Sustainability Investing: A Central Philosophy
Reynders McVeigh’s strategy is deeply rooted in two fundamental beliefs that combine to create a sustainable investment. The first is that long term growth potential is often found in sectors that the mass market considers stagnant. These areas may experience a decade-long slowdown while external factors build to eventually create an environment of great opportunity.
In order to capitalize on that opportunity, companies must be well-rounded to our second condition: ethically sound management paired with social responsibility. This foundation reflects commitment to the organization, its shareholders, and the future of all parties.
These overarching criteria are reflected in five areas that drive long term performance:
1. Long-term strategy based on disruption
Perhaps the most important quality an enterprise can have today is a value proposition that speaks to forward-thinking trends and understands that great opportunity comes through disruption. Keeping sights set on long term investments, there is enormous potential for meaningful monetary and social gains around new technology, innovative delivery mechanisms, and cutting edge research and application.
2. Low debt ratio
Long an indicator of a strong balance sheet, carrying a low debt/asset ratio frees management to pursue initiatives it believes will benefit its stakeholders. A strong balance sheet affords well-managed companies flexibility to keep all options open and to grow market share in weaker market periods.
Alternatively, organizations that are over-leveraged are forced to forego initiatives, skip natural steps in their maturation, or short-change constituents in an effort to alleviate or serve the debt burden. Invariably, such maneuvers lead to negative issues and competitive disadvantage over time.
3. Consistent increases in dividend returns
Management that gives back to its investors consistently and with regular dividend increases demonstrates a key ethical value: the company’s leadership is in for the long haul, and wants its investors to remain as committed as they are. While less devoted leaders may hold back dividends to increase their personal shares, those that place the importance of shareholder returns on par with their own compensation send a message of inclusivity. That fosters trust, participation, and a strong long-term position.
4. Investment in social change that furthers corporate goals
“Green” is quickly becoming the word of the decade, but not all social change is justification for investment. A constant flow of news briefs report on initiatives taken up in the name of the environment, but social change that supports management or a business model is where the market should be looking.
5. Sustainability disclosure
The previously noted elements are indications that a company is establishing itself as a productive investment, but transparency is the piece that embodies an honest commitment. This line of thinking has already been made evident in financial disclosure, as companies cultivate a sense of trust in the wake of the early 2000’s widely publicized corporate accounting scandals (Enron, WorldComm, etc.). Sustainability disclosure similarly provides stakeholders with a window into the company’s ethical priorities and management, and while still a nascent practice it is gaining traction worldwide.
Finding future upside
With these issues at the fore, companies distinguish themselves through fundamental strengths that create significant competitive advantage. Corporate leaders can make their own market by being progressive in their quest for opportunity, diligent about avoiding liability, and steadfast in setting a course for growth over the long term.
