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Businesses must power sustainability

30 March 2021

Paying extra for basics is a luxury for most people. That’s why we must invest in companies whose technologies are driving down the cost of renewable options, paving the way for widespread change, argues David Coombs, Fund Manager, Rathbone Multi-Asset Portfolios

I have three sons: two Millennials and one Generation Zer, the youngest by a little over 10 years. In some ways they match certain trends. The Millennials couldn’t wait to drive while the Gen Zer has shown zero desire, for example. They all play computer games, prefer downloads to physical purchases and crave the latest smartphone with as many cameras as possible. And yes, they all agree their dad is a fossil.

So far so neat, falling into nice cohorts that marketeers and sociologists get very excited about.

However, here’s the thing: none of them has a white-collar job. They all live in small towns way away from London and none of them has any care for Extinction Rebellion or Greta. I’m not saying they don’t care about the environment, but it’s not a topic they worry about incessantly as they have normal everyday issues that keep them busy.

If you believed the media, all Millennials and Gen Zers are more sensitive souls that idolise David Attenborough, recycle their socks and want to ban petrol immediately. As I alluded to before, this is all a bit too neat. People don’t fit easily into boxes, and societies and generations are more varied than historians and reporters allow.

Take the flower power of the Swinging Sixties: this generation was defined as anti-war and anti-materialist, and all for free love, acid and left-wing economics. And yet. In reality, these idealists were actually in the minority. Most people were simply getting on with life, trying to get ahead and provide and care for their families; they were the silent majorities who elected leaders who promised to right economies and keep order.

The anti-materialist sixties generation went on to become the greatest cohort of consumers in history.

Beware sweeping statements

So forgive me but I have often questioned the broad-brush characterisation of younger people. If the kids are recycling their socks, how has fast fashion grown exponentially over the past decade? How do Apple and Samsung keep convincing them to upgrade phones every year despite the high environmental cost of the resources used to produce them?

Have social media platforms misled us? It seems like it to me. It comes down to the nuance that researchers know well: that it’s easier to say ‘the right things’ than it is to do ‘the right things’. This isn’t a criticism of the young; the same dynamic applies to Generation Xers and Boomers like me. This is a feature of being human. My point with all this is that the consumer is as fickle and difficult to pin down as ever. As investors, we must take a sceptical view on consumer demand if we are to invest in durable businesses.

As always, it’s hard to separate the economic imperative from the sustainable objective. Renewable energy will only eclipse carbon-heavy energy when the technology gets to a scale that makes it reliably cheaper for most areas around the world. And that’s the unsubsidised cost.

Because, for most consumers, paying extra for basics is a luxury. Bluntly, the question goes:

  1. Will you convert to renewables to save the planet for no extra cost? Yes, of course – where do I sign?
  2. Will you convert to renewables to save the planet, but it costs twice as much? Yes, it’s important – send me the details (but then it comes time to pay, cash is running low and economy wins out).

Businesses must invest in change, investors must help them change 

My point here is that the consumer alone won’t drive change. Business owners (and investors like us who provide them with capital) must take responsibility.

Companies need to strive to improve renewable technology to the point where it becomes a no-brainer for people. We as investors need to give companies the cash and the encouragement to help them get there. Because if energy companies don’t change, then they will be forced by governments. That can be painful, driven by unrealistic deadlines and a lack of commercial awareness. If the vaccine success in the UK has shown us anything it’s that the private sector can get things done quicker and more efficiently due to less bureaucracy.

As a fund manager, I believe I should always nag, nudge and champion businesses that I invest in to continue innovating, to keep improving. In our multi-asset portfolios, that goes for how they treat people, the environment and their supply chains, as well as their efforts to make profits for their shareholders. The way I see it, a company that screws its suppliers, its staff or its community won’t last long, regardless of the profits it may hustle today. In the end it’s common sense to avoid such poor companies.

As we prepare to launch our suite of sustainable multi-asset funds, we are preparing to double-down on that work, bringing a greater focus on businesses that demonstrate a real commitment to supporting the UN’s Sustainable Development Goals. We will only invest in companies whose operations are helping make society better.

I may be a fossil, but whisper it quietly: boomers want to make a positive difference too.

Professional Paraplanner