"Instill respect for sustainability in talented people through good training."
November 13, 2015
"In order to reap the benefits, sustainability must become an integral part of business and the business model," says Kees Koedijk, director and dean of TIAS School for Business and Society, in an interview with duurzaamheid.nl.
Ten years ago Kees Koedijk and fellow researcher Rob Bauer already demonstrated that investing in sustainable funds yields as much as investing in "normal" funds with a similar risk profile. It was a scientific first. The investment period studied is now far behind us, but the dean of the business school of the University of Tilburg knows from subsequent publications that the outcome has remained the same.
"Sustainable or ethical investing is subject to conflicting objectives. More than with other investment categories, an assessment must be made. Do we want a high but risky return in the short term? Or do we prefer to stay close to what we and our society consider important and valuable and choose for a return plus shared values?
"It used to be difficult to make that assessment. The investment world was divided into separate silos. Everyone acted on their own account. Results had to be demonstrated at least every quarter. We now observe a change that gradually straightens the balance. Everyone has to make new connections, including investors. The most future value is in investments that connect the social, economic, and technological developments around us in a smart way."
"Creating more sustainable investment forms is like making organizations more sustainable. It is difficult at the beginning. It is new, uncertain, and the costs and payback times are therefore less clear. Therefore, as soon as there is a setback (such as during the financial crisis), this is the first 'luxury item' to be scrapped."
Koedijk continues: "Making something more sustainable is complicated and also quite expensive at the beginning. This means that while many organizations begin the process only a few have managed so far to make it a truly integral part of their business and business model. Even though this is exactly what is needed to collect the benefits. The sustainability process makes organizations more innovative, they learn to look differently at their markets and supply chains, it increases customer loyalty, and employees become more committed, loyal, and resourceful."
Unilever brand value increased
"Look at Unilever. Since it launched its Sustainable Living Plan, its brand value has increased considerably. People and organizations from all over the world want to work for them or collaborate with them. Suppliers know they have to do better. Error margins become smaller. And so on. Unilever has turned from a food producer into a partner with a mission and you cannot possibly object to this. Without profits suffering."
Much broader mandate
The financial sector has much to learn from this example, says Koedijk. "Ensuring that everybody accepts your right to exist is more important in a trust-based business. However, some investors and financiers are struggling with the transition. That is a rearguard action. If they cannot do that, there are other parties who do it for them. You now see that a few parties take the lead. Pension funds in particular understand that their mission has widened. Not only do they have to generate the highest possible returns at the lowest possible premiums, they also have to ensure that their members should be able later to enjoy their retirement in a livable world."
Take on problems
To be successful, sustainable investors must see themselves as co-owners of the social goals they set themselves. Koedijk: "Take on one or more problems from your clients or participants. As a pension fund, I would, for instance, promise my members that I will use the money entrusted to me to halve their energy bills in a decade. Or would reassure them that, even if they want to continue living at home for longer, they will still get care of the best quality. By offering something like that you tilt the whole returns debate. Everybody wants that. Suddenly, the size of the premium becomes less important."
It also helps stimulate the financial interest of the average consumer. "Socially responsible investment has a communication problem. Everyone is in favor of creating a sustainable world. But when you try to explain that people can also influence that themselves, they pull out just as quickly. That message is too heavy and not tangible. Entice them with sustainable plans that cost them little effort and are still appealing. The good news, however, is that we now have social media. The school in Sierra Leone, which is lit through a solar panel funded by sustainable Dutch money, can be followed by anyone at anytime on a cell phone."
The right preconditions
The government must create the preconditions for such developments, says the Tilburg director and professor of Financial Management. "Organize the chains. Bring housing associations, social services, and sustainable real estate investors together and let them come up with solutions to make our urban environment more sustainable. Remove obstructive laws and regulations and provide start-up grants."
"Why has solar power taken off so successfully in Germany? Because the start-up costs could be offset by sufficient start-up grants. People will only become sustainable if this benefits them first. Instill respect for sustainability in talented people through good training. We are now working hard on developing the Tilburg Sustainability Center. Help us with that and provide money and people for similar initiatives. There will be enough demand for that in the future."This interview by Anne-Marie Rakhorst with Kees Koedijk was previously published on duurzaamheid.nl