Enjoying the discussion guys ! Two key trends for me need stand-out : 1) It validates the thinking that the world and global consciousness is moving to a place where governments, corporates, and institutions are more and more accountable to individuals (living in an information and idea era where increased connectivity equates to Globalization v.3) which by definition means policy, legislature and investor and consumer activism will ultimately punish corporates for behaviour they deem unsavoury , and 2) over the long run , the risks created by unethical practices are not discounted for in traditional valuation models but ultimately build up over type to create Black Swann events. Think the BP oil spill, or mining rehabilitation in South Africa. These are costs that corporates ultimately bear, and while traditional models may not factor this into their smoothed cash flow forecasts at the outset - when the penny drops, share prices move with them. Both of the above are forcing corporates to consider how they deal with credibility/accountability issues, legislation, and ultimately better factor in their real business risks - there are immediate implications for bottom line, and returns are all about bottom line (litigation is expensive, as is managing bad publicity) ! Seeing these trends happen, its hard not to see that good returns and ethical investing go hand in hand in the long run .To blindly ignore the obvious risks above is poor investing - it might make you money in the short run in aggregate , but its not on a robust, risk adjusted basis , and your job as an investor should be to consider and correctly price for all risks, and not ignore those that are inconvenient or difficult to quantify. The opposite is tantamount to gambling. The obvious counter to the above is this can be a very much a long term, slow moving trend, when markets can often be dictated in the short run by all sorts of other factors , and sometime you might argue trends that play out over multiple lifetimes - and are wee as individuals that altruistic yet to bear the costs of our future generations gains? I guess there is also a time inconsistency problem here - that invaluable human greed that greases the wheels of marekts in the short run- do you want to get rich TODAY , or build wealth and asset over your life time, and the generations after, as well as through ethical and responsible investing creating a more functional world with tangible but currently not quantifiable social and spillover wealth (i.e. less pollution?). While I understand this pay-off exists in the short run, very seriously doubt that it is significant enough to be detrimental to goal off sustainable and multi-generational wealth creation . And it doesnt leave you blind-sided by as many forseeable but unquantifiable possible risks. Lastly (I am trying very hard to keep this concise) , is a definitional problem. Do we label a brewer for example as unethical ? Its difficult to not want to be invested in SAB when it is a well run, cash generating business. But if the question is that of an ethical brewer versus a non-ethical brewer ....do I invest in SAB who is doing great work in increasing water efficiency, or Y who cuts costs on cheap and abusive labour? Unfortunately what is ethical , in my opinion, will always be to some extent subjective, and to allow for individual thought and non homogeneous cultural backgrounds freedoms there will always be fuzzy lines. But I do take comfort in the fact that we are are already at a stage where 90% of us would invest in an ethical brewer above a non-ethical one even if the later may be making money...for now.
Posted on: Wed, 08 Oct 2014 17:36:10 +0000
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