Can Capitalism Be a Tool in Addressing Long-Term Sustainability?

Capitalism could be a force for good and help solve society’s problems through investments that target sustainable factors like environmental, social, and governance principles.

“With the benefit of substantial philanthropic and investing experience, I have come to believe that capitalism is likely the most powerful potential force for good in addressing society’s long-term problems. A successful business operating ethically and sustainably can create many thousands of high-paying jobs, deliver high long-term returns for pensioners, long-term savers and other investors, and provide goods and services that materially increase its customers’ quality of life, broadly defined. That said, capitalism is far from perfect,” Billionaire activist investor Bill Ackman, the CEO of the Pershing Square Capital, said in a shareholder letter, according to Yahoo! Finance.

Ackman highlighted the importance of ESG issues that boardrooms and managements need to examine and face to meet sustainability issues in a quickly changing global environment.

“We believe that good ESG practices are fundamentally aligned with running a successful business. As consumers and other corporate customers have become increasingly educated on matters of ESG, they have begun to avoid companies that contribute to climate change or do not treat their employees well, while rewarding companies with their business that have sustainable and responsible policies. Similarly, a growing number of investors have become increasingly concerned about the risks of companies which do not take ESG issues seriously. These investors avoid investing in companies which do not meet high ESG standards, reducing the valuations and investment returns of these businesses, negatively impacting their cost of capital,” Ackman said.

Consequently, Ackman now implements an ESG screen to evaluate investment opportunities and argued that as more shift money away from companies that score poorly on these ESG issues and into firms that do better for society and the planet, investors can better-manage risks that global companies face in today’s environment.

“Our focus on business quality has largely enabled us to avoid investments in businesses which make products or deliver services which we do not believe to be desirable, which treat their employees poorly, and/or which have long-term financial and legal risks that are a consequence of their negative externalities. We believe that this approach has helped us to avoid losses and generate profits by identifying great businesses that have contributed to our long-term investment returns, and by avoiding others which would likely have generated losses in the portfolio,” Ackman concluded.

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