By Marta Maretich @maximpactdotcom
Sustainability is a key concept for our times. For impact investors who want to put their capital behind better ways of doing business, it’s an important indicator of investability. But what exactly do we mean when we say “sustainability” or “sustainable”?
The dictionary sheds a little light.
1. Conserving an ecological balance by avoiding depletion of natural resources.
2. Able to be upheld or defended.
Originally taken from the biological sciences, the term sustainability first referred to conservation of natural resources. Though it retains this meaning, sustainability today can mean different things in different contexts. Sustainability in its classic sense and new uses of the term are proliferating as sustainability goes mainstream in business and popular culture.
The mainsteaming of classic sustainability
The definition is changing as the movement goes mainstream. More businesses are taking steps to incorporate sustainability into their operations as well as their performance metrics; national governments are regulating and incentivizing it in a number of new ways. Meanwhile investors are increasingly making non-financial performance, including sustainability, a priority when choosing where to place capital.
All this means that “sustainability” is an evolving idea with increasingly diverse interpretations. Most sustainability efforts still focus on the environment, however, with an emphasis on maintaining ecosystems and conserving natural resources for future use.
Sustainable forestry: Saving forest habitats has been an active area for impact investors. Despite the collapse of carbon markets, organizations like Rainforest Alliance are expanding their activities. Certification schemes like the FSC are helping sustainably sourced wood to become standard in building and consumer goods.
Sustainable agriculture: Impact intermediaries like Root Capital and development organizations like OPIC have developed successful models for promoting sustainability in agriculture. Encouraged by government regulation and subsidies, big agribusiness companies like Monsanto and multinationals like Coca Cola, are now pursuing sustainability strategies.
Sustainable water use: With changing climate in places like California driving the adoption of more sustainable water policies, businesses and services are springing up to meet a newly-defined demands. Driven by regulation, large multinationals including Unilever are beginning to look at water sustainability from a number of angles: their own use, water use by suppliers, and the water needed to use their products.
Sustainable mining: Mineral extraction is a sector with a raft of social and environmental issues and has been avoided by many social investors. That may change as groups like the IIED work to build the commitment to sustainability across the industry.
Sustainable energy: The focus is on wind, water, solar and other forms of generation and storage, such as hydrogen cell batteries. A popular area for impact investors, even designer Vivienne Westwood has committed GBP£1 million to sustainable energy. Big fossil fuel companies are also putting money into it. Though their motives are often questioned, it is a sign of how far the notion of sustainability is becoming part of the fabric of corporate life in the developed world.
Sustainable consumer goods
Sustainability has taken on a new meaning in consumer markets as it has become a persuasive selling point for everyday goods and services. Public enthusiasm remains high for brands with sustainability credentials and sustainable practices, far from being unusual, are now what consumers expect of businesses.
Sustainable fashion: The fashion industry has been thriving in a throwaway culture, but the sustainable fashion movement hopes to change attitudes and move toward sustainability. To keep up with this vibrant movement, follow top tweeters in fashion sustainability and check out the five top sustainable fashion stories of 2014.
Sustainable building: Changing the way we build and design cities could make a huge difference to our future and, increasingly, governments are regulating for sustainability in construction processes, materials and design. This is reshaping the construction industry, especially in the developed world. Construction companies are adapting the way they source and use products and materials and new education centers, like this one at Harvard, and this one in Edinburgh, are training the sustainable builders of the future.
Sustainable tourism: More people are taking vacations than ever before, but increasingly tourists want to avoid damaging the environment, squandering natural resources or hurting local communities. The global travel industry is waking up to this fact and offering sustainable tourism to the masses. Portals such as Sustainable Tourism Online provide go-to resources for the public and professionals who want tourism to be good for the planet and the communities in host countries.
Evolving meanings: Financial sustainability
Beyond its original, environmental meaning, sustainability has recently developed a financial meaning that applies in some sectors. Governments strive to make public services “sustainable”. Non-profit organisations try to create “sustainable” programs to deliver mission. In this context, sustainable can mean both environmentally sound or financially viable for the future or both.
Sustainable healthcare: Concerns about being able to afford healthcare for citizens in the future is driving innovation in healthcare delivery and finance models.In a bold move, the UK health service, the NHS, is embracing both environmental and financial sustainability.
Sustainable transportation: Concerns about climate change, contracting budgets and public pressure are encouraging many governments, including China’s, to organize public transportation policies around sustainable principles, in both the financial and evironmental senses.
Sustainable finance: In a final evolution, “sustainable finance” seeks to apply the principles of sustainability to banking and investment. Impact investing and its sister disciplines across the spectrum of social finance including responsible investing, ethical investing, social investing and microfinance form part of this growing movement, which seeks to revolutionize the use of market methods to create better social and environmental outcomes. Sustainable finance methods are now being put to use in a wide, and growing, range of contexts, with new techniques and approaches developing across the sector. For more on sustainable finance, browse the top five stories in sustainable finance for 2014.
Sustainability has moved from the margins to the mainstream and is now a widely-accepted approach being incorporated into many areas of business, finance and the consumer marketplace. As it continues to expand its influence, sustainability will continue to evolve new meanings and serve as a paradigm for conservation and wise stewardship of the environment, human and natural resources and, now, capital. This movement is positive, but for impact investors seeking sustainable investments, it will mean taking a closer look at all claims for sustainability and determining exactly what is meant.
Want to comment? Tell us how you are innovating in sustainability? Tweet us @maximpactdot com