Is it truly sustainable?
“Sustainable” is a trendy word nowadays. It is thrown around in marketing campaigns like a decorative pillow, which looks good, but most of the time feels flat. Companies and brands claim their products are ‘sustainable’ for the buzz and the hype, playing on our generation’s environmental consciousness and demand for products and services that won’t accelerate the already imminent destruction of our planet. But do these products live up to the claims? And can we, the consumers, identify sustainable products?”
This is how Jo Viera starts her article “What makes the product sustainable?” She goes on to explain that the notion of a sustainable product is much broader than eco-friendly or green labels. This is primarily due to two factors. Firstly, to be sustainable, a product has to be eco-friendly and green during its entire life cycle. This essentially means adopting a ‘cradle-to-cradle’ principle, whereby every material or product should be extracted or made in such a way that at the end of its life cycle it can be upcycled, recycled, or composted. These are the basic principles of a circular economy. Secondly, in contrast to green and eco-friendly labels, sustainability has both an ecological and social meaning.
This latter point draws on the formal definition of sustainability as coined by the Brundtland Commission in 1987. The report titled “Our Common Future” defined sustainable developments as: ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’ Essentially, in this definition, the Commission fused environmental with social and economic concerns, and put them at the core of the world’s development agenda.
A further milestone along this line of thought on sustainability came in 1994 with John Elkington introducing the concept of the “Triple Bottom Line” of People, Planet and Profit (also known as the 3Ps, TBL or 3BL). In essence, in addition to focusing on the financial bottom line (profit), companies that follow the triple bottom line way of doing business think about the impact their actions have on all the people involved with them (people). Also, these companies consciously aim to reduce or eliminate their ecological footprint by considering the entire life-cycle of their actions and try to determine the true cost of what they’re doing in regards to the environment (planet).
Interestingly, while the 3Ps framework has been gaining in popularity, John Elkington “recalled” this management concept in 2019 in a short article in the Harvard Business Review.
He did not do it because he thought that focusing on social, environmental, and economic impact is no longer important anymore. Rather the opposite; because these are so important, he proposed a strategic re-call. Elkington acknowledged several constructive developments (such as the establishment of the Global Reporting Initiative, Sustainability reporting, B corporations) and the overall positive impact the idea of 3Ps had since its inception. Yet, in the article he noted: “The TBL wasn’t designed to be just an accounting tool. It was supposed to provoke deeper thinking about capitalism and its future…… encouraging businesses to track and manage economic (not just financial), social, and environmental value-added – or destroyed.”
And since that is far from how the 3BL is being used today, Elkington has recalled it, because “it is time to either step up – or to get out of the way” and time “to do some fine-tuning.”
Sustainability has become a trendy word in the investment industry too, with an increasing number of different responsible investment strategies coming to the market. Many have the word “sustainable” in their product labels, with ‘ethical,’ ‘sustainable’ and ‘ESG’ investing being used interchangeably. A good example of this confusion is the definition of sustainable investments offered by Google. “Sustainable investing, also known as socially responsible investing, is the process of incorporating environmental, social, and governance (ESG) factors into investment decisions. Sustainable investing enables individuals to select investments based on values and personal priorities”
The reality is that neither an ethical approach (based on values and exclusions) nor the one using ESG integration may be necessarily sustainable in the context of definitions and the concepts that we have explored above. Sustainable investment strategies may incorporate aspects of ethical or ESG approaches, although they tend to be much broader in the scope of intended impact and have a far greater ambition.
However, when it comes to implementation, their investment universe tends to be smaller and targeted towards companies that are clearly contributing to solving environmental and social challenges. These companies operate in areas such as resources and industrial efficiency, cleaner energy, regenerative agriculture, waste, and pollution as well as education, wellbeing, and health. Many are enabling the transformational growth story towards a circular economy from the current linear economic model, which is based on “take, make and dispose” principles. The managers of these strategies have long-term investment horizons, deep domain expertise, and are actively engaging with the investee companies. Due to differences in the starting investment universe, the composition of these portfolios is generally very different from the benchmarks, which may at times lead to large differences in performance, too.
So, next time you come across an investment fund claiming to be sustainable, check its credentials against the above markers. Most likely, you’ll find that many fall short.