Co-authored by Rohan Poojara (Original Posting)
Whether
you aspire to be an entrepreneur, finance professional, consultant or business
manager after Darden, understanding the sustainability perspective of value
creation is critical because it is now shaping the business and investment
world and will continue to do so for years to come.
Sustainable
business is about creating a system of business capable of sustaining itself
indefinitely while enhancing the quality of peoples’ lives. The definition of
good business is increasingly aligned with sustainable economic development,
which is a growth strategy designed to deliver high marks not just on
profitability but also on other performance metrics such as ecological system
protection, human health, social equity and community cohesion. Never before
has the need for promulgating sustainable business practices been more
important.
The
world's population will grow from 7.1 billion today to a staggering 9.5 billion by 2050. To feed 2.4 billion new mouths and
deliver on the material and energy needs stemming from an increase in goods and
services from $21 trillion to $56 trillion for an emerging global middle class requires
that our ability to generate agricultural and industrial output increase dramatically. At the same time,
resource use that neither permanently depletes existing natural capital nor
overwhelms us with pollutants needs widespread adoption. However, companies
that engage in sustainable business practices need not do so solely for the
purpose of creating a better world, but can generate increased revenues and
improved profitability as they create innovative products, services, and
processes; gain access to new technologies and markets; engineer collaborative
supply chain practices; and drive costs down through efficiency measures.
Darden provides several opportunities for students to learn about the field through courses on sustainability, innovation, and entrepreneurship as well as clubs such as Net Impact and the Emerging Markets Development Club.
While
the adoption of sustainable business practices requires a different
consciousness among business leaders, it also represents a unique opportunity
for financial investors to capitalize on a new frontier of innovation. The
precursor to sustainable investing was socially responsible investing which
screened out “sin stocks” in the alcohol, tobacco and gambling industry.
However, sustainable investing has evolved significantly since then. Today, in
addition to these negative screens are rigorous positive, solution-focused
criteria and the expectation that companies will outperform their competitors because
of good financial, environmental, social and governance practices combined. An
analysis of a company’s record on social issues reveals its true character and,
we believe, is a significant indicator of its long-term financial
viability. Data increasingly supports the proposition that companies with
strong positive social and environmental policies often have lower turnover,
higher productivity, better brand reputation and customer loyalty. On the
governance front, characteristics such as transparency — to stakeholders and the public — and appreciation
of the gains from employee diversity and ethical conduct throughout supply
chains are associated with superior performance.
The
$3 trillion in assets under management in sustainability-informed investment
strategies (i.e. assets invested in companies with sustainable business practices)
highlights that the process of alignment of investors’ goals with the concept
of sustainability in business has begun in earnest.
Darden Capital Management’s Rotunda Fund manages close to a million dollars of Darden’s endowment by investing in companies with sustainable business practices.
However,
sustainable investing is still not a mainstream investment philosophy. Dated
assumptions that financial returns must be sacrificed if a firm seeks economic
and social benefits for a broader set of stakeholders unfortunately are still prevalent. An increasing body of investment
research, however, suggests that integrating economic, environmental and social
considerations into traditional financial analysis offers investors a more
comprehensive view of companies’ value creation potential and leads to better
informed investment decisions. Thus, in our opinion, it is only a matter of
time before sustainability metrics become a key part of any fundamental
investment philosophy.
Never
before has it been so important to position our futures with companies poised
for long-term, sustainable
growth. Many companies now employ sustainability frameworks and tools and as
the overall business environment moves in this direction, business leaders in
this field will benefit from early mover advantages and a wealth of
institutional knowledge.
 |
| Andrea Larson |
 |
| Rohan Poojara |
This article was co-authored by Andrea Larson, Associate Professor of
Business Administration, and Rohan Poojara, a second-year student at Darden.
Professor Larson teaches the Sustainable Innovation and Entrepreneurship course
at Darden and Rohan Poojara is the Senior Portfolio Manager for the Rotunda
Fund and a Vice President in the Net Impact and Emerging Markets Development
Clubs.
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