that seek positive returns and long-term impact on society, environment and the performance of the business.” It is also known as Environmental, Social and Governance (ESG) investing.

I will look at sustainable investing from the perspective of four different market players: retail investors, investment firms, corporations, and small- to mid-sized businesses.

Retail investors:

Women, in particular, look for ESG funds because many of us (in addition to trying to make money) want to save the world. The problem is that some ESG funds (just like other specialty fund classes) can be more about the marketing label. There are no regulations in this regard, and some companies indulge in “greenwashing”: they claim to be green (or ethical or sustainable or whatever) but their investments look like any other fund, but usually with higher fees. There are some fantastic ESG funds out there, but it is buyer beware and you need tools to find them. There are firms offering screening tools to assess whether your fund attains sustainability.

Investment firms:

Wealth management firms globally have varying levels of interest in offering ESG funds, largely driven by local interest and level of economic development. I interviewed 60 CEOs in 2018 as part of a global research report for a major bank. Some cultures such as the Nordic countries take sustainable investing very seriously and it is now a mainstream offering of their investment firms. In the U.S., Canada and non-Nordic Western Europe interest in ESG is decent, although not quite as high as in the Nordics…but in Israel, Turkey, South East Asia and Latin America interest was much lower (which in some cases is a polite way of saying zero interest) and most CEOs felt that making money was the one and only investment focus in their markets.

Some of the reluctance to embrace sustainable investing is because it would require firms to educate customers on the topic and this is time-consuming and costly. In addition, they would have to do more rigorous analysis on the companies they invest in, and this adds layers and further cost to the investment process.

Although only 31% of Canadian retail investors own ESG funds, over two thirds (twice as many) of global institutional investors are doing ESG investing, and the institutional market for equity investing is about 4 times larger than retail globally.

Big public companies:

Firms need to take ESG seriously from a PR/brand perspective, if nothing else. It varies by country, but there are also regulatory reasons: many companies may be legally required to discuss strategies around sustainability in their annual reports; they have to report about it and be fully transparent. ESG compliance is a lot like a smoke detector: you spend a small amount of money in exchange for avoiding a massive loss if things go wrong. Companies that have ignored ESG can end up losing executives for tolerating a culture of harassment, or spending tens of millions of dollars cleaning up a tailing pond leak into a national park.

It applies to small to mid-sized businesses too:

There are business opportunities around sustainability as not only is it very topical, it can save companies money and make customers happier. In today’s world, sustainability needs to be embedded in everyday people’s businesses.

Last year I had the opportunity to do commissioned research for a Canadian wealth management firm to gain perspective on today’s business environment for Canadian entrepreneurs across all industries. The interviews opened my eyes and I finally understood the real-life meaning and application of sustainability. I’ll share a few excerpts from The Canadian Entrepreneur Report.

What Is Sustainability? Doing more with less

Stuart Lombard, the Founder of Ecobee (smart home devices and thermostats) talks about the “frenzied family”: they are busier than ever trying to get kids dressed and off to school, fighting traffic, cutting the grass, making dinner, getting to the evening event, etc. How do companies create a more peaceful environment for customers? It’s all about saving them time.

“Sustainability is about doing more with less—it is just economics. Today’s connected customer has a very busy life. Smart thermostats save energy and reduce carbon footprint without having a negative impact on day-to-day family life.”

Owen Moore is the Founder of BeWhere in Toronto. BeWhere is an Internet of Things provider of real-time information on equipment, tools and inventory in transit and at facilities, reducing the number of trips to service something. Moore explains that even something seemingly low impact like waste bins can improve the lives of today’s busy families and save costs/taxes—the service schedule can now be driven by how full they are, and not just fixed intervals, which makes things more efficient.

Reducing The Environmental Footprint

Traci Costa, the Founder of Peekaboo Beans creates high quality, long-lasting kids clothing that has a big following in the secondary market. She plans to open a vintage boutique inside her bricks and mortar physical store in 2020. When a customer gives back used clothing, they’ll receive a product credit to buy either new products or vintage products. In this way they will close the loop and own the customer, but also help the environment by reusing clothing!

Tim Keenleyside, the Co-Founder of Georgian Bay Spirit Company says their company embodies “craft ideals” as well as being a “craft brand”. One example is that they buy local, and buying local ingredients is much better than shipping them over from England reducing carbon footprint and making choices that are the best ones for the environment.

Moving the world forward for women

Lara Smith, the Founder of Lusomé talks about how she had her “a-ha” moment when her sister was diagnosed with breast cancer. Her sister’s treatment prompted night sweats and she wanted to help her find a way of being comfortable, but she couldn’t find any functional yet pretty nightgowns. There are many causes of night sweats and hot flashes, such as postpartum, cancer treatment, thyroid problems, perimenopause and menopause. In fact, 80% of all women will face night sweats at some point in their lives. After much research and drawing from her 20 years of experience in the women’s fashion industry (with an emphasis in textile sourcing and innovation), Lara uncovered a technology solution that would perform for the long-term and in the exquisite fabrics she had envisioned.

These types of “women’s issues” are part of ESG. The G normally stands for governance, but in many cases it can also be for gender. Sustainability includes having more women on boards, more female executives and more business focus on what matters to women.

Sustainability isn’t just an investment term, of course. It means something which can be maintained at a certain rate or level. Which makes sense for almost everything, if you think about it, investing included.

Barbara Stewart, CFA is one of the world’s leading researchers on women and finance, focusing on real life financial behaviours and providing global insights into how smart women think and communicate. Barbara is an advocate for women, for diversity, and for financial education. In addition to her Rich Thinking® research, Barbara uses her proprietary research skills to work as an Executive Interviewer on a project basis for global financial institutions seeking to gain a deeper understanding of their key stakeholders, both women and men. Barbara is a frequent interview guest on TV, radio and print, both financial and general interest. She is a contributor to the CFA Institute’s Enterprising Investor website. For more information about Barbara’s research, please see www.barbarastewart.ca