An Existential Exploration of Sustainable Investing

Over the past few weeks of the SIRI practicum, I have been grappling with a serious existential question about money, which ultimately has become the basis of our research. The question is why humans have given value - and perceived value - to something as abstract as a piece of paper. With most of the world embracing capitalism, value creation has largely been tied to the bottom line, which in turn is tied to C-suite compensation. The decision-making that takes place at the C-suite has systemic implications given the capacity of corporations to create externalities. Most of the time, the net impact of these externalities ends up being negative. How did we get here? Why do we need to check for child labor in supply chains and have regulations against it? Why do we need the Environmental Protection Agency and the Clean Air Act to regulate our industrial activities and emissions? Why isn’t it second nature for humans to avoid causing harm through our actions?

The outcome of our project was not meant to deliver a definite answer to these questions, since they take a rather abstract philosophical turn that is critical to really understanding why things are the way they are today. Wherever a sustainable solution is proposed, somehow there always has to be a business case for it. If there is no business case that can be made and the only return is in the form of positive externalities, we have cleverly put a label on such activities and called it 'impact' investing. Why aren’t all investments motivated by positive impact? To some extent, I sometimes have the impression that an organization like the Federal Reserve is really running a manipulative simulation that controls how the world runs and functions. It is only capable of doing so because of the value we have given to money. I would be lying if I said that even as I write this blog, I am not motivated by money and don’t want a job after graduation that pays well. I am not the only one to think this way, and because we behave like a herd of sheep, the Fed is capable of pulling levers to dictate how the world works. It does make me feel a bit uncomfortable sometimes to think that my entire life is just an illusion - that I am in control - when in reality I am just following a pre-determined path that is being carefully built, one that I just 'happen' to pursue. Indeed, this is not meant to be a criticism of the Fed or capitalism, but rather a moment to be self-aware.

In the paper 'Dissecting Green Returns,' the authors explored how the high relative performance shown by green assets is linked to unexpected increases in climate concerns. This shift relates to my earlier argument: we are now perceiving a threat to the world (but really, to our investments), and are experiencing a movement toward investments that can not only preserve the status quo but also deliver value creation comparable to that of a benchmark like the S&P 500. As the authors mention, the change in perception of value and threats is so powerful that it controls investment decisions, leading to higher returns that would otherwise not exist.

In another paper, 'Sustainable Investing: Evidence from the Field,' a survey of 509 portfolio managers showed that environmental and social performance are not the key drivers of investment decision-making. Portfolio managers are indeed motivated by financial performance. 

This takes us back to the exploration of why this is the case, and why the triple bottom line is not the default approach. The paper also discusses how environmental and social factors are adopted primarily as a risk-management tool, which, to me, feels fundamentally incorrect. There has to be a limit to human greed and to how much we can churn out from the limited resources of our planet. The concept of karma and ahinsa (doing no harm) in religious texts helps guide us in our actions. I am by no means a religious person, but I do think that there is truth and practical implication in these teachings. On another, more grounded note, after reading the paper, I cannot help but think about the privilege I hold to be able to think about these concepts when, for many, the concern is simply putting food on the table and providing for a family.

Works Cited

Dissecting Green Returns, by Ľuboš Pástor, Robert F. Stambaugh, Lucian A. Taylor. June 10, 2022.

Sustainable Investing: Evidence From the Field, by Alex Edmans, Tom Gosling, and Dirk Jenter. October 10, 2024.