Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.
You’ve seen it on Twitter, you’ve seen it on the news, you’ve probably seen it on the package of your supermarket’s organic aisle: sustainable. It sounds good, it makes you feel good, it makes others around you feel good. But what exactly does it mean when something is sustainable? And how does investing, an activity usually concerned with growth, fit into sustainability practices?
What is sustainability
On a basic level, sustainability refers to the practice of meeting immediate and short-term goals, such as the need for housing, energy, food, and clothing, while also ensuring that those resources are used in a way that ensures they’ll be available for future generations in the long term as well. So when we talk about sustainable energy, the core of the issue is finding sources of energy that don’t eat up the energy sources we currently have, while also ensuring that future generations will have access to efficient energy sources that are renewable.
Sustainability usually involves three main categories: ecological, social, and economic. Practicing sustainability in one area without championing sustainability in another tends to be ineffective, as these three areas have a way of reflecting back upon each other.
Let’s go back to the example of sustainable energy, for example. Investing in sustainable forms of energy encourages businesses to spend time and resources in developing and cultivating sustainable energy sources, which falls into the category of economic sustainability. Since sustainable energy sources inherently aim to ensure that the environment doesn’t combust within the next 20 years because 20 years from now, people will still need some form of energy, ecological sustainability also comes into the mix. And because a stable ecosystem ensures that people in the future still have a safe place to live and aren’t forced to flee their homes because of ongoing drought, flooding, or nuclear apocalypse, social sustainability suddenly becomes a factor as well.
On an economic level, sustainable business practices usually imply strategies and approaches that look beyond quarterly numbers and instead consider the bigger picture. Sustainable business practices are becoming an increasingly important criteria by which some companies are judged. That’s how investment strategies like ESG investing and socially responsible investing have become more common in today’s investing landscape. Sustainable (or ethical, as it’s sometimes referred to) investing allows you to actively support and encourage businesses to adopt sustainable business practices, and reward them for it.Get $10,000 managed free for a year when you sign up for Socially Responsible Investing with Wealthsimple. Invest as little as a dollar and we’ll build you a personalized investment portfolio to grow your wealth.
The pillars of sustainability
The three pillars of sustainability are economical, ecological, and social. Or, put a different way: Profits, planet, and people. Because “sustainability” can mean so many different things and can get quite nebulous as a concept once we try to actually break down sustainable practices, these three pillars can often be a helpful—albeit still incomplete—way of sorting through ways in which to identify sustainable practices.
This pillar refers to anything that might affect a business and the way it thinks about profits and long-term growth strategies. This is also a prime example of where things can get quite nebulous.
An absolutely reasonable line of thinking could argue that in order to sustain itself, businesses need to do whatever they can to maintain profits. And if that means deforesting half the Amazon, then so be it! All for sustainability, right? That’s why all the other pillars need to be taken into account as well; if one falls, then the structure as a whole is shot. A more holistic way of thinking about this pillar is to consider ways in which economic practices can help establish effective use of resources and establish economic stability.
This one’s all about methods to protect natural resources through measures such as organic farming, environmental conservation, clean and renewable energies, sustainable agriculture.
This pillar refers to anything related to human rights, such as social injustice, poverty, and access to education, medical resources, and employment. In order to keep this pillar stable, systematic government structures and institutions are usually cited as a way to ensure these aspects are addressed.
Types of sustainability
Within these pillars, there are different types of sustainability that refer to different strategies and methods for achieving a sustainable course of action among certain industries and areas.
Environmental sustainability mostly refers to ways in which businesses, governments, and individuals can curb emissions of harmful substances like carbon dioxide and the production of waste, while simultaneously looking for ways to protect vulnerable resources like forests or animal populations. Another aspect of environmental sustainability is cultivating the use and development of renewable resources, like wind, solar, or hydroelectric power.
Social sustainability often refers to maintaining and developing a certain level of investments and services that create the basic framework for society. This means cultivating structures that encourage community participation, a strong civil society, and government structures that protect and support it. Whether that’s access to adequate medical care, a stable welfare net, employment and educational opportunities, and a functioning and democratic rule of law, all of these measures ensure that a society has the building blocks to sustainably grow for many generations.
Sustainability in business
As mentioned before, this area can get a little nebulous. For businesses to stay alive, they do need to be profitable. But if maintaining that profitability comes at the expense of other areas necessary for sustainability, then there will be problems in the long run. That’s why sustainable business practices need to anticipate eventual future consequences to corporate actions and take precautions to ensure that the quest for profits doesn’t create irreparable negative repercussions.
More and more frequently, companies are being judged by their sustainability practices, although there is as of yet no standardized criteria to evaluate this. Companies like Walmart have launched measures like its sustainability program, which aims to reduce waste, operate with renewable energy, and focus on the company’s supply chain. Nike is another company that’s made a public push toward sustainability with its “Move to Zero” plan that envisions the company operating with net-zero carbon emissions.
Other major companies who’ve announced sustainability plans in recent years are Starbucks and Amazon, although the companies that tend to top sustainability lists are often businesses like the French apparel and accessories manufacturer Kering SA, or the Danish bioscience company Chr. Hansen Holding.
As the world becomes more attuned to the necessities of sustainable practices across all three major pillars, sustainable investing has evolved from its previous niche status to plant itself firmly into the mainstream. While it’s still not easy to measure the social and environmental impact of a company, a number of criteria, such as carbon emission rates or renewable energy usage, are increasingly being used to help investors determine how sustainable a company is.
As sustainable investing becomes more appealing to conscious investors, major stock exchanges like the New York Stock Exchange have begun introducing their own sustainability guidelines, such as the Principles for Responsible Investment (PRI), or the Dow Jones Sustainability Index.
Questions of sustainability are becoming increasingly important, and businesses are slowly but surely understanding that investors and consumers care about more than just cushy returns.Wealthsimple Invest is an automated way to grow your money like the worlds most sophisticated investors. Get started and we'll build you a personalized investment portfolio in a matter of minutes.