Investing in a Sustainable World
O'Neill, Barbara, Journal of Financial Counseling and Planning
Investing in a Sustainable World Barbara O'Neill Author: Matthew J. Kiernan Publisher: American Management Association ISBN 13-978-0-8144-1092-9
According to a study reported in the April 2009 Journal of Financial Planning, many investors are interested in "going green" when it comes to selecting their investments. Allianz Capital, a leading global investment firm, found that 64% of surveyed investors considered the environment as the most desirable investment opportunity among 10 investment categories surveyed. The survey also reported a 30% increase in the number of investors who have made environmentally-oriented investments. However, more than two of three (68%) respondents indicated that they would need to consult someone in the financial services industry for help with environmental investing decisions.
What about investors who want to purchase environment-related investments but lack a financial advisor? Enter Investing in a Sustainable World, an extensively well-researched and clearly written 300-page book that explores this topic from every conceivable angle. The author, Matthew Kiernan, is founder and Chief Executive of Innovest Strategic Value Advisors, Inc., the top-ranked sustainability investment research firm in the world. Dr. Kiernan previously served as Director of the World Business Council for Sustainable Development and has spoken several times at the prestigious World Economic Forum in Davos, Switzerland. In the book's introduction, he introduces readers to environmental and social (ES) or "sustainable" investing, noting that ES factors are "absolutely and increasingly critical to the competitiveness and financial performance of both individual companies and the broader economies and societies in which they operate." Kiernan also describes six "fundamental truths" about ES investing and provides a roadmap to the book.
Chapter 1, "Welcome to the Sustainable Investment Revolution!," begins with encouraging news for ES investors: major Wall Street investment banks (many of which subsequently collapsed or were merged out of existence as the book was in press) were starting to write reports about climate change, water scarcity, human rights issues, "and a host of other topics they have been studiously avoiding." Moreover, in less than 18 months, the United Nations Principles for Responsible Investment attracted more than 380 signatories, and a global investor coalition attracted supporters with $55 million of assets within 6 years. Kiernan notes that "the Sustainable Investment Revolution is driving a worldwide industrial restructuring, radically changing the very basis of competitive advantage for companies and, therefore, investors." He further notes that sustainability issues now matter to many companies, citing successes such as the Toyota Prius hybrid car. Chapter 1 also discusses factors that are driving the sustainable investing revolution, distinguishes ES investing from more commonly known socially responsible investing (SRI), describes key environmental and social issues, and outlines the "four pillars" of ES investing: environment (e.g., minimizing adverse impacts), human capital (e.g., employee retention and innovation capacity), stakeholder capital (e.g., interactions with external stakeholders), and strategic governance (e.g., how companies handle ES issues).
In Chapter 2, "What's Taken Us So Long?," Kiernan attributes the slow appreciation of ES factors in investment decisions to both "individual intellectual inertia and collective organizational inertia" and cites a number of specific examples as well as six enduring myths about sustainable investments (e.g., "addressing sustainability factors is irrelevant or even injurious to risk-adjusted financial returns"). He also describes Wall Street analysts' fixation with "making their quarterly numbers" (which downplays concern about the future financial potential and true competitive risks of a company) and fleshes out the four pillars of sustainability, noted above. …