The end of non-sustainable profits

Sustainability is the new wave of innovation, and the data backs it up. I have been saying this for a long time now: this is the end of non-sustainable profits. The purpose of this letter is to encourage you to keep this in your mind every day because it will have many implications throughout your life.

Our jobs, investments, the career plans for our children, even which house or car to buy, are decisions we should think of based on such reality. Our professional careers will develop further if we bet on professions with a sustainable future; Our investments will improve if we bet on sustainable companies; The price of our house will further grow if it has sustainable features; An electric car will better keep its value because there is a growing demand for them.

When a society becomes more aware of the challenges on sustainability and the actions needed, more and more users are willing to pay more for sustainable products which provides a competitive advantage over their non-sustainable equivalents.

Brilliant investors perceive these trending changes as a risk for certain types of investments that do not follow such a trend, and as an opportunity in everything that is aligned.

30 years ago, the first ESG (Environmental Social Governance) index was created, which seeks to follow the evolution of the companies most aligned with these concepts. They are being applied to more and more exchanges and invariably since ESG index data has been available, they have outperformed their non-ESG equivalents in the long term.

In 2015, the UN’s 2030 Agenda published the Sustainable Development Goals (SDG), under the pressure of an increasingly conscious society but also because of evidence on global warming, the loss of arable land and biodiversity, the deforestation of the last great forests, the loss of freshwater sources, and a large etcetera.

Suppose to all this reality; we add a population growth that has gone from less than 2,000 million to more than 6,000 million in less than 100 years with an expectation of reaching 10,000 million in the 21st century—adding up an increased number of people who have access to houses with running water, electricity, heating, vehicles, and appliances to simplify their lives. In that case, the situation requires immediate, forceful, and determined action to avoid a collapse of the ecosystem and all the socio-economic problems that would derive.

In addition to this reality there is a growing population going from less than 2 billions to over 6 billions in less than 100 years, and expected to be 10 billions within the 21st century, and also a growing percentage of people getting access to houses with water, electricity and heating facilities plus vehicles and appliances to simplify their lives. Immediate, forceful and determined action is urgently required to avoid a collapse of the ecosystem and all the socioeconomic problems consequence to this.

UN’s urgent call has driven countries to assume even more significant commitments to reduce greenhouse gases, reduce pollution of rivers and seas, conservation of forests and jungles and even reforestation, etc. To comply with these commitments, countries are providing resources and setting incentives both positive (aid) and negative (sanctions), which also provides a competitive advantage for sustainable projects and a burden for those that are not.

Since the UN announced the 2030 agenda, compliance with the SDGs is overwhelming from a sole state perspective. It is necessary to channel private money since it is impossible to tackle such a challenge only with public money. Between predatory capitalism and altruism, there are many shades of gray necessary to achieve the SDGs on time:

In the search for compliance with their commitments to the 2030 agenda, states, and international organizations have developed a strategy of blended funding or combined financing. This strategy means that public funds are not directly allocated to projects but injected into investment funds to absorb first losses or another form of concession that makes investment doubly attractive to private investors.

In this way, impact investing (which actively seeks to contribute to the fulfillment of one or several SDGs) is growing exponentially, which gives a competitive advantage to sustainable projects. Impact investment reached 715,000 million dollars under management in 2019, and it is expected to reach one trillion dollars in 2020.

Few sectors grow at a similar rate, but let's not forget that this has just begun. Impact Investing started as an alternative for innovators and perhaps early adopters, but this wave, like all the previous ones, will follow an Everett Rogers adoption curve. We are close to entering the phase of the early majority, where the new trend becomes mainstream.

If we add all these effects, it seems obvious the projects aligned with the SDGs have a much more promising future than the unsustainable ones. Some data supporting this theory:

"Virtuous cycles. Sales of electric cars grow 63% annually; traditional cars, by less than 5%. The world food market is growing at 4% per year; sustainable food growth is three times higher. The same goes for suppliers of green chemicals and sustainable fisheries. "More and more capital is being allocated to 'green' solutions and funds," Zabbal writes, "an acknowledgment that the sustainable alternative, in more and more verticals, is where growth will occur for decades to come."

End of the game. "Today there are no boosters for coal and gas carts and rogue offshore fisheries and large-scale plantations, while there are a thousand startups, billions of capital, and 80 million millennial consumers who are aligned with sustainability, "Zabbal says. "It will take years, decades, and much more damage and effort before the war ends, but the balance of power has now shifted."

For all this and much more, I always say that "This is the end for non-sustainable profits."

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