Sustainable investing offers investors the chance to earn profits, while also putting their personal values into action and making a positive impact on the world. It's a straightforward idea: Companies that embrace sustainability are in a better position to create value for their shareholders, experts say.
Before seeking sustainable investments, investors need to understand the concept. According to the U.S. Environmental Protection Agency (EPA), sustainability is based on a simple principle: "Sustainability creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations. Sustainability is important to making sure that we have and will continue to have, the water, materials, and resources to protect human health and our environment."
Sustainability in Action
Peter Graf, chief sustainability officer and executive vice-president with business-management software maker SAP in Palo Alto, Calif., explains how sustainability is implemented at his company. "Many companies have defined a sustainability strategy. That's commendable, but—in our eyes—is only a first step towards moving to a sustainable business strategy for the company."
There is "a profound difference" between that approach and the one taken by SAP, according to Graf. "A sustainable business strategy is one that is focused on creating long-term value for SAP, its customers and partners, as well as the environment and society. It is essentially about embedding holistic, long-term thinking into everything that we do," he explained.
From SAP's perspective, this work revolves around the company's software, because that's how the business creates value for its customers and how it can have the biggest impact worldwide. SAP embeds sustainability capabilities—financial, human, environmental, social, etc.—into its solutions. For example, SAP recently announced the development of a new version of its SAP Energy and Environmental Resource Management solution for manufacturers based on in-memory technology. It also means the company applies such solutions internally to improve its own sustainability performance, says Graf.
Sustainability also is integrated into Roche's corporate strategy and core business activities. As a result, no single department is responsible for managing sustainability, according to Tamer Farhan, Ph.D., an investor relations officer with the Basel, Switzerland-based maker of medicines and diagnostics. Instead, Roche has a corporate sustainability committee comprised of professionals working in operations across the entire business, allowing involvement and engagement from the bottom up and on multiple levels.
The committee also reports directly to the corporate executive committee and board of directors' corporate governance and sustainability committee. This integrated approach means all employees are encouraged to embed sustainability into their work, says Farhan. In addition, key performance indicators track employee performance in meeting corporate social responsibility goals and are a factor in compensation.
Investment Strategies
Sustainable investing is part of a long history of investment strategies that aim to align investors' values and portfolios. In 1928, the Pioneer Fund, a mutual fund that avoided "sin stocks" associated with gambling, alcohol and tobacco, was launched. The Pax World Funds started operating in the 1970s as a group of "ethical mutual funds," for instance, and the Sullivan Principles, which encouraged divestment of South African investments in an effort to pressure the South African government to end apartheid, also emerged in the '70s.
The movement for values-based and socially responsible investing continued to gain momentum in the 1980s and 1990s. Since 2000, there has been a broader focus on sustainability and environmental, social and governance (or ESG) factors among organizations and investors.
Stu Dalheim, vice-president of shareholder advocacy at Calvert Investments in Bethesda, Md., says that his firm's approach to sustainable and responsible investing (SRI) takes a variety of factors into consideration. (SRI refers to an investment process that, along with traditional financial analysis, integrates analysis of a company's social responsibility in pursuit of enhanced long-term returns, he explains.)
