Accelerate your entrepreneurial journey.

Does Sustainability Correlate with Capitalism?

Eban Goodstein, Director of the Bard Center for Environmental Policy, spoke at the Scoville Memorial Library on October 26, 2017. His talk focused on tribalism, sustainability, and the future. He illuminated how climate change became a divisive, party-line issue.

As recent as 1990, 70% of Democrats, along with 70% of Republicans, agreed that the government U.S. government was spending too little on the environment. However, movement conservatives eventually began working to unite free-market and social conservatives by designing a series of loyalty tests, one of which was opposition to environmental regulation. This loyalty test implied a capitalism v. climate dilemma, reinforced by the liberalization of environmentalism, that led people to believe that combatting climate change required government control of the economy. Is sustainability inversely correlated with capitalism, or is there another story?

BlackRock’s MSCI ACWI Low Carbon Target Index has achieved a 7.24% YTD return, while their traditional MSCI ACWI Index has returned 6.91% YTD. Although financial performance is similar, the two indices differ by 58% in carbon emissions intensity. This difference equates to 136,588 pounds of coal burned or 121 acres of forest saved. BlackRock’s example illustrates that environmental progress and competitive financial returns do not need to be mutually exclusive, but does this hold true for other forms of sustainability?

The United Nations’ Sustainable Development Goals are comprised of 17 goals to transform our world, ranging from poverty alleviation to clean water and sanitation. To the untrained eye, many of these issues seem to fall under the umbrella of government and NGO interventions. Although these institutions will undoubtedly play a role in the solutions, the for-profit sector also represents an integral piece of the puzzle, not solely as a group to be regulated and restrained.

Through the rise of social entrepreneurship, many mission-driven businesses are launching to resolve the pressing global issues plaguing our society. Additionally, public-private partnerships are facilitating collaboration between established corporations, investment institutions, governments, and non-profits to accomplish similar goals. In the 21st Century for-profit entities voluntarily craft their missions and enter into partnerships to achieve social change. However, the debate still rages on as to whether this behavior comes at the expense of current and future financial gains.

Innovative public-private partnerships, such as social impact bonds, remain largely unproven with regards to investment risk and return potential. Impact investment funds are a largely new phenomenon, so there is limited data on which asset classes and sectors have provided comparable returns and risk allocations to traditional funds. Furthermore, government subsidies for sustainable businesses, such as Tesla and Solar City, cloud whether or not sustainable companies can grow and thrive when faced with free-market conditions.

Resolving the correlation between sustainability and capitalism appears to be a murky issue at best, so where do we start?

I propose a collaboration among the top quantitative minds in the world to dig into the data behind this issue. The United Nations should form a working group of analysts to compile anonymous data from hedge funds and venture capital funds on investments made in companies addressing the 17 Sustainable Development Goals. Next, the working group should create theoretical indices to measure and compare the companies tackling these goals against traditional businesses. Although this initiative would involve sharing highly valuable data, I believe the operation could be secured to protect the identities of the private companies and investors involved.

The group’s findings through the theoretical indices should be made publicly available to educate stakeholders on the statistical relationships between sustainability and capitalism. No matter what the results, the findings will be informative with regards to the needs for policy, business, and education interventions in the realm of sustainable development.

Contact Us