The Case For Responsible Investment (In Light of Central Bank Interventions)

While many are increasingly feeling distrust over markets that are losing touch with reality, SRI (Sustainable, Responsible, Impact) investors have good reasons to stay engaged with the ways their portfolio impacts the real economy.

As I talk with investors, I hear many express a level of concern that teeters on disillusionment over central bank interventions that are undermining the fundamentals of the markets. Equity valuations using both backward reported earnings and forward estimates all sit at unsustainable levels. While this suggests that performance may be lower for longer, investors should also consider another power even stronger than the Fed, the ECB, and all of their cousins. This unparalleled force is known as the human race.

global-population

Population estimates by Angus Maddison

Our species isn’t just growing larger; we are also consuming more resources as we grow. We’re demanding more food, more buildings, more computers, more bicycles (especially in the Illian family), and we’re consuming more energy.

world-energy-consumption

Data compiled by Gail Tverberg and available at Our Finite World

It’s clear from world energy consumption that human appetites show no signs of slowing down. This means businesses will continue to have demand for their products and investors will continue to lay claim to a share of the earnings pie.

Increasing demand for goods and services also means that the job of the SRI investor is never over. It’s human nature to occasionally lose sight of the common good in search for greater personal financial gain. And these impulses are especially dangerous when the human beings are at the helm of the world’s largest corporate citizens. We witnessed this in the case of Enron, the BP oil spill, Lehman Brothers, etc. The list will only grow longer with each passing year.

I don’t suggest that we’ll ever see the end of acts of unabated self-interest, but I do believe investors can foster a more civil marketplace. Financial transactions that benefit some while exploiting others have no place in a sustainable economy. Here’s another principle: we won’t invest in any business that ignores its environmental footprint.

There’s no time for thoughtful citizens to linger in despair as a rapidly changing world develops.  All hands on deck!