Protecting the True Fundamentals

07/17/2010 12:26 AM

A Sustainable Investment Firm’s Response to the Financial Crisis

Environmental concerns tend to take a back seat in tough economic times. But at least one asset management firm is taking exactly the opposite tack – stressing that now, more than ever, sound investing means adequately valuing the underlying natural assets upon which all our economic systems depend.

“So far, the economic crisis we are facing has been explained by financial leverage,” said Carsten Henningsen, co-founder of the global sustainability fund Portfolio 21. “However, there is a direct link between the financial crisis and the ecological crisis. To the extent that ecological limits place limits on the growth rates of earnings, stock prices will fall.”

Now that the Footprint of the world economy exceeds what the planet can regenerate, Henningsen said, “Investors need to readjust their return expectations, because the earth does not have the ecological or financial capacity to sustain unlimited growth” if that growth is linked to increased resource consumption. “Growth of real wealth is restrained by scarcity of natural resources like oil as well as the capacity of the planet to absorb CO2.”

Companies that understand the ecological crisis and are implementing environmental strategies to gain a competitive advantage are those that will be best poised in the long term, Henningsen said

But the issue goes beyond that, according to Henningsen and Portfolio 21 co-founder Leslie Christian. Ultimately, they say, protecting one’s 401K means safeguarding the very viability of the U.S. and world economies. And that means investing in a way that shifts these economies as a whole in a more resource-efficient direction. For example, Portfolio 21 has created investment vehicles to help localize economies, investing in “businesses based on local manufacturing and distribution as a healthy alternative to energy-intensive multinationals shipping goods around the globe.”

What the Meltdown Can Teach Us About Resource Debt

In a recent letter to shareholders, Henningsen and Christian drew a parallel between the financial industry meltdown and the dangers of our rapidly compounding ecological debt.

In the U.S. in the past few years, instead of a sound economy based on products and commerce, they wrote, “We have a financial economy evolving into a casino-like scheme, with money being used to make more money that has little or no connection to underlying functional economic transactions. Without self-imposed limits, the financial system has expanded beyond its means, making it vulnerable to seemingly insignificant disruptions that serve to topple the entire structure like a game of Jenga.”

Just like the financial markets, the world economy has expanded well beyond what the ecological bottom line can support. “Considering the damage that has occurred within an arguably superfluous element of our economy, it is difficult to imagine the severity of the situation as it relates to an absolutely essential element of the economy – the ability of the earth to provide critical ecosystem services like clean air and water, as well as natural resources like timber, crop land and, of course, food.”

That is more reason than ever, Henningsen and Christian say, why smart investing means addressing our underlying resource challenges. Says Christian: “For the planet, there is no Federal Reserve Bank, no lender of last resort unless we can figure out a way to borrow from another planet. The real bottom line is the ecological bottom line that supports the foundation of life and our livelihoods.”

Learn More:

Learn more about Portfolio 21


Comments

like to know more

This is great as far as it goes, however it has the problem of not really explaining what needs to be done. My future eco-footprint will be 0, I have no biological children.  Of course one doesn’t find that out about me from the quiz.

Also, it seems to me this could be an excellent place to introduce terms like ‘peak oil’ because as oil becomes more expensive less of it will be used, it will not be a matter of choice.

So it would take 3.8 Earths to support everyone if they lived like me, you don’t even have a population clock to explain that number grows with each birth. If your purpose is to educate, you are incomplete, if your purpose is to entertain, you don’t have enough good news.

If your purpose is to accept donations, and not *really* do anything to solve the problem, well I guess you are the only ones who know how that is going, I guess that’s the point right?

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