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Sustainability

Sigma Investment Counselors

August 27, 2014

The concept of sustainability, particularly with respect to natural resources, is the subject of a heightened level of interest.  Specific proposals are increasingly appearing in corporate proxies and many companies are introducing practices that are designed to protect and extend the useful life of natural resources.

While environmental sustainability is garnering increased attention, investors should also be aware of other sustainability issues, as they, too, are likely to affect investment returns.

Social issues, including public and private sector pensions, government programs such as Medicare, Social Security and veteran’s benefits, face significant sustainability issues.

While there may seem to be a vast gulf between reforestation programs and pensions, they are quite similar.  Reforestation projects replace trees as they are harvested and, to be truly effective, should recognize that annual harvests are likely to increase, requiring an expanding replanting program.

Pension funds pay benefits to current retirees and should be funded in manner that will not only support current requirements but also recognize that future demands on the fund are likely to be higher, as the number of pensioners increases and payments to existing retirees may increase in line with the cost living.

Investors should be aware that true sustainability requires a well formulated strategy designed to achieve the desired objectives.  Investors should assess the efficacy of the proposed strategy, understand the costs involved and, most important, understand how it’s going to be paid for.

All comments and suggestions are welcome. 

Walter J. Kirchberger, CFA®

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