Companies, Investors Band Together to Catalyze a Sustainable Economy

Forbes, 5/27/2011

To some sustainable capitalism is an oxymoron. How could a system based on ever-expanding markets possibly be sustainable?

I believe that not only can capitalism be sustainable, but also that it’s our best hope for the future on an increasingly crowded, hot and resource-constrained planet.

Take a look at commodity prices, now at a 24-year high. Those peak prices strongly indicate that global consumption is outstripping resources, from precious metals to oil, wheat and corn.

From Wall Street to business associations, recognition is growing that the long-term viability of business depends on how quickly we develop and support solutions that use fewer resources and cleaner energy.

That’s what sustainable capitalism is all about: generating financial return in a long-term and responsible manner. It’s about breaking the tether to quarterly profits, driven by unsustainable, high-polluting technologies.

Here’s an example: Two of the country’s largest investors —with collective assets totaling some $400 billion—have recently taken extraordinary steps toward sustainable capitalism.

The California Public Employees’ Retirement System has committed to fully integrate environmental, social and governance (ESG) factors—a key tenet of sustainable capitalism—into all investment decisions across all asset classes.

What’s that mean in practice? It means that CalPERS will take an issue like water scarcity and examine its impact on the giant fund’s real estate portfolio, its public and private equities, and its fixed income holdings.

Maybe those municipal bonds financing pipelines to transport water hundreds of miles across the Nevada desert won’t look so attractive anymore. Conversely, maybe it’s time to invest in that company innovating the latest drip irrigation technology.

Integrating ESG may sound daunting but it’s not so difficult, says CalPERS senior portfolio manager Anne Simpson. “It is absolutely no different than thinking about long-term finances and is, in fact, a buried and hidden part of long-term financial success.”

The California State Teachers’ Retirement System has made a similar commitment to ESG integration, and the combined action of the two pension giants raises the bar for other investors.

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