A Trillion Dollar Call for New Investment Approaches

One can take no satisfaction whatsoever from the current meltdown in the global capital markets. Nor can we derive much comfort from the fact that we Canadians have so far fared somewhat less poorly than our neighbours to the south and elsewhere.

However, if there is any kind of silver lining at all within that massive financial cumulonimbus cloud, it is the fact that the entire sorry episode should serve as a massive wake-up call for international investors. More precisely, it is also a trillion-dollar advertorial for the broader analytical power, different perspective and insights, and potential added value of “sustainability-enhanced” investment analysis and strategies.  (For the uninitiated, we define “sustainability-enhanced” simply as including an analysis of environmental, social, and governance (ESG) factors in one’s investment analysis of companies).

The sub-prime debacle and its collateral damage have cruelly exposed the profound limitations and inadequacies of traditional investment analysis and risk management. If anything had remained of the illusion of Bay Street omniscience before the current crisis, certainly none does now. The fact that it was sustainability analysts who were the very first to detect and draw clients’ attention to the tip of the sub-prime iceberg back in October 2006 only reinforces the credibility of the entire analytical paradigm, with its long-term time horizon and more holistic, 360 degree risk radar.

While it has temporarily been obscured and supplanted by the market meltdown, the world of global investment is now in the early stages of a tectonic transformation more profound than anything it has witnessed in literally decades.  The “Sustainable Investment Revolution” is driving a worldwide industrial restructuring, radically changing the very basis of competitive advantage for companies, and therefore for their investors. Fortunately, literally trillions of dollars worth of institutional asset owners and investment managers are slowly awakening to both the risks and the opportunities posed by ESG.

The bad news for them - and for the rest of us - is that they are not doing so nearly rapidly enough. In Canada, we have much to learn from our peers in Europe and even from the United States in this regard.

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