Sustainable Financial Investments, by Brian Bolton
Palgrave Macmillan will be publishing the book 'Sustainable Financial Investments' this month. Registered OTCS Space readers can recieve a 30% discount.
Sustainable Financial Investments
Maximizing Corporate Profits and Long-Term Economic Value Creation
Every investment has a story. If it’s an individual buying a corporate bond, that story might involve the expected volatility of the firm’s future cash flows; if it’s a corporation investing in a wind powered energy system, that story might involve expected future energy costs or the publicity the firm receives from having the turbines on top its building. These investments will ultimately be valued using the math that business schools teach in finance class. But, first, we have to understand the economic story and the qualitative factors that will create value with each investment. For most investments, valuation is much more art than science.
The art of investing is perhaps most pronounced when firms invest in sustainability—when they make human, social or environment-focused investments. Sustainable Financial Investments is a book about such investments. More importantly, it is a book about finance.
Sustainability-related investments may involve more intangible cash flows than we are accustomed to, they may involve both positive and negative externalities that may develop over long periods of time, and they may involve large numbers of stakeholders who have varied and competing interests. Understanding the economic stories that will create the value from such investments is the art; once we master the art of investing, the science becomes a relatively simple math problem.
Every investment is also a choice. Firms get to decide what they do with their limited resources, and such decisions are based on their expectations of future returns. In recent years, many businesses have been choosing to invest in sustainability.
Nike is investing in waterless dying techniques because it knows that water access can be a critical source of value over the long-term. Whole Foods is investing in food access and partnerships that it hopes will create new markets and new customers. Walmart is investing in solar panel systems at hundreds of its stores so it can lower energy costs and become even more efficient. Many other businesses are choosing to make similar investments because they know that they can only create financial profits by taking care of people and the planet, too.
For any firm, the mission determines the economics of the firm’s investments; individuals acting in pursuit of their own rational self-interests drive the economics that create value for the firm. In a world with an increasing population, declining and limited natural resources, and changing generational preferences, investing in human, social and environment-related projects can create value in ways that were not possible just a few years ago. Many firms are creating value through sustainability—because the economics make sense.
Mark Parker, Chief Executive Officer of Nike, has said, “sustainability and growth are complementary.” Using both finance and strategy, Sustainable Financial Investments shows how sustainability and growth can be complementary. The world is changing. Value is being created in different ways than it was just a few years ago. The investors and companies that choose to capitalize on these new opportunities to invest in sustainability will be the ones that create the most value for their stakeholders. Sustainable Financial Investments shows how the art and science of investing can help firms capture this value creation.
Brian Bolton is an Associate Professor of Finance at Portland State University, USA. Prior to entering academia in 1997, he worked as a research analyst with Gordon Investment Corporation, a private equity group based out of Dallas, Texas, and as an acquisition consultant with PricewaterhouseCoopers, where he developed extensive experience working with CSR-based investments. His research has appeared in such mainstream publications as the New York Times, the Wall Street Journal, and Bloomberg-BusinessWeek. He has taught finance courses in financial analysis and valuation, corporate finance, and financial markets and institutions at both the undergraduate and graduate levels at Portland State University, the University of New Hampshire and the University of Colorado, USA. He has published over 30 articles in the Journal of Financial and Quantitative Analysis, Journal of Corporate Finance, Columbia Law Review, and numerous other journals and books.
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