Profitability of sustainable and social investments

Recently I had the pleasure of reading Jurriaan Kamp's book on Microfinancing. I'm not sure whether it has been published in English as well, but then the title would be something like "Small Change - how 50 dollars changes the world".

It provides a decent and easy to understand overview of how microfinancing came about, how it is implemented in different ways, and that it will by itself not solve all of the world's problems, but can certainly be a big contributor.

By the end of the book, some of the next steps to take are discussed, including stimulating more purposeful social and environmental goals by the (micro) entrepreneurs. I wholeheartedly support that message, but the final message in the book bothers me. The book ends with categorical statements ("investments in people ... and the environment .. go at the cost of shareholder value") about the impossibility to found and run a (small) enterprise that purposefully creates social and/or environmental value, and is sufficiently profitable as well, or: attractive for shareholders. By now, there have been some very good meta-studies that prove otherwise: on average, sustainable companies do not fare worse regarding shareholder value, than less sustainable ones. Also, companies where tensions like short vs long term returns are managed better, fare better when talking about shareholder return.

Contrary to what the end of the book states, this need not be surprising. Of course, it is more _difficult_ to manage more elements than just the financial one, and optimise the people, planet and profit aspects in the best possible way. But IF one manages to do that, this implies a better overall quality of management, which will soon (or less soon) pay off. Less waste, better motivated personnel, less attrition and sick leave, less resource use, less lawsuits filed and possibly products sold that encourage sustainability by consumers as well. Now, why would such conditions automatically mean that a company would be less attractive to shareholders??? Furthermore, in its essence, share prices are an indicator for trust in a company, and why would a company that proves it masters all three domains be trusted less, by definition?

Instead of automatically dismissing the possibility of sustainability oriented organisations to be attractive for shareholders, why not turn it around and use the extra elements as leverage? Financial return may be less, equal, or higher, but on TOP of that, sustainable and social enterprises could hand out 'social and environmental dividends', i.e., explicit recognition of the social and environmental value creation that the shareholder has contributed to. Not monetary, but alternative 'return on investment', additional to the financial part.

All in all, the book very much breathes a message of: capitalise on the upsides of a development like microfinance, don't get discouraged by the things that can (and must!) still be improved. In that sense, the final pages were a bit disappointing. It is always important to stay realistic, but it is also important to stay inspiring. A message that stimulates people to 'take on the challenge' to combine sustainability and profitability seems to fit better than one that considers the impossibility of sustainable enterprises to be financially attractive as a 'fait acompli'.

These and similar discussions can be found, and discussed, on my web-log: www.woutersinnovationspace.web-log.nl