I recently attended the GLOBE 2012 conference in Vancouver, British Columbia, which is focused on business and the environment. The conference had several intriguing sessions, but the most enlightening was “Sustained Growth and Sustainability: Re-engineering the Economic Model.” The moderator of the session was Paul Clements-Hunt, former Head of the United Nations Environment Programme Finance Initiative. The panel explored the notion that the current economic model is increasingly unsuited to deliver sustained growth and development. The panel aimed to dissect several questions, including: How are new ecological economic models filtering into traditional ways of doing business? How can investors who desire short-term rewards be encouraged to support projects with longer-term horizons? How can business and finance leaders, policy-makers, and regulators work together to re-engineer the economic model?
The panelists critiqued the general trend toward short-term investing; for example, in the 1980s the length of an average stock investment was five years, whereas today it is only five months. In another example, a panelist recounted attending a recent conference where Chief Financial Officers from various corporations were queried about their investment horizons. The majority said their horizon is less than 1 year, some less than 1 quarter. As investors have become more focused on the short term, the challenge is to develop a system that rewards longer-term thinking while incorporating broader environmental and social issues into investment decision making.
Areas for improvement suggested by the panelists include clarifying the legal framework for fiduciary responsibility. Most often, fiduciary responsibility focuses strictly on financial attributes without consideration of environmental or social concerns. We believe fiduciary responsibility should incorporate environmental and social issues in order to comprehensively evaluate both risk and opportunity within sectors and companies. Traditional investment analysis underestimates the long-term opportunities and risks associated with ecological limits. As long term investors, we conduct fundamental research that combines traditional investment information with environmental research. This process identifies companies that are innovative, competitive, and that are creatively responding to ecological limits.
Emily is a Senior Research Analyst with Portfolio 21 Investments. She has 9 years of experience in the environmental field.