New Techniques To Consider for Sustainable Investing

On Nature, Mass and Finding Value

biomimicry
city and trees.

With interest on the rise in Sustainable Investing over the last year continuing to leave negativity behind due to better performance from positive approaches, what are some of the newer emerging techniques worth consideration beyond business as usual?

Let's look at three such methods: Nature, Mass & Other Value Drivers

1)   Starting with mass as a critical factor, one very good resource to consider is the so-called dMass effort of Howard Brown.

 

Howard founded one of the original sustainable value consultancies which were known as RPM and he has continued to evolve his thinking from his days as an early disciple of Buckminster Fuller. Run by Kathryn Lewis, dMass has been a champion of finding ways of reducing the weight of business (sometimes referred to as "dematerialization") being a key driver of value creation.  

Here was their first video from about four years ago demonstrating the concept of better design leading to doing more with less. If you think about it, the investment application is clear. Companies with a lower weight per product built and shipped will spend less on fuel costs and otherwise use less materials to make their products.  

The simplest way of explaining this is ​to look at a battery maker such as Duracell. They don't make batteries, they sell portable energy, which is why consumers buy their products. By focusing on what consumers really want, companies can find cheaper, more innovative and more exciting ways of selling products and their concepts.

The rise of the new shared, sharing and internet economies can all be said to come from this new way of thinking about doing more with less too. We featured dMass in our second book on sustainable investing, and their recent piece on "A lightweight, customized economy designed by you," is worth a read.

Investors can start to look not only at companies exploring such weight reduction techniques but can also see which industries are emerging as best positioned to take advantage of this trend.

2)   Another technique set of relatively new interest is the field of so-called Biomimicry. Championed by Janine Benyus, you can see some of her thinking at this TED page.  

The basic premise to Biomimicry, as per the Biomimicry Institute , is to seek "sustainable solutions to human challenges using nature's time-tested patterns and strategies. The goal is to create products, processes, and policies—new ways of living—that are well-adapted to life on earth over the long haul.  The core idea is that nature has already solved many of the problems we are grappling with. Animals, plants, and microbes are the consummate engineers. After billions of years of research and development, failures are fossils, and what surrounds us is the secret to survival."

Examples of nature's processes leading to more sustainable solutions are seen in these case studies involving Energy (learning from Whales to make capturing Wind Energy more efficient), Architecture (learning from termites to create more natural forms of Air Conditioning), Transportation (learning from natural design patterns to make High Speed Trains more efficient), Agriculture (learning from natural ecosystems to improve the sustainability of farming), as well as in Medicine and Communication.

There is a lot of promise in Biomimicry and it remains a field to watch closely, even if just as you look around for the next big idea, it may well emerge from nature.

3)  Other Value Drivers also continue to emerge as we saw in our Sustainable Investing Performance Review piece on 2014 the year just passed.  We saw funds identifying the best workplaces and otherwise finding the nexus of sustainability and value leading the way last year.  

Another way we continue to see value being found by investors using sustainability is on the flip side of this argument, that being finding companies who are stuck with old business models which cannot adapt say to the dMass trend of being lighter and more nimble.  An example of a completely failed business model is coal and tar sands oil. 

As the world becomes more efficient on energy use for economic and pollution reasons, companies such as coal producer Peabody Energy have seen their share price absolutely destroyed.

 Peabody is down from over $70 a share in 2011 to what is now under $5, or an astounding 14 times decrease in value. Coal is under pressure not only on the production side but also and perhaps especially on use, given the EPA rules under consideration and great pressure in China to improve the quality of the air the country struggles to breathe.  

The shale gas revolution in the US, foreseen by some but not those who invested in expensive tar sands in Alberta, has helped bring down the price of oil. Even though it has been drifting back up a bit of late, no one expects $100 a barrel again any time soon, due largely to technology advances, and the desire of Saudi Arabia to remain the dominant provider.

So, using sustainability trends to avoid companies with old business models may be the best strategy of all. The largest equity investor in the world, Norges Bank, is doing just this. With their having been a very large owner of Peabody Energy, they probably wished they had done this sooner.

In this way, divestment becomes what it really is - the outcome of a financial strategy.

We also found great value from sustainability and better financial performance in our Value Driver Model work as previously discussed

Getting ahead of such trends only makes financial sense, and as always, it's the business case we expect will drive sustainable investing going forward.