Sustainable Investing: From Possibilities to Probabilities

Oct 17, 2017 10:05 AM ET

Sustainable Investing: From Possibilities to Probabilities

by Joe Keefe, President & CEO, Pax World Management LLC and CEO, Pax Ellevate LLC 

When SRI industry leaders look at the future of sustainable investing, our tendency is to pat ourselves on the back for the tremendous progress we have made and make optimistic predictions about the wonderful progress that still lies ahead. While not wanting to be the skunk at the garden party, and while remaining a die-hard optimist when it comes to possibilities, I am more pessimistic about probabilities if we remain on our current course. We need to up our game.

I assume that none of us believe that the global community will adequately address climate change and other critical sustainability issues simply by continuing to do what we have been doing. And I assume that none of us believe that humanity is so smart or gifted or somehow smiled upon by destiny that global sustainability issues will naturally resolve themselves through new technologies and the inevitable march of progress. To the contrary, we will need to consciously shape a revolution in the way we do business and govern and organize societies if we are to build a sustainable capitalism capable of delivering inclusive growth. We will need a Sustainability Revolution equal in significance to the Industrial Revolution that ushered in the modern period.

This revolution is not inevitable. If you read books like Thinking, Fast and Slow by Nobel laureate Daniel Kahneman, about how humans actually make decisions, you understand that deep-seated cognitive biases often prevent us from making rational choices, as short-term, emotional thinking tends to cloud longer-term, more logical and expansive thinking. If we are being asked at the present historical moment to focus on the long term and remake capitalism and re-shape human society in profound ways, there is room for healthy skepticism about whether we are up to the task.

And the task is made more difficult by the current crisis of the public sector.

On July 4, I was in attendance as 101 immigrants from 42 countries and five continents were sworn in as new U.S. citizens at a public ceremony in Portsmouth, NH. To say that I was teary-eyed, or that the ceremony was profoundly moving, would be serious understatements. Afterwards, however, I couldn’t help but reflect on the troubling gulf between this beautiful testament to America’s promise and the sorry state of our public life. Increasing numbers of Americans, feeling left behind by globalization, technological advances and political gridlock, have lost faith in established institutions, including the media, corporations and our democratic system of government itself. We are witnessing a profound trust deficit and a breakdown of what we might call the Enlightenment consensus – shared ideals, shared notions of the truth, a belief in science, reason and democratic norms. Instead, alternative facts, a rejection of science and a rejection of truth itself characterize a new tribalism where group identities and grievances replace traditional notions of the common good.

Against this backdrop of a legitimization crisis in the public sector, we must nevertheless find a way to transition, over the next 25 years, from an industrial age economy fueled by coal and oil to a sustainable economy fueled by renewable energy, conservation, innovation and new technologies. We must also transition from a global system of haves and have-nots to a more vibrant, dynamic and just global community. As the UN Sustainable Development Goals make clear, it is not only the existential threat of climate change that we must tackle but other urgent priorities including gender inequality, extreme poverty, and access to education, health care, nutrition and clean water.

I grew up during an era when we expected a vital public sector to lead the way on such matters. The public sector is no longer vital; it is moribund. Under these circumstances, the private sector – businesses and markets, with some assistance from multi-lateral institutions and NGOs – will need to step into the breach. This is the task of sustainable investing over the next 25 years – to lead the Sustainability Revolution and usher in a new phase of sustainable capitalism, and to do so without the favorable, forward-thinking public policy environment that would otherwise be optimal.

The good news is that the transition to sustainable capitalism provides a clearer path to economic growth and wealth creation. In the year 2016 alone, employment in the solar energy sector grew 17 times faster than overall job growth in the U.S. economy and accounted for 2 percent of all new jobs. More Americans now work in the solar industry than for Apple, Facebook and Google combined [1]. Moreover, business corporations increasingly understand that the future of their businesses are inextricably linked to healthier, better educated employees, vibrant communities and ecological health. Investors, meanwhile, are embracing sustainable investing in record numbers and mainstream asset managers – Morgan Stanley, Blackrock, State Street, Fidelity – are beginning to respond.

The bad news is that financial markets are still dominated by short-term traders whose decisions often distort and undermine positive social and environmental outcomes. The business class is still overly focused on quarterly earnings and other short-term markers that fail to take sustainability concerns into account. Women still face discrimination, unequal pay and other inequities despite overwhelming evidence that advancing gender equality can make companies more profitable and communities more vital. The climate continues to warm. The recalcitrant wing of the business community, represented by the Chamber of Commerce, the Koch Brothers and others, continues to do everything in its power to oppose the sustainability agenda. Indeed, they are busy trying to take away shareholder rights as I write. 

Read the rest of Joe's blog post here with more good news and what still needs to be done to ensure a more sustainable and profitable future for all -