In our latest quarterly letter, Paladin Advisors takes a look at the origins and implications of the rapid growth in Sustainable Investing (SI). These strategies incorporate non-financial criteria – e.g., ethical or environmental considerations – into investment decisions. SI strategies range from simple “do no harm” negative screening approaches to the more hands-on and aspirational impact investing, in which investors fund specific environmental and social causes.
The asset management industry’s embrace of these approaches might seem curious. Wall Street worships at the altar of high investment returns, and has historically been unwilling to embrace other investment criteria. This overzealous form of free-market capitalism, sometimes known as neoliberalism or Shareholder Value Added (SVA), myopically enshrines corporate profitability, rising stock prices, and shareholder enrichment as the highest values. Less (if any) attention has been devoted to the well-being of employees, consumers, and future generations.
The embrace of SVA by US corporations and economic policymakers has contributed to the accumulation of negative externalities — costs of doing business that aren’t borne by businesses themselves — such as climate change, natural resource scarcity, income inequality and excessive indebtedness. Vested corporate and political interests have created significant obstacles to policies that would proportionally allocate these costs to the source. However, people are now beginning to speak up and act from the grass roots. One focus of activity has been the rotation of investment capital to support businesses that seek to minimize or mitigate these negative externalities.
Although the asset management industry has recognized the inevitability of change, many SI "solutions" appear to be opportunistic and self-serving. That said, we believe that thoughtfully-practiced sustainable investing is, for long-term investors, synonymous with smart investing. In our view, the profit motive is not the culprit; a too-short time perspective is. Expanding one’s horizons to account for the likelihood that externalities will eventually ricochet back to the systems that produced them changes the cost-benefit equation in fundamental ways. The tangible (and accelerating) climatic consequences of our unfettered pursuit of growth are becoming impossible for our natural systems to absorb quietly, and increasingly difficult for vested corporate and political interests to deny.
Our 4Q 2018 describes how Paladin is addressing these issues in our clients’ portfolios. If you would like to obtain a copy, please contact us at firstname.lastname@example.org.