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The Business Case For Socially-Responsible Investing

| August 28, 2017
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There's more than one reason to invest responsibly. In fact, depending on your value set, there could be hundreds. From positive impact on environmental issues to limiting pharmaceutical testing on animals, socially-responsible investing has the power to tackle an astounding number of issues in a very real way. But, there's one reason, separate from the others, why socially-responsible investing should be on your radar. And that's the business case. 

In summary, the business case is this: incorporating non-financial information (like a company's water use policies) with financial information (like its stock price) in your investment strategy provides a more complete view of risk and opportunities. Here's why.

  1. By 2050, the world's population will increase to 9 billion.1 Global demand for food will increase by 35% and demand for water will increase by 40%.2  This increased demand will create shortages. Companies aware of these challenges now will be more prepared to address them in the future and will thus be best positioned for long term growth. 
  2. Business practices like poor environmental policies, unsafe working conditions, or child labor can lead to brand and image damage, which can adversely affect a company's stock price.3 Companies that have strategies to improve on these practices are often better long-term investments. 
  3. Climate change issues could cause disruptions in the supply chain. Companies that have contingency plans in place for climate change related issues, could fair better.
      • For example, Bunge, an agribusiness firm, reported a $56 million quarterly loss in its sugar a bioenergy segments due to drought in 2010. 4
  4. There is a positive correlation between sustainability and corporate performance5:
      • 90% of the cost of capital studies show that sound ESG standards lower the cost of capital
      • 88% of the operational performance studies show that solid ESG practices result in better operational performance.

So, there are many reasons to invest responsibly. Whether you're motivated by environmental, social, or governance issues (or all three) you're making a decision to not only help catalyze positive change but to investing intelligently for the problems that could arise in the future. 


References

1 Food and Agriculture Organization of the United Nations, "How to Feed the World in 2050", www.fao.org/fileadmin/templates/wsfs/docs/expert_paper/How_to_Feed_the_World_in_2050.pdf

2 Food and Agriculture Organization of the United Nations, "How to Feed the World in 2050", www.fao.org/fileadmin/templates/wsfs/docs/expert_paper/How_to_Feed_the_World_in_2050.pdf

3 Sustainablebrands.com, Five Years After Deepwater Horizon, Can BP Repair Its Reputation? www.sustainablebrands.com/news_and_views/marketing_comms/leon_kaye/five_years_after_deepwater_horizon_can_bp_repair_its_reputa

4 Whalen, Tensie, Harvard Business Review, "The Comprehensive Business Case for Sustainability", hbr.org/2016/10/the-comprehensive-business-case-for-sustainability

5 Clark, Gordon, Arabesque, "From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance", Shttps://arabesque.com/research/From_the_stockholder_to_the_stakeholder_web.pdf

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