ESG and the Problem with Business as Usual
We were very pleased to read Al Gore and David Blood’s “Manifesto for Sustainable Capitalism” in the WSJ last week. It called for “a framework that seeks to maximize long-term economic value by reforming markets to address real needs while integrating environmental, social and governance (ESG) metrics throughout the decision-making process.” Companies that integrate sustainability into their business models and investors who evaluate them on that basis, the manifesto claims, are finding their profitability enhanced over the longer term.
We only wish Gore and Blood had focused a bit more, and in blunter terms, on the dire consequences of operating under “business as usual” and about the deeply flawed valuation methods that are used to model it. We talked about these last week with Steve Waygood, Director of Sustainability Research at Aviva Investors. He pointed out that by continuing to use discounted cash flow and other short-term focused valuation tools that ignore the rapidly approaching era of resource scarcity, companies and investors are setting up the global economy for a period of disruption that will make past credit crises look like a walk in the park. As the sixth largest insurance company in the world and an asset manager with over L235 under management, Aviva is far more concerned, Waygood reported, about the market impacts of a natural resources crunch than of another credit meltdown. So should we all be.