Sustainable Investing: What Is at Stake for the Global South?
By admin February 3, 2016

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The year 2016 has been dubbed as the year that sustainable investment would go “mainstream.” If anything, 2015 gave enough reasons for investors to be optimistic about the future of Socially Responsible Investing (SRI). The U.S. Department of Labor’s Employee Benefits Security Administration ruling, in October, gave pension and 401(k) managers the green light to add ESG (environment, social, and governance) stocks to their portfolios. BlackRock launched its Impact U.S. Equity Fund (BIRAX) which attracted $20 million in assets the same year. Goldman Sachs also acquired the asset management firm, Imprint Capital Advisors, to help its clients with ESG portfolios. Moreover, several reports, including Morningstar’s, have reported higher returns on ESG portfolios in the long run. Despite this revitalized attention to sustainability, the difficulty remains in answering the question of what sustainability means. James Dearborn, head of municipal investing at Columbia Threadneedle Investments, has summed up the main issues which include a lack of comprehensive auditing system, insufficient third-party arbiters, and the difficulties in distinguishing between marketing schemes and true sustainable practices.


With possibly more money and inventors’ attention directed towards sustainability, the ultimate battle would be to define the meaning of ‘sustainable’ business. The majority of companies focus on the social component of ESG practices. In other words, they make donations to charities and NGOs, most of which work in developing and underdeveloped countries, to prove their responsible business practices to investors. Fewer companies take the task to their value chains to minimize their environmental impact and to enhance their employees’ standards of living. Starbucks’ C.A.F.E. program, in Latin America and Africa, is an illustrative example of such approaches. Yet, other companies, such as ExxonMobil, are geared towards funding independent studies to find out what types of investments/interventions in the underdeveloped regions can produce more positive results in their social responsibility programs.


A true shift to sustainable investment, however, is not possible without a strategic shift of business models and visions to sustainability. In the final analysis, sustainable investment is meaningless without sustainable business. This is less about socially responsible ‘investments’ than a strategic revamp of the value chains and the definition of businesses themselves. These businesses would adopt unique solutions to the problems found in the underdeveloped regions, and align their core strategies with those solutions. For instance, SteamaCo, a Kenya-based business, has adopted such a strategy by providing solar micro-grid owners with mobile-controlled management and monitoring systems. This simple solution not only renders solar power-generation in many African countries reliable and manageable, but it also justifies further investments in solar industry by making solar grid business profitable again. A true SRI in the context of the global south, therefore, should be directed towards solving the bottlenecks that inhibit further investments in the underdeveloped countries. Although this might be more challenging for start-ups or small businesses with limited resources, it provides opportunities for larger firms with more resources to test or even transform their business models in the underdeveloped regions to improve both the local economies and their long-term profitability.


In practice, in the next few years, social responsibility can at least close the gap in sensitivity to businesses’ malpractices between the Western domestic markets and the international value chains, especially in the underdeveloped countries. Earlier this month, for instance, the U.S. Supreme Court rejected a bid by Nestle to dismiss a lawsuit seeking to hold the company accountable for the use of child slaves to harvest cocoa in Ivory Coast. Some have already suggested to divest from chocolate companies that continue to use child slavery as part of their human capital. As another example, Christian Brothers Investment Services, which manages over $5 billion in assets, has co-filed shareholder resolutions with BP and Royal Dutch Shell requiring the oil giants to transfer to low-carbon economy and infrastructures. This is one example of fossil-fuel divestment movement which has pledged to steer $2.6 trillion away from fossil fuels to prevent climate change. Moreover, other investment funds have called to disinvest businesses related to tobacco and firearms industries. Although shifting business models seems to be ambitious in established industries, sustainable investments, in the short run, will create financial incentives for firms to correct some of their unethical or questionable operations in the countries run by weak states or insufficient regulations. The role of sustainable investing, in the next few years, will be to create ‘sufficient’ incentives to change the course of value production in giant businesses.


For more information:

‘Sustainable Investing’ Goes Mainstream

Phones4Power: using mobile phones to run micro-grids in Africa

Socially Responsible Investing and the Quest to End Child Slavery

How we changed corporate behavior

Fossil-Fuel Divestment Movement Exceeds $2.6 Trillion

Thanks for sharing !

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