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07 June 2017
United Arab Emirates
Sustainability

"Every single investment has an impact."

June 7, 2017

The series of events “Talk Sustainability – Nachhaltigkeit im Dialog” gives BASF employees the opportunity to discuss current sustainability topics with external guest speakers on a regular basis. In May Erika Karp, a renowned expert on socially responsible investments (SRI) came to Ludwigshafen. We spoke with her about the language of finance and shifting focus of the capital markets.

 

How important is it for companies to prove to investors that they are sustainable?

Erika Karp: We live in unprecedented times with a huge demand for transparency for example via the social media channels and a new generation is about to take over, having different values than any other generation before. That means that many of the different puzzle pieces of the capital markets are currently moving in one direction and that is: increasing focus on long-term goals rather than on short-sighted wins. Companies who cannot display that they are considering more aspects aside from annual revenues, will have a hard time in that scenario.

When talking about sustainable investments, people also refer to them as “ethical” or “impact investments”. What are all those terms about?

The label “sustainable” is not the easiest to work with in the world of finance. The language of sustainability is often ideological, making it difficult sometimes for the traditional broker to understand what it is about: nothing less than a way of identifying a valuable investment. One big part of my job is to translate the language of sustainability to the more pragmatic financial language, where we are talking about revenues, costs and risks. An investor systematically analyses those factors. In the case of so-called “sustainable investments”, these traditional factors are supplemented by a deeper analysis of key environmental, social and governance factors – I call them pre-financial factors – like water-related topics or questions regarding animal welfare or working conditions. But most importantly this is coupled with a basic understanding that every single investment has an impact. Investments are always directed to the future and every investment needs to analyze pre-financial factors to be valuable in the long-term.

How do you identify sustainable – or when put in other words – valuable investments?

As an investor, you first need to define and be very clear about your own values and priorities. A company might be doing a great job in labor rights or avoiding carbon emissions in production but the product they are selling is against your personal values. In that case this might not be the right investment for you. There are always trade-offs between different factors and this is when the pragmatism of the financial world comes into play. Thorough research and asking a lot of questions is crucial in finding the right company to invest in. If the company has the same priorities and values and above all, can prove this in a consistent way, they are the right choice. Ratings and rankings like the Dow Jones Sustainability Index (DJSI) are of course also quite helpful.

How does this apply to the chemical industry and how do you see BASF acknowledged in the field of sustainable investments?

The chemical industry is very complex. This of course makes it more difficult to have answers for all questions. However, if the chemical industry can get it right, I believe that they have the capability to lead the way. BASF is doing a great job in many ways. You make it clear that sustainability is at the heart of your corporate purpose and strategic decision-making. But for me it is even more important that you are showing consistency in telling that story. This is displayed by the many small projects BASF is working on, for example by offering experiments for school kids. The new tool Value-to-Society to measure the impact on society via all three dimensions of sustainability is also an interesting way of displaying that BASF is aware of the many facets of sustainability and is acting accordingly.

Birgit Hellmann
Global Sustainability Communications

About Erika Karp

Erika Karp is the founder and CEO of Cornerstone Capital Inc. The mission of the firm is to apply the principles of sustainable finance across the capital markets as an SEC registered investment advisor and investment bank. Erika is a founding board member of the Sustainability Accounting Standards Board (SASB), a member of the World Economic Forum, and an Advisor to the UN Global Compact’s Board Development Program. Erika Karp is also a member of BASF’s Stakeholder Advisory Council.

Last Update 05 September 2019