Sustainability | Is Sustainability Profitable?

Co-author Andrew Savitz, in his book, The Triple Bottom Line, defines a sustainable corporation as "one that creates profit for its shareholders while protecting the environment and improving the lives of those with whom it interacts." The triple bottom line thus refers to profit, planet and people.

Produced with insights from Pricewaterhouse Coopers, a Bursa Malaysia booklet contains an excellent description of sustainable development by the United Nation's World Commission on Environment and Development: "Development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

During the session for plantation, construction, property and hotel companies, Datuk Lee Hau Hian, a Kuala Lumpur Kepong director, suggested sustainability is doing more with less. For plantation companies, this means increasing yields using the same acreage, he said. Sustainability also means taking a long-term view rather than opting for short-term gain, he added.

Rikke Netterstrom, executive director of CSR Asia, said sustainability for the plantation sector includes climate change due to changing land use, community relations, access to foreign labour as well as chemical use and handling.

Bursa Malaysia's sustainability programme is timely because socially responsible investing (SRI) is growing fast and outpacing that of conventional investing, although SRI is still a small segment of market activity.
As at December 2009, SRI accounted for only 8% of the US investment marketplace, the Social Investment Forum (SIF) says. However, from 1995 to 2007, SRI assets swelled by more than 324% to US$2.7 trillion while total assets under professional management rose by less than 260% to US$25.1 trillion, SIF adds.
Although admirable, SRI faces two potential problems. First, SRI could mean a lower return on investment (ROI). Investment in sin stocks traditionally offers attractive ROIs. Authors Meir Statman and Denys Glushkov, in their 2008 study titled The Wages of Social Responsibility, pointed out sin stocks like tobacco, gambling, firearms, alcohol, military and nuclear have historically outperformed the market.
In July 2009, Money Observer magazine compiled a list of companies it classified as saints and sinners. Over a three-year period, shares in a sinner, British American Tobacco, gained 61% while shares in a saint, Vodafone, edged up by 0.5%.

After 10 years, a person investing 100 in Money Observer's Sindex would have more than 258 while the same stake in the saints would have shrunk to 61.JP Morgan offers a glimmer of hope. Over the past 10 years, JP Morgan says four of the largest SRI mutual funds " Ariel Fund, Ariel Appreciation, Parnassus Equity Income and Pax World Balanced Fund " outperformed their benchmarks on a total return basis.
This suggests a good ROI depends on the skill of fund managers rather than whether the mutual fund is socially responsible.

A second, and more challenging, problem is defining what constitutes a socially-responsible company. Rolls-Royce is excluded because it produces engines for the military as well as for civil aviation, even though defence aerospace accounts for less than 20% of its total sales. Colgate-Palmolive, L'Oreal and Procter Gamble are deemed unethical because they test their products on animals.

Additionally, a mutual fund may exclude BP " the oil company responsible for one of the worst environmental disasters last year in the Gulf of Mexico " but include the equally culpable oil drilling companies.For plantation companies in Malaysia, SRI is both a challenge and an opportunity. Accused of cutting down forests and destroying the habitat of the endangered orang utan to plant oil palms, plantation companies have attracted the ire of environmentalists in Europe.

Malaysian plantation companies must do more to convince investors oil palm is an environmentally-friendly crop. Not only does oil palm enjoy one of the highest yields per hectare, this vegetable oil can be used as a bio-fuel, thus contributing to reduced use of environmentally-unfriendly oil and coal.One indicator of success in fostering sustainability is Golden Agri-Resources' (GAR) change in stance. Recently, Nestle and Unilever cancelled their contracts with Indonesia's largest palm oil producer, a move that prompted GAR to agree to partner with Geneva-based The Forest Trust to conserve vulnerable forests and peat lands in Indonesia.
Arguing only their Indonesian counterparts are in the gun sights of environmentalists, many Malaysian plantation companies believe they have little reason to worry. This is a short-sighted stance. With activists worldwide dedicated to enhancing corporate sustainability, a do-nothing approach by Malaysian plantation companies is not an option.