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Integrating Sustainability Criteria in Investment Decisions

Submitted by: Matthew Patsky

Posted: Dec 19, 2016 – 06:00 AM EST

Tags: finance, climate action business association, massachusetts, sustainability


Today, the majority of our savings leave the local community, with the general exception of businesses we own directly. While we may sometimes avoid shopping at big-box stores that work to out-compete our local independent favorites, our savings, our retirement accounts, and our mutual funds often directly underwrite the growth and expansion of these mega-corporates. While we likely want more financing to be available for local businesses, sustainable innovations, and community infrastructure, our investments often speak otherwise. But it doesn’t have to be this way. The cornerstone in this context is the integration of sustainability criteria into investment decisions.  

Many investors are becoming aware of the risks associated with holding fossil fuel companies in their portfolios and transitioning their investments away from the industry. Climate change costs the global economy $1.2 trillion annually and is expected to dramatically increase over the next few decades. ​Evidence indicates that a sustainable investment lens can lead to better, risk-adjusted financial returns. However, only a fraction of investors include these factors in their investment and decision-making process. In the mainstream investment community, there is a general lack of awareness of ESG issues as well as a disproportionate focus on short-term performance. 

Capital markets can play a fundamental role in fostering business ethics and sustainable development. As the fossil fuel divestment movement gathers global momentum, many individuals and organizations find themselves reevaluating where and how to invest. There is growing concern within the investment community that the externalities of climate change are becoming increasingly financially material. Trillium Asset Management, uses divestment principles in their strategy to identify companies best positioned to deliver strong, long-term performance. Our management principles and resources, such as our “Guide to Personal Divestment and Reinvestment”, help individuals better understand divestment and provide ​clear steps to transitioning investments​ away from fossil fuel activities.

All too often the conventional approach to economic development is something that is done to communities, rather than by them. Another proposal for a supermarket or bland high-end housing development are met with raised eyebrows and a resigned “Not again!” For years, top financial advisers have urged Americans to invest in large corporations that promise returns. But how can we invest within our local communities? Can it provide profitable returns and social or sustainable co-benefits? 

Over the last five years, Massachusetts has become the national incubator for social ventures, clean technologies, and innovative business solutions for climate change. ​We have rapidly developing technologies, exciting new startups and high-impact projects. ​These local emerging industries demonstrate a different way of working from business as usual - they are sustainable, offer social benefits, while providing essential goods and services for the local community. They provide jobs for local people and buy from other local independent businesses. 

Climate Action Business Association has developed a new series called “Local Emerging Market Reports” (LEMR) which spotlight quickly growing industries in Massachusetts that are transforming business-as-usual. ​ Reinvestment, when executed sustainably and responsibly, can be a model for creating local, low-carbon economies that foster and support community resilience in the face of economic instability, resource scarcity, and market uncertainty. “After divesting, the question becomes: where do I reinvest? Funds can be reinvested in companies that stimulate emerging market opportunities by promoting a more sustainable economy,” says Kate Galbo, Policy Coordinator of Climate Action Business Association.

With a special focus on the social and climate impacts of growing local industries, the reports add a unique perspective to the mounting conversation surrounding sustainable investment opportunities Rather than viewing communities as pools of resources or as an empty stage in need of development, they can be used to foster and support community resilience in the midst of economic instability, resource scarcity, and climate change. 

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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