Why Your Commitment to Sustainability Can Be Profitable
Over the last few years, I’ve committed more time to learn about sustainability in daily practice and through my work. In a previous post (Why Creating Personal Commitments to Sustainability Isn’t Very Difficult), I wrote about time as the first of 3 ways that I think individuals like you and me can make a meaningful contribution to curb climate change. I wrote specifically about one of the many ways that we can spend our time to learn and advocate. I believe that time is our greatest resource and deciding where to spend it demonstrates our core values.
The second is money. Arguably as important, if not more important to some, money is how we assign value to something. Because most of our time is spent earning money, it's important that we spend it in ways that align with our values.
Historically, investing our money in ESG offerings (Environmental, Social, and Governance) meant sacrificing returns. But it's becoming more apparent that the tide is changing and social impact firms are seeing a dramatic shift in performance, even outperforming conventional funds in 2019.
Why is that?
Just like your local deli, corporations are at the will of people that invest in them whether it's spending money on their products or becoming shareholders as retail investors—the only difference is scale (and policy).
Now consider the environment that the millennial generation has grown up in—inundated by media coverage about the rise in climate-related global catastrophes. As millennials age into a period of peak earning, the economy will shift to align with their spending trends. As a result, a growing number of social impact investment firms have been created, raising additional funds and signaling strong returns that bring back limited partners eager for continued growth.
In the last 10 to 15 years, the number of social impact funds has grown from a handful to several hundred. Since 2012 alone, the number of funds globally has increased from at least 206 to 316. Assets have grown from at least $13 billion to $23 billion, according to the Global Impact Investing Network (GIIN), an industry trade group.
Thinking about it from a microeconomics perspective, consider the thought process behind shopping for a warm winter coat. When conscientious shoppers consider purchasing a product from Patagonia or L.L. Bean, several elements come to mind:
What does it cost?
Is it good quality?
What does the company stand for?
The last question has been asked and addressed in many ways, but none more obvious than the rise in B corps, or benefit corporations, for-profit companies using their businesses to address social and environmental problems. This emblem has become a calling card for companies like Patagonia, Unilever, and P&G.
While the road to certification is by no means effortless, there are countless incentives – aside from the desire to join out of pure compassion – which motivate companies to aspire to achieve B Corp standards. In a study led by the Intelligence Group, sixty-four percent of millennials stated that ‘making the world a better place’ was a priority, and eighty-eight percent desired ‘work-life integration.’
It Pays Off To Be Kind: The Case for B Corps by Eleni Papapanou
Great, I buy Patagonia, what else can I do?
Using your wallet to affect change is a good start, and you're right, there's more that you can do. I want to touch on two larger changes that can be made now. The first won’t even increase your risk exposure but will help you feel good about putting your money where your values are.
Move your money
Holding money in a checking or savings account is ubiquitous in most American households. If you're fortunate enough to have a nest egg sitting in your accounts that earn interest, consider moving it to a bank whose mission includes social impact.
I recently saw a TV ad from Bank of the West announcing their partnership with 1% for the Planet. Opening an account will expose your balance sheet to fight for social and environmental justice in the same way partner companies have dedicated 1% of their profits. Small adjustments like this can make a big enough impact if adopted by many and you still keep the benefits of banking with a large, national bank with similar interest rates.
Invest your money
More brokerages are creating ESG portfolio offerings to address the needs of value-based investors. Companies like Betterment (Climate Impact Portfolio) and EarthFolio have dedicated resources to make it easier for investors to make their dollars work and create meaningful change. Their programs take several approaches to climate-conscious investing, including divestment of companies holding fossil fuel reserves, investing in low carbon exposure, and investing in direct impact companies that conduct environmentally beneficial activities.
It's not surprising that more investment firms are jumping on the bandwagon. Tackling climate change is a global cause that’s both disruptive to the global financial market (estimated at $2.5t-$4.2t risk exposure) and economically appealing to new investors from an ESG investing perspective. From a macroeconomics viewpoint, our energy infrastructure is outdated and based on fuel resources that are depletable. New technology will reduce our reliance on a finite resource and drive us into a new age of energy independence built on renewable, storable energy. Simply put, we’re living on outdated technologies like coal and other fossil fuels, which are not only destructive to our environment but also our bottom lines. Renewable energy and the industries that support it have seen enormous growth in valuation and investing in stocks and ETFs that promote positive social and environmental impact is no longer just a commendable effort, it’s a profitable one.