If you can make it in America, you can make it anywhere
What struck me is that for the first time, US investors were actually asking about ESG. That may sound silly, but the US has been very far behind Europe and the UK in this regard.
I’ve been investing globally for many years now, and while I love the 'can-do' American business culture and respect many of its companies, being a good corporate citizen is sometimes a secondary consideration for US management.
Europe, by contrast, has a lot of faults, but when it comes to matters of sustainability it’s streets ahead. This is probably a structural thing: we all know the European Union (EU) loves making rules. But decades of dealing with heavily unionised workforces and having worker representatives on boards has also contributed. Whatever the reason, European company boards and managers have been better at thinking about how their businesses affect all of their stakeholders, rather than simply focusing on the shareholders.
Make no mistake, this kind of thinking can sometimes go awry. But so can myopic attention on short-term shareholder returns regardless of cost. By squeezing suppliers too much you could force them to erode the quality of the parts on which your gadget depends. By not thinking about how your actions affect your community, you may find attempts to expand operations are blocked by local voters. By not caring about the environment, you may not have a crop to sell in 10 years time. There goes your business.
There is a general feeling that investing in sustainable companies must come at some cost, that ESG must equal lower returns for investors. I think this is fundamentally wrong.
This is what drew me to ESG investing: it just makes sense. There is a general feeling that investing in sustainable companies must come at some cost, that ESG must equal lower returns for investors. I think this is fundamentally wrong. A company that is well managed, aware of its operations from all angles and engaged with its community is better able to avoid catastrophic risks from public relations disasters, poor supply chains and dodgy boardroom antics. By thinking about businesses in a holistic way, I believe these directors, executives and investors are able to judge risk in a more holistic way too.
For much of my career, however, the US was not on board with this sort of thinking. In America, the dollar was always king and other factors were sometimes secondary. But I think that has already started to change. Conditions are now ripe for sustainable practices to become a real necessity in the US — those that pay lip service could get burned. Bad customer experiences and poor practices can spread across the globe as fast as the sun’s rays, destroying a brand and hurting sales. Boycotts and protests could become very dangerous indeed.
The changes in the US will come, I believe, from two directions. Firstly, I think many Americans are starting to realise just how unsustainable their consumption is. If the top 10% of people emitting carbon — many of whom are American — cut their emissions to just the EU average, it would curb global CO2 by 35%, according to The Uninhabitable Earth, a must-read by David Wallace-Wells. And Americans, per head, have cut their emissions considerably since the beginning of this millennium. I think these people will start to vote with their wallets, avoiding unsustainable businesses where possible and even boycotting businesses that fall woefully behind on the environment.
That leads on to the second direction of improvement: companies are seeing this risk to their reputations and market share and making changes themselves. These phenomena should be mutually reinforcing to the point where, I hope, all of society begins to see the imperative of more sustainable lifestyles and commerce.
This makes me really excited because I truly think nothing is more dynamic in this world than an American that sees an opportunity. US capitalism is truly an awe-inspiring vehicle for change. It isn’t always pretty or good or just, but it never fails to be powerful. We owe American capitalism much. It brought us mass- produced cars, personal computers, developed the internet and smartphones, and conjured countless miracles of modern medicine, including a cure for measles in the 1960s. Faced with a problem or opportunity, the American market really comes into its own.
Conditions are now ripe for sustainable practices to become a real necessity in the US — those that pay lip service could get burned.
Europe’s sustainability regime has always been driven from the top down, which I feel is passive. When you move to do something yourself, the impetus tends to be much greater. The US appears to be changing from the ground up. Individual companies are starting to see the risks if they continue as they have for so long and — perhaps even more alluringly for some — they see the potential for making many more dollars too.
Take recycling.At the conference in Florida, a waste management chief executive spoke about getting a call out of the blue from the head of Starbucks. The coffee chain has a massive waste problem and needs help: somewhere in the region of 6 billion disposable cups are thrown out each year, with each one taking about 20 years to decompose. That’s a lot of Starbucks- branded rubbish.The waste management company smelled a huge growth area (staggeringly, Starbucks accounts for just 1% of disposable coffee cups globally), and is now preparing to ramp up its recycling operations.
In America, it’s not the policies that matter as much as the people and businesses who see the need to change — or who see the value in doing so for their business.
If you had mentioned ESG at a cocktail party in Florida a few years ago, you would have been laughed at. Now, flitting between knots of chatting people, you can hear these issues being discussed all around you. It’s ironic that this wave has hit during the presidency of a man who has zero interest in the environment beyond a golf course; thinks climate change is a myth and whose governance ethics are sketchy at best. But that’s kind of the point I’m trying to make: in America, it’s not the policies that matter as much as the people and businesses who see the need to change — or who see the value in doing so for their business. For many companies, structural shifts to better technologies, materials and practices could offer a decade or more of revenue growth above that of GDP expansion.
For principled executives thinking of the world they will pass on to their grandchildren, that’s a bonus; for anyone else, that’s a very powerful incentive.
Increasingly investors are demanding that companies show they act ethically, source sustainably and don’t abuse the planet. Rathbone Global Sustainability Fund manager David Harrison’s report ' In pursuit of green' shows American companies are starting to take notice. If American companies – some of the most profit-focused businesses on Earth – can be swayed to become sustainable, anyone can.