When 'sustainable' can mean 'profitable'

When 'sustainable' can mean 'profitable'

Investing in companies that practice sustainability doesn't mean settling for weaker returns.

In fact, a senior portfolio manager at UBS said companies that employ measures ranging from reducing environmental impacts to improving working conditions tend to deliver better returns in the long run than those that don't.

"A business that treats its customers well and produces something that people want to buy is a business success — simple as that," said Bruno Bertocci, the head of the UBS Sustainable Equities team.

Bertocci, who was in La Jolla on Tuesday talking to investors, pointed to a 2011 Harvard Business School study that highlighted what's called a "shared-value" approach for companies.

"We need a more sophisticated form of capitalism, one imbued with a social purpose," the study said. "But that purpose should arise not out of charity but out of a deeper understanding of competition and economic value creation."

Knocked by some as "do-good investing," sustainable investing sometimes gets written off as a niche asset class but it's becoming more mainstream and includes metrics that are more expansive than commonly thought.

Five years ago, a nonprofit was created called the Sustainability Accounting and Standards Board.

Based in San Francisco, the SASBcreated a map of sustainability metrics that, besides categories such as waste water management and air quality, includes items like energy efficiency, employee compensation, safety management and customer welfare.

Bertocci takes similar metrics and applies them to sectors not normally considered part of the "sustainability" business model, including factories, manufacturers and Internet-based companies.

"People think Amazon is a retailing company," Bertocci said. "But guess what? It's also a huge energy-saving company. Why is that? Because when you order from Amazon you are not driving to the mall in your car.

"And if you look at developed countries, the number of miles driven every year has declined and I'm confident Internet shopping is part of that."

Companies are increasingly responding to a changing economy that goes beyond tangible assets that take on a physical form, such as machinery and buildings.

Instead, intangible assets such as intellectual property and brand recognition play a greater role in an information-based economy in which companies are more reliant on employee know-how and satisfaction.

2015 study released by the Chicago-based consulting group Ocean Tomo claimed more than 84 percent of the value in the S&P 500 consisted of intangible assets and 16 percent in tangible assets.

In 1975, the numbers were reversed: 17 percent in intangible assets and 83 percent in tangible assets.

"Employees are not a cost now," Bertocci said. "They are an asset. Keeping and attracting the best employees is not something you do for fun. You do it because it makes your company more attractive and successful."

Plus, potential investors expect more from companies today.

"Customers are lot pickier now," Bertrocci said. "People want to know, where did this T-shirt come from? What kind of factory did my sneakers come from?"

But is sustainable investing — even in an expanded form — the answer for the hard-headed investor whose primary concern is compiling a portfolio that produces good returns?

"I would say it's a win-win," Bertocci said. "It's good for the shareholders, it's good for the management, it's good for the employees, it's good for the customers and it's good for the external world, too. Let's face it. If your company uses less energy, you've saved a bucket full of money."

 Rob Nikolewski 




All, 2016