Building A Sustainable World: Moving beyond buzzwords and turning intentions into actions
By Kenny Lam, CEO, Two Sigma Asia Pacific
It seems quite fashionable these days to add "green", "ESG" and "sustainability" to any ventures one is embarking on and it would attract attention. In one week in November this year, there were three separate regional conferences related to these topics, including an especially hot topic - impact investments - all with COP 26 as the backdrop.
All of this media coverage and public interest is a great way to build momentum. I would pose four sets of questions and thoughts in the hope that this initial momentum would go beyond buzzwords and turn all of our collective intentions into something meaningful in the long run.
On impact investment. Impact investing is exactly the two components it suggests - impact and investing. There are more funds now launching investment opportunities that have "ESG" themes or with focuses on impact. I think a more critical look would be wise for anyone reviewing these opportunities. What "impact" are they delivering? Are there viable business models behind these impact efforts that would also deliver sustained returns to the investment part of the equation. Often, these two objectives are mixed without real critical assessment on each, leading to many investing with a general "feel-good" factor and nothing more. This could lead to some painful reconciliation later
On the definition of ESG. ESG is often associated with protecting the environment. Perhaps a broader understanding of it should be sustainability - how can we help bring sustainable growth across all aspects of our lives? This includes not only topics we care deeply about - renewable energy, climate change, carbon emissions, etc. But there are also other challenges that affect the human race and are related to "sustaining" and enhancing the human experience. One prime example is what the new human experience and skill set should be in face of rapid advancement of AI, machine learning and related automation. How can we help reskill our workforce and sustain a human experience that can complement these advanced technologies? We are hearing news about a shrinking workforce in the West and China's new "lie-down" culture. Clearly, the new generation is facing not only challenges related to the environment but also a new "normal" in terms of co-existence with advanced technologies.
A scientific and quantitative approach to measuring impact and results. There are many in the industry that are now beginning to track impact in a systematic way. The United Nations Sustainable Development Goals are great starting points. If we treat this as a scientific problem, we would push even further on a few fronts. What are the subcomponents of the SDGs that can be measured in a quantitative manner, e.g. as they relate to poverty, hunger, education, clean water etc. Do we have an end-to-end view on all of these goals and targets that we know we are not seeing positive impact in a sub component that could deliver a net negative impact overall? As with any scientific problem, what are the hypotheses and how can we evolve our approach as we see results based on quantitative measurements?
On where we are in the sustainability industry. As with any new industry, it would go through a typical "S-curve". It would start with pioneering new entrants developing the early rules of the game of the industry, to a stage where many participants would join, creating a sense of euphoria, before reaching a stage where mature, stronger players remain with a clearer set of rules and regulations. With much hype and media attention to the topic of ESG, we could be in the second stage - one where many are part of the industry of sustainability but it is still very difficult to discern between the more serious ones to ones that are simply "riding on the bandwagon". It is important to know, again, as all of us want to move to a stage where legitimate, longer term, and stronger players remain. It is important also because we do not want to succumb to the hype of the topic and of some of the current participants.
Along with many, we really hope that we are now past the stage of slogans. ESG, impact investments and sustainability topics are all serious topics that would materially affect our future. It may be worthwhile to think more intensely on how we can all be pragmatic in execution and implementation, with consideration of perhaps the points raised
