Sustainability is a word that I have use quite extensively in previous blogs. For me it is a word that encapsulates the challenge to existing practices that clearly are short-termist; it reflects the checks and balances with which we should face new opportunities; and a caveat to anything which has the potential to fall foul of the Tragedy of the Commons. The difficulty is that inevitably there is a trade-off. Should we move forward with a project that has huge near-term potential, but where there may be negative long-term consequences? Too often we become blind to the problems beyond our immediate view and kick that proverbial can down the road, perhaps hoping for a technological innovation to remedy the harm. Conversely, we become obsessed with the downside with no consideration of the upside and here the risk becomes one of potential stagnation through inaction.
As we look at some of the huge issues facing the planet – climate change, population growth, poverty – sustainability must be at the heart of ways to overcome these problems, which means that the competing challenges of necessity of action and use of resources have to be balanced carefully. The management of the solutions to address these concerns needs to be impactful, but also mindful of the longer-term ramifications.
Two weeks ago, my blog discussed 3D investing[i], referring to the addition of ‘impact’ to the more usual dimensions of risk and return. Increasingly investment managers will need to factor into their analysis the impact of the actions of the companies in which they invest and we have already seen an increase in the number of investment analysts dedicated to understanding the ESG risks of investee companies. There will undoubtedly be a need for increased expertise and specialisation in understanding the impact dynamic. Perhaps too we will see the rise of thematic investing which applies that expert knowledge within specific domains, ensuring that resources are managed to balance need and sustainability.
One potential theme is that of aquaculture. I am very pleased to work with the asset management firm Bonafide[ii] which invests across the value chain of fish and seafood, but does so through the lens of sustainability. For Bonafide this means reconciling the economic interests associated with the demand for seafood products with their interest in protecting the environment. They do so by applying a combination of screening – not investing in those companies that do harm – and also working with companies to improve sustainability, aided through their own principles and the framework of the UN Sustainable Development Goals.
With population growth we will need to look beyond agriculture for additional sources of protein and the worlds of aquaculture and mariculture will increasingly come to the fore to support this. It is essential therefore that our oceans and fish stocks are managed in a way that ensures long term protection of those environments.
Ever more we are seeing the call of action to the asset management industry to transition from a passive observer of the underlying investments they hold to one requiring material action and engagement, shaping the real economy in a way that protects not just our near term needs but also generations to come.
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