The risks we need to think about are the ones with the power to undermine the global economy systemically, like the risks that we’re going to have a hard time farming or finding fresh water, or the risk that the tuna we eat will be contaminated with mercury. These are the types of long term risks we focus on in investment selection.
Ellis: Garvin, you’ve mentioned two economic issues that are on many investor’s minds these days, regenerative agriculture and access to fresh water. Tell us about a company you expect to grow because of its focus on these issues in the Next Economy.
Jabusch: I love that you bring up regenerative agriculture. And nothing could be more elemental to a healthy economy than water. Both of these resources have to be managed so they can thrive indefinitely.
Let’s talk first about large-scale industrial agriculture in the legacy economy. Most agriculture today is practiced in ways that are resulting in significant long term damage to soil and pollution of the rivers and oceans into which runoff drains due to the ever-increasing use of pesticides and herbicides. These practices reduce soil productivity and the soil’s ability to sequester carbon over time.
So, what’s the Next Economy analog? The assumptions that natural and organic farming practices cannot compete with industrial scale agriculture are out of date. There are opportunities in the agricultural markets to own companies that are very productive, have high yields and generate outstanding margins on their products.
Consider White Wave Foods (WWAV), a natural and organic plant-based food and beverage company. Danone recently acquired White Wave to generate more growth in their business model. White Wave became an irresistible takeover target by growing its business nine times faster than the underlying milk industry.
This is a great example of a company whose business practices solve for systemic risks that investors want to avoid in this economic sector, more pesticide and herbicide use, which leads to depleted soil and the contamination of fresh water. White Wave makes a competitive product that consumers want to use as opposed to its legacy economy alternative, and their farming practices contribute to the long-term health of soil and water resources.
It’s not at all out of the question for investors to achieve competitive returns while focusing on sustainability. The idea that these two objectives cannot be combined is an old mythology that needs dispelling. At Green Alpha Advisors, we have seven years of demonstrated success combining sustainability and performance.
Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.