Sustainable Capitalism | Vivian Bertseka Lemmer | TEDxINSEAD

Sustainability and Capitalism: A Framework for Action

The speaker argues that sustainable capitalism is the future of our economic system. He discusses the issues facing the world today, including environmental problems, poverty, and inequality. He proposes a framework for action at a systems level to address these issues.

Sustainable Capitalism

• Sustainable capitalism is an economic system where business and capital seek to maximize long-term value creation while accounting for all material environmental, social, and governance factors.

• Environmental, social, and governance metrics matter because they help us invest for the long term by taking into account everything we have in the past.

• Myth #1: Sustainability requires sacrificing financial performance. This is not true as businesses can use sustainability to drive their revenues and profitability.

• A sustainable business provides goods and services in a manner consistent with the transition to a low-carbon, prosperous, equitable, healthy, and safe society.

Why Sustainable Capitalism?

• Environmental issues such as climate change are going unaddressed.

• Poverty and inequality are major issues.

• Overconsumption and disrespect for our planet are causing problems.

• Our capitalist system is in crisis due to government failure, global economy instability, low growth rates etc.

Business Driving Change

• Business will play a role in driving change towards sustainability.

• Investors and capital markets will drive capital towards addressing environmental issues.

• Generation Investment Management aims to make sustainable investing best practice.

What Makes a Sustainable Business?

• A sustainable business does not borrow its current earnings from its future earnings.

• Sustainable businesses provide goods and services in a manner consistent with the transition to a low-carbon, prosperous, equitable, healthy, and safe society.

Unilever's Sustainable Living Plan

This section discusses how Unilever's CEO, Paul Polman, redefined the strategic vision of Unilever around the Unilever sustainable living plan. The plan resulted in cost savings for manufacturing and improved share performance.

Unilever's sustainable living plan

• Paul Polman became CEO of Unilever in 2009 and redefined the strategic vision of Unilever around the Unilever sustainable living plan.

• Wall Street was less than excited about this at first because they believed that strategy is about profit maximization and corporate and social responsibility was in the realm of charity.

• Four high-level outcomes are credited to the Unilever sustainable living plan, with 600 million euros of cost savings for manufacturing being one of them.

• Critics argue against sustainability as a means to improve share performance, but during Polman's tenure, share performance improved not in spite of his focus on sustainability but precisely because of it.

M-Kopa Solar: Sustainability Driving Innovation

This section discusses how M-Kopa Solar provides solar electricity to rural African populations who are not connected to the grid. It also highlights how this business model benefits customers, investors, and the environment.

M-Kopa Solar

• M-Kopa Solar is the largest provider of solar electricity in Kenya, Tanzania, and Uganda.

• Rural African populations spend $50 billion annually on kerosene for lighting and cooking which damages both their health and environment.

• Instead of spending two dollars a day on kerosene fuel source for lighting and cooking that damages both their health and environment, M-Kopa allows customers to use those same two dollars a day to incrementally pay down a solar system.

• After one to one-and-a-half years, the customer owns a system outright and has free electricity thereafter.

• M-Kopa's business model is a win for the customer, the environment, and their investors.

Sustainability and Investment Returns

This section debunks the myth that impact and financial return are reversely correlated. It also discusses how asset managers can deliver outperformance by incorporating environmental, social, and governance factors in their investment process.

Sustainability and Investment Returns

• The myth that impact and financial return are reversely correlated is debunked by Professor George Serafeim of Harvard Business School.

• His analysis shows that if asset managers incorporate environmental, social, and governance factors in their investment process, they can deliver outperformance of three to four percent annually.

• Generation has been managing 11 billion dollars of public equities on behalf of clients where they've been integrating sustainability in a bottoms-up way for 12 years now.

• Over the past 10 years, their outcomes for clients net of fees have been consistent with George Serafeim's work.

Sustainability: The Investment Opportunity of a Lifetime

In this talk, the speaker debunks two myths about sustainability and explains why integrating sustainability into decision-making is crucial.

Sustainability is not just a fad

• The myth that sustainability is just a trend perpetuates short-term thinking.

• Climate change will happen eventually, but it won't be soon enough for some people to care.

• There are trillions of US dollars invested in the fossil fuel ecosystem, with 3,000 gigatons of carbon trapped in proven reserves of fossil fuels.

• To keep climate temperatures from rising more than 2 ℃, we can only ever afford to burn one third of those reserves. The other two-thirds are stranded assets whose economic value will suffer from premature write-downs.

Betting on the future is irresponsible

• Investors continue to allocate capital behind assets that are going to lose their economic value.

• Timing the decline of an industry or regulatory change is difficult. Change is not linear.

• Betting on the future has led to significant financial losses in recent history (e.g., mortgage and fuel crises).

• Sustainability should be integrated into decision-making now because it's already relevant.

Integrating sustainability into decision-making

• Change happens slower than you think it will and faster than you thought it could (Rudiger Dornbusch).

• Solar installations looked unremarkable in 2005 but saw rapid growth afterward; coal saw a rapid decline in valuations.

• There's no good reason not to integrate sustainability into decision-making.

• Individuals can integrate sustainability into their lives by thinking more broadly about risks and opportunities, asking questions about where capital is going, and becoming better informed about these issues.

Winning the conversation

• To change the world and integrate sustainability into investment and thought processes, we need to win the conversation.