Have we lost the meaning of sustainability? Is it condemned to be redefined? With the rise in popularity of the term ‘ESG’ within the investment industry in recent years, it appears that sustainability has become synonymous with environmental factors alone, specifically decarbonisation. And the resulting actions, such as cutting emissions and planting trees, become the sole focus, without anyone (or at least the majority) really understanding why.
But sustainability in its truest form means maintaining a certain rate or level. It concerns longevity rather than the short-term. It is understandable how the blurring of ESG and sustainability has come about, as certain industries (thermal coal, for instance) are known polluters and unsustainable largely due to environmental issues and related regulatory changes. But sustainability has many forms. Blockbuster video could have become the epitome of ‘green’, but with the rise of online video streaming it was still doomed to fail. Global warming does mean that all industries need to lower emissions, but this alone doesn’t make a company sustainable – it is here that the danger in this loss of meaning / redefinition lies.
For Velox, sustainability of the business means sustained success. That started in 2018 (with no sound of ESG ringing in our ears) we set our mission statement, core values and commitments – all focused on how we approach everything to target sustained success. Some approaches are tried and tested, others may be seen as progressive, but the goal is the same - we want the best outcome in every part of our business to ensure our longevity.
Soon after, we began to develop tools to strengthen our investment process to better identify sustainability in the companies within our investment universe. Previously unseen factors were starting to drive prices and we wanted to understand them.
Cutting carbon emissions is vital, but from an investment perspective, it is equally important to understand which other issues are key to any particular company: whether they are Environmental, Social, Governance or indeed balance sheet or sentiment related. At Velox, this is what we solve with our materiality map and 360 analysis – our goal is to find the most sustainable companies within each industry, meaning that we avoid the style biases that can arise from such misconceptions of sustainability, such as simply being long renewables and short polluters.
Whilst the blurring of lines may continue in the public domain, at Velox we will continue to do as we always have, we focus on the process. We are firm believers in the concept of full integration - where the sustainability of the company is analysed using all available metrics.