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February 03, 2012
Interview: Cary Krosinsky, Editor of Evolutions in Sustainable Investment
    by Robert Kropp

SocialFunds.com talks with Krosinsky about the challenges to as well as the inevitability of a mainstream uptake of sustainable investing strategies.


Last week, I reviewed Evolutions in Sustainable Investment: Strategies, Funds and Thought Leadership, an important new book edited by Cary Krosinsky. In addition to teaching sustainability and investing at Columbia University, Krosinsky is a Senior Vice President at Trucost, a leading environmental research firm that maintains the world's largest database of corporate greenhouse gas (GHG) emissions.

In his introduction to the collection of essays that comprise the new book, Krosinsky wrote, "While trillions of dollars are invested in a 'socially responsible' manner, upward of 90% of that sum has been deployed over time using unsophisticated screens." In a conversation this week, he referenced the 2010 Trends Report from US SIF: The Forum for Sustainable and Responsible Investment as evidence of his assertion.

The Trends Report stated, "Avoidance of investments in certain areas remains the predominant ESG (environmental, social, and corporate governance) incorporation strategy in asset-weighted terms."

"The most prevalent ESG factors incorporated into mutual fund management, in asset-weighted terms, are Sudan, tobacco, alcohol, gambling, defense/weapons and the environment," the report continued.

In his introduction, Krosinsky wrote, "Take a purely values-based approach, and you risk missing the very same practical opportunities in eco-efficiency and innovation, where the sustainability we require will come from."

The transition to a truly sustainable investment strategy—one which, as Krosinsky wrote, "Seeks the right opportunities while being equally mindful of macro trends and emerging risks from rapidly changing planetary conditions and the soaring wave of innovation and technology…that will leave traditional business models behind"—may be especially challenging for what he calls "the legacy socially responsible investing community."

In our conversation this week, Krosinsky described some of those challenges.

"Things are starting to move into private hands more and more, whether it's the one percent versus the 99%, or the fact that government enterprises are starting to dominate in the more polluting sectors, or that research will be written by the too big to fail banks," Krosinsky told SocialFunds.com. "There are trends on the way that will be challenges for the socially responsible investing industry to get these things right. And if they're not going to get these things right, what does it say about the industry?"

"We're working toward an inexorable realization that these things are material and are extremely important," he said. "As difficult as they are to measure, they can be measured. Those that get in front of these things, who manage them and deal with them, that's the dynamic I'm seeing. It comes down to practical economics, such as the cost of solar coming down to where solar is something that can be scaled in the next three to five years."

"It's as much a mainstream opportunity as it is for the legacy socially responsible investing community," Krosinsky continued. "It might actually be harder for the socially responsible community to get this right, because it will be challenging for those firms who have had bad years and have to watch their budgets and spend less money on research."

One asset management firm that is getting it right, according to Krosinsky, is Generation Investment Management. Founded in 2004 by former Goldman Sachs executive David Blood and former US Vice President Al Gore, the firm had attracted $6.6 billion is assets from institutional investors and high net worth individuals by the end of 2010.

As a chapter in the book points out, Generation Investment Management maintains a long-term investment focus and delivers returns through integrated sustainability research. In our conversation, Krosinsky pointed out that the firm's high public profile allows them to charge fees sufficient to stay competitive.

As an executive at an ESG research firm, Krosinsky is well aware of the challenges that face the industry.

"Most of us who have been in the research space for ten years or more have found there hasn't yet been a business case for this, and have struggled to have enough revenue to do it," he said. "Whether it's KLD or Trucost or Innovest, there hasn't been enough interest in using the data in a robust way. So we have an industry on the socially responsible side that's driven by values, but there hasn't been enough revenue behind the creation of data, or for that matter investment in those assets to make it a healthy industry."

"That was the conclusion of the Rate the Raters exercise by SustainAbility, which was that there's not nearly enough money to create the data that's required," he continued. "You have an industry that really cares about these issues, but the issues are really complicated. There are many hundreds of data points that need to be considered."

Nevertheless, as Krosinsky observed, resource scarcity and other factors are inevitable, and even in the continuing absence of the public policy clarity that would help drive mainstream investors to sustainability, businesses themselves are beginning to understand the opportunities.

"There's a lot of energy still going into things like Durban and Rio, and other multi-stakeholder dialogues that aren't actually achieving anything," he said. "The most positive energy that I see is from the corporates themselves. I think that's where the opportunity is. Many of the global corporates understand where we're headed."

For example, he continued, companies in the agricultural sector are "starting to see both the opportunities and the daunting challenge of a growing population and dwindling resources."

"There's still misunderstanding about what sustainable investing is, and to what degree that misunderstanding is in the way of mainstream application," he said. "But at the end of the day, I don't think it matters. These things will happen, so I hope there's enough recognition that there's a way forward that could be positive. If enough investors start to practice what we're preaching, awareness that it is happening would be enough to create a positive dynamic."

 

 
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