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Welcome to World Ocean Radio…
I’m Peter Neill, Director of the World Ocean Observatory.
Over and over again, in the sustainability conversation, we come back to the core question: what is profit? It always comes down to “return on investment.” What is the profitability of this process or this corporation or this action? How does it maximize value to me? It seems simple: historically, it was the result of greater income over lesser expense. Research departments analyze an investment potential; the investor agrees; the market affirms or denies; and profits (or losses) accrue as the accepted measure of capital utility. As this system has been in place for a very long time, and, driven by a global economy based on natural resource-enabled consumption, it will take an overwhelming circumstance, unforeseen change and consequence, to be questioned or re-defined. That moment seems to be upon us.
In a recent interview in “Bloomberg Green”, Brett Christophers, author of a new book, “The Price is Wrong: Why Capitalism Won’t Save the Planet”, argues that because investments in alternative energy projects such as solar and wind do not measure up to the idea of conventional profit, such investments will not be welcomed by investors or even the corporations preliminarily engaged. Land and transportation costs add expense to such projects, and the power distribution inhibited by the capacity of the existing grid and other price and sales fluctuation. This effect can be seen in the evolution of environmental, social and governance (ESG) investments; over the past few years, the focus for sustainable investment in equities, mutual funds, and pension programs, as well as promotion by many companies wanting to get on the progressive environmental agenda. But recently, there has been a shift away, a pulling back by the companies themselves and by investment managers. Why? Because over recent time the profits have not lived of up comparable returns before ESG was a force in the market. Portfolios and individual stocks have under-performed against traditional non-ESG investments and against a record rising market, causing managers who depend on growth for fees and individuals who rely on shareholder dividends to question the profitability, thus the value of the strategy applied.
Again, the problem is profit. As we have discussed often here on World Ocean Radio, until we begin to evolve the definition beyond the conventional expectation, profit will remain the enemy of change, not its catalyst as in the past. Under an effective sustainability strategy, the calculation of value must shift to include: a) the true asset cost of natural resources and their replacement; and b) the post-production cost of downstream effect, to include pollution, public health issues, insurance, and remediation. As recent weather events have shown, those expenses become suddenly real and upset the balance sheet by leaving out externalities, now realities, that reduce profit to loss. So, the combination of lesser return, either by comparison or by consequence, undermines the financial justification for social change and we return to the familiar and prolong the problem.
There are several ways profit can be re-defined:
first, the calculation can be influenced by government subsidy, outright grant support, and guaranteed return, by re-calculating the financial equation by socially-justified intervention;
second, there can be purchase agreements, negotiated as one-to-one relationships that contract high volume provision for preferential return, establishing a no-risk platform for buying and selling and increasing the value of the remaining asset by enabling a higher residual price;
and three, by financing these interventions through a general carbon tax, the value of which would go to drive the alternatives, freeing capital to be invested in savings or in more innovation.
Finally, there is the profit, or at least the absence of loss, by not doing the project at all, seeking a better way to reach a better outcome, a profit achievable by many start-up technologies and services. Options and products motivated by a sustainability ethos with ESG values applied from the beginning present a true financial profile where loss is precluded and profit foreseen.
This might seem improbable if there were not already innovators and entrepreneurs hard at work to apply a very different manifestation of profit and a very different future for such market investment. This may only be possible with a generational shift away from the old consumption-dependent framework of the past toward an entirely new portfolio of investment predicated on this new ethos, “sustainability return,” viable, acceptable, and profitable in a changing financial world.
We will discuss these issues, and more, in future editions of World Ocean Radio.
World Ocean Radio is distributed by the Public Radio Exchange and the Pacifica Network for use by college and community radio stations worldwide. Find us wherever you listen to podcasts, and at world ocean observatory dot org, where the full catalog of more than 700 World Ocean Radio episodes is searchable by theme.
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