Earth Day (April 22, 2022) is a good day for business
While I understand not all are on board with the sustainability agenda, and some like the billionaire Peter Thiel believes that Environmental, Social and Governance (ESG) has been forced on us by the government, I am going to argue we should all embrace it as it is good for our lives, and it is good for business. Let’s be clear though, there are both flaws and opportunities in ESG and while regulating markets at time is necessary, we believe in market forces and ethical capitalism to lead the way.
Let’s start with the basics. On 22nd April 2022, about 200 countries around the world will celebrate Earth Day, a yearly event to raise awareness about our global environment and ecosystem. Earth day is celebrated by over 1 billion people around the globe (total world population is 7,940 billion). This year’s Earth Day activities will focus on “Invest in our planet”. The idea behind this year’s focus is to encourage cities, business, and citizens to act towards more sustainable lifestyles, buying from greener companies, and invest in the Earth’s wellbeing. Let me be clear, there has never been a better time for investing in sustainability, and the private sector should leverage every inch of this opportunity.
Let’s look at the consumer’s side. Pro-sustainability has become a big driver of customer loyalty, and sonsumer are increasingly scrutinizing product and service providers ensuring high standard of energy, water and waste practices. This is increasingly backed by all kind of surveys showing that over 50% of consumer choices are based on sustainability and broader ESG considerations. Some investors and business leaders, argue that ESG is a bubble and Elon Musk suggest that the imposed regulations are insane. While we don’t disagree with some of these statements, we believe that ESG is a necessary approach particularly in the short term, but it should not only focus on the climate but embrace more thoroughly societal and economic changes. Keep in mind that we are in a bubble and in a politicized environment also because we are late to act on the emerging ecosystem risk and vulnerabilities.
On the investment side, a recent survey by the IBM Institute, finds that 59% of individual investors in 2022 expect to buy or sell holdings based on sustainability indicators. The majority of investment funds in the US, Canada and Europe consider climate risks in some way, shape, or form and these decisions are not based on regulatory pressure or political preferences. Part of the attractiveness has been the higher performance of ESG funds during the pandemic. They didn’t suffer as much as traditional funds during the high market volatility caused by COVID-19 signaling their resiliency in times of crisis.
We anticipate this trend to continue and some analysts forecast ESG exceeding $50 trillion in the next decade. For Bloomberg, ESG assets are on track to exceed $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global AUM. Our bold prediction is that in the by 2025, 100% of AUM will incorporate some ESG factors.
Some leading fashion businesses like Inditex (BMEX: ITX owner of Zara) are leading the way and others like, Lululemon (Nasdaq:Lulu), the athletic clothes for yoga is making remarkable strides to become a sustainability front runner. I and many other investors have bought stocks in LULU because we believe it will outperform the market and because its ESG credential will help the business lower cost, become more transparent about its supply chain credentials, and attract younger consumers. On Earth Day LULU will launch a “trade-in program” allowing Lululemon clients to sell back used clothes lengthening the products lifespan. This will not only increase revenue for the company, but it will also drive massive client loyalty.
What am I doing for Earth Day?
I am ditching most of my E-devices and embracing a single AR device as this will pretty much allow me to get rid of most of my tech devices and donate them to people that need them more that I do. In 2021 we produced 60 million tons of E-waste, so this is a good place for individuals and companies celebrating Earth Day to start making a change. There is even a company called Eco-atm https://www.ecoatm.com (literally the same as an ATM machine) that allows you to swap an old smart phone for cash at check out at the supermarkets in the US.