How do you manage an asset so that it can produce value today, and continue to do so 10, 20, 50, even 100 years from now…in a way that does not deplete or damage the asset, the environment or the community?
We believe sustainable alpha builds on three principles:
- It’s a commitment through stewardship to build assets that produce value today, and over the long term.
- It considers the whole system, the relationships between parts of the system, how they work together, how they provide productivity through re-use, not as discreet little optimized pieces. Externalities matter. Value is often found in the “spaces” between the “parts” of the system.
- It’s about building vibrancy and resilience for both community and environment. “People” are not an externality; we are part of the system. The challenge of this century is finding ways to use our impact to balance community and environment.
We believe that if you execute these three principles, you can build assets of lasting value that deliver persistent returns and impact on multiple dimensions of financial, community, and environmental: sustainable alpha.
How do you deliver sustainable alpha?
Would you rather hold stock in a utility with 60% coal fired assets or one with a 30% renewable portfolio and natural gas assets?
Would you rather own a “green” building in your Real Estate portfolio that has lower operating expense or own a portfolio of energy inefficient ones? (Assuming that you hold that portfolio for 10+ years, this only accelerates the question of value and future proofing your assets.). What if that green building improves the prosperity & vibrancy of the immediate area? Green translates into better NOI and long term value accumulation through appreciation.
Do you believe we will face inflation in the next 10 years? Would you invest in a fixed income instrument based on a cash flow stream with a 15 year trend of increases at a rate of 2x CPI? What if that cash flow was tied to a non-discretionary commodity, water? Would you invest in water assets knowing that at some point in the next 10 years, water re-use will have both an ecologic, community and financial value?
Would you rather invest in a timber REIT that has two revenues streams from their land (harvesting trees and selling land for real estate development) or one that has the expertise to harvest the land sustainably for long term value in bio-mass, timber, environmental credits, renewable energy, sustainable agriculture, and sustainable community development? That translates into multiple sources of revenue and resiliency through economic cycles.
Would you rather invest in a company that is converting their supply chain to materials less dependent on carbon and water resources or one that ignores this escalating supply chain cost exposure? Will the early movers that build these supply chains of “better sustainable materials” create a blocking strategy to late comers? Leading global 500′s are making trade-off decisions based on the pricing and risk assessment of externalities; sustainability has migrated from corporate responsibility into corporate strategy.
In the end… we believe this is just smart, common sense, value investing.