It's a common misperception that responsible or sustainable investments are all in the hug yourself, warm feeling, good intention category, the inevitable consequence of which is diminished investment return. Nothing could be further from the truth.
In the past decade, investor demand has increased transparency and communication, creating a large and growing pool of data on corporate sustainability. With this, objective decision-making can happen. Analysis of the data shows two important relationships:
Resource efficient companies — those that use less energy and water and create less waste in generating a unit of revenue — tend to produce higher investment returns than their less resource-efficient rivals.
Resource-efficient companies also display high levels of innovation and entrepreneurship, pushing core value metrics above the average large cap global business.
What these findings suggest is that an investment strategy based on resource efficiency not only produces returns in excess of global benchmarks, it also identifies management teams that are forward thinking, aware of the economic imperatives brought about by resource constraint. Just the kinds of companies a responsible investment manager would put clients' money into.
And while a global portfolio constructed around a resource efficiency metric will certainly include less well-known global firms like Lundin Petroleum and Shire Ltd, it will mostly be comprised of household names. The data on sustainability shows that companies like Boeing, BMW, UPS, and L'Oreal are highly resource efficient in their respective industries.
Resource efficiency, therefore, is not just some nice-to-have quality. It is a leading indicator of economic performance and one that every investment manager should be tracking. It's about time that the financial community woke up to this fact and started to take advantage of the data.
Gerrit Heyns is a partner at Osmosis Investment Management in London
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