'Who wants to live forever?" asks Freddie Mercury in the hit Queen song. Medical science has yet to crack the secret of immortality. But how about the companies in which you invest? Any investor worth his salt should want his investments to be sustainable, or at least, long-lived. Many firms are indeed long-lived, perhaps more than you think. There are globally more than 5,500 companies older than 200 years. At the top of the list is Nishiyama Onsen Keiunkan, a Japanese hot-spring hotel founded in 705. Younger companies include Affligem, a Belgian brewery founded in 1075 and Loewen-Apotheke, a German pharmacy founded in 1364.
The secret of these long-lived companies may rest in how they do business. They draw on natural resources in a sustainable way to serve the basic needs of their communities. In fact, more and more investors are coming to believe that corporate sustainability, a business approach that takes into account every aspect of how a business operates in the social, cultural and economic environment, is crucial to creating shareholder value. Worldwide, sustainable investing outpaces the growth rate of conventional investment assets under professional management.
After all, we live on the same small planet and share the same scarce resources. What we do impacts one another, for better or worse. For example, a beverage company has to protect a long-term source of clean water in order to make its products. The Exxon Valdez oil tanker accident of 1989 is a spectacular example of the damage that a company can wreak on the environment and led to businesses incorporating environment and social considerations into their day-to-day decision-making. And investors have come to focus on environmental, social and governance (ESG) factors that may affect the performance of investments — now and into the distant future.
You may be somewhat sceptical regarding the connection between ESG and a firm's bottom line. While the connection is far from conclusive (not surprising given that we are dealing with the very long term), there is growing evidence that ESG positively affect companies' performances. For example, a comparison of the MSCI Emerging Markets ESG Index and the plain-vanilla MSCI Emerging Market Index shows that the former clearly outperformed the latter over 2007-14. RobecoSAM, an international investment company with a specific focus on sustainability investments, also reports similar findings in its analysis of 530 firms over 2001-13 while controlling for size, sector and region.
So let's say you're interested in sustainable investing. Where can you begin?
Start with the creme de la creme. The Stock Exchange of Thailand (SET) already boasts world-class companies that pursue corporate sustainability. The Dow Jones Sustainability Indices, the longest-running global sustainability benchmarks worldwide, recently added six more Thai listed companies (Banpu, Central Pattana, IRPC, Minor International, PTT Exploration and Production and Thai Union Frozen Products) to the existing four (PTT, PTT Global Chemical, Siam Cement and Thai Oil).
Rely on ESG-based mutual funds. BBL Asset Management, with Khon Thai Foundation and ChangeFusion Institute, launched the Khon Thai Jai Dee or BKIND mutual fund, Thailand's first ESG mutual fund. Of course, you should do your homework on the fund's stock selection criteria and management track record.
Go further afield. The Thaipat Institute, a pioneer of business-sustainability database development, recently released the ESG100 list of 100 outstanding companies based on ESG factors. The list is compiled by evaluating the sustainability of 567 SET-listed companies, based on their publicly released information such as annual reports, sustainability reports and sustainability-development results as compiled by authorities (see www.thaipat.org for more information). Investors can use this as a starting point to dig deeper into how individual firms fare with respect to various ESG factors.
Watch out for more ESG data and investment products on the horizon. The SET is also developing a "Thailand Sustainability Investment" list of firms that pursue ESG as well as a sustainability index. The ESG list is based on companies' public information as well as interviews with chief executives to gauge implementation better. The list will be released later this year while the sustainability index is expected to take longer.
So you've integrated ESG into your portfolio and hopefully boosted the longevity of your stock returns. Now, how about your own longevity? Would you want to live forever? Be careful for what you wish for. The promise of longevity, if not immortality, may not be as far off as you think. Last year, a group of doctors, investors and researchers announced the Palo Alto Longevity Prize. The latest attempt to crack the code of life will award US$1 million to teams of scientists that demonstrate a reversal of the ageing process in test animals. About 10 teams have already signed up. If they succeed, just be sure you don't end up outliving your investments.
Kiatipong Ariyapruchya heads the Capital Market Research Institute at the SET. He holds a PhD in Economics from Columbia University, New York.