On a daily basis, we hear stories of climate change and its impact on the planet’s ecosystem. Regardless of one’s belief in climate change, there is a common agreement that humans are having the biggest conscious impact this planet has ever seen. Because of our ongoing industrial competition, humans are making such a large impact on the environment that it has become important to start a conversation surrounding our belief in how we view investment. The most feasible path to a future with industries that takes sustainability seriously is through a combination of a change in demand by the consumers and our perception of investment.
The consumers have the power. Let’s take hypothetical Town A. Town A is built next to two a forest. The main company that employs the majority of the residents uses the forest to create products such as furniture, tools, paper, etc. The people of Town A should know how their lives are dependent on the sustainable benefits of the trees. Careless construction of electrical wires, unsupervised campsites and human changes in the water stream could negatively impact the health of the forest. Even excessive deforestation could bring a mountain of wealth to nothing but land. The continuation of the profit is unsustainable if production is not monitored carefully. Not only it could impact the town negatively via environmental reasons, but it has also depleted its natural resources that would sustain the town’s further economic and social advancement.
Understanding the role that a forest plays in their future, the consumers have the power to shift the producer’s perception of value. For example, for the town mentioned above, the people of the town could demand their products to be “forest friendly”. The consumers could demand that the producers show their sustainable actions that are taken for the forest just like SEC requesting audited financial statements from publically traded companies. In the end, the producers have to follow where the demand is.
Changing the consumers’ awareness regarding their impact on the environment is not an overnight transition, especially when it comes to changing their daily habits to be more sustainable friendly products. Though the constant news and articles regarding climate change occupying every direction we look, consumers are not changing to products that offer a sustainable future fast enough. The true solution to this slow transition starts with changing the investment approach entirely.
A profitable business idea is no longer acceptable anymore. There have been many companies that offered great competitive advantages, return on capital and sustainable future growth but failed to disclose that their profits had unfavorable side effects.
An excellent example would be some pharma companies that increased their margin on selling opioid drugs. Arguably, the addiction to the opioid has caused their products to be sold and demanded on a high level. Investors who are looking at their EPS doesn’t see the impact it is making on people’s lives in the annual and quarterly statement. The same can be also said about companies that produce a large amount of waste to be productive or companies that sell consumable products that produce non-recyclable waste.
Though we have come a long way compared to inefficient manufacturers of the industrial age, most of this technological advancement has happened due to demand by investors to increase their profit margin. How different world would be if we also demanded sustainability just as we required a higher profit margin from the beginning?
