Sustainable investing 101

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Volunteer Image Author Nattanan23

As a young independent adult, one of the things I’m learning about is investing. I want to be able to invest and at the same time bring about a social change. This blog post contains basic terminologies, who this is for, how to start with sustainable investing and some resources if you are still interested. This kind of investing goes by several names and approaches such as:

  • Socially responsible investing (SRI)
  • Sustainable investing
  • Responsible investing
  • Impact investing
  • Ethical investing
  • Green investing
  • Socially conscious investing
  • Community investing
  • Positive investing
  • Green bonds
  • Climate bonds
  • Eco-investing
  • Development impact bonds
  • Ethical banking
  • Purpose-driven finance
  • Corporate Social Responsibility (CSR) Investment

Who is this for?

Sustainable investing is for everyone and according to experts it doesn’t mean low returns. It is not just for those who care about bringing about social change.

How do I start?

Whenever starting something new, research is inevitable. I’m not an expert but this might help:

  • Find out if a local bank has portfolios such as socially responsible mutual funds and sectoral investments. Back in India, it was difficult for me to explain this to a bank or a portfolio manager because there this concept is not widespread. However, it is catching up. In 2014, India was the first country to mandate a minimum spend on corporate social responsibility initiatives.
  • Divest from investments that do not align with this strategy.
  • Hire an investment advisory firm that specialize in integrating environmental, social and governance (ESG) factors into the selection and management of investments.
  • Fund projects that want to bring about social change.

Resources:

 

Disruptive and sustaining innovations of the greener world

Disruptive innovation changes the world. It seeps into the unguarded supply chain like a virus if economy is considered as one large collective organism. Supply-demand goes off balance. This is because it is in the nature of disruptive technologies to rapidly increase demand.

book3Increasing demand is the reflection of how the new technology was able to reach to larger masses by being more affordable and accessible. It’s chaotic. Every small or large business is clinging on to whatever it can to win this battle. The new technology now dominates the market. It changes the course of day-to-day business activities. All eyes are on this innovation and everyone in the business is breathing it. A new infrastructure replaces the old one. It’s a new market! It’s a shamble! In an effort towards a sustainable world, the companies also have to struggle to keep up and sustain themselves. Those who adapt and turn issues into opportunities will survive. Resources really are going to run out someday.  Sustaining innovation on the other hand does not shock the market behavior by a sudden entry but rather evolves in digestible steps. Sustaining technologies are improved products.

Clayton M. Christensen‘s book The Innovator’s Dilemma describes his theory of disruptive innovation. It talks about how companies fail to adapt to such changes. He lays down principles of disruptive innovations that companies fail to follow.

Here are some examples of disruptive and sustaining innovation that also offer a contrast between these two.

Materials:

Plastic is an example of disruptive innovation. It disturbed the market back then by changing the whole scenario. An example of sustaining innovation on the other hand is bioplastic, an evolutionary innovation that cannot be integrated into existing infrastructures so easily but is capable of replacing petroplastic. It could have been a revolutionary innovation had it not brought along with it land and food issues.

Agriculture:

Green revolution is a classic example of how new technologies such as high yielding seeds changed the world or rather saved the world. Norman Borlaug’s techniques were disruptive in behavior. They went beyond industrialized nations. Genetically Modified Organisms (GMOs) on other hand is an advancement to these revolutionary techniques. This so called ‘Gene Revolution’ is a sustaining innovation. But is it? It’s in some people’s black books.

A must read: The corporate assault on the security of the global food supply, The Thistle Volume 13, Number 4: June/July, 2001.

Solar and wind power:

Renewables like solar and wind are the new green invaders of the market. It’s an all grown industry that is trying get into the veins of policies but existing policies offer some resistance. To make sure that it doesn’t disrupt current market behavior, taxes are levied. Taxes buffer the impact the technology can have on the market, it acts as a cushion to the market. Can we say that a disruptive innovation is advertently or inadvertently converted to a sustaining one? For example,

The state House in Oklahoma this week passed a bill that would levy a new fee on those who generate their own energy through solar equipment or wind turbines on their property. – The Week

In terms of subsidies, petroleum still gets a large share. Old companies have started to invest in renewables  – a sign of adaptation.

Oil & Gas:

Shale gas is a natural gas that is trapped in shale formations underneath the Earth’s surface. It is cleaner and greener than coal. A disruptive combination of technologies like horizontal drilling, hydraulic fracturing (aka fracking), computer imaging and modelling gave rise to the natural gas extraction boom. This makes shale gas a rapidly available energy resource and that changes things around. US is currently the largest producer of natural gas.

To watch the LinkedIn Speaker Series with Clayton Christensen, click here.

Extent and limitations of a business going green

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Green economy is the economy that takes into measure the environmental consequences current technologies have created. The three pillars of sustainability as they are called are: economy, society and environment. While companies do embrace this, they fail to make their mark. So, how does a green business, that believes in sustainable development, limits its growth and how can it overcome it?

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(Image credit: 48hourslogo)

Here are some parameters that can measure a company’s extent and limitations:

#1 Going ‘green’: Green is called nature’s color. But it is not wise to color your websites and offices in all possible shades of green: green wall, green chair, green pens. It can come across as a green wash. It affects your brand and credibility. Jeremy Heimans, co-founder of GetUp and of Avaaz.org, calls it the ‘green vomit‘. Instead let your greenness reflect in your inner and outer workings of the company. Embrace energy efficiency and less polluting strategies. Save water. Become an eco-friendly business at all levels possible. Help others do the same. It does make business sense to do that. Lead your way.

#2 Keeping intentions clear: Environmental responsibility is possible with profitability but not at the expense of it.The third pillar of sustainability is economy which cannot be forgotten. A business is capable of solving environmental and social problems, although it is not what it is primarily based on. Take, IKEA for instance. IKEA is a Swedish company that designs and sells ready-to-assemble furniture, appliances and home accessories and does green business with solar-panels. IKEA doesn’t accept child-labour and supports sustainable forestry. Companies like this are doing well since green business is now popular among consumers.

#3 Incentives: Just because one cares about having a healthy and clean environment doesn’t mean he/she has to work for a green company at low wages. It is a deterrent because everyone works for a living. Pump up some creativity in everything you do and it is bound to grab some attention. Honesty is the best policy. Millennials will dig it. Instead of making people guilty of not recycling, how about creating incentives for the process? What do you think about Coca-cola’s new idea about making recycling fun? Have a look at this video:

#4 Transparency: A business is affected by how transparent it is in its actions. Sustainability reporting is one way to convey transparency. Whoever expresses it the best is at an advantage.

What else do you think that businesses can do to go green without limiting themselves?

 

This article was first published on LinkedIn.