I read two articles that signal more long-term thinking, which in my mind equals greater sustainability. They are not new ideas, but rather reminders that are reflective a potential shift that may be happening in today’s markets, businesses, and in people’s consciousness. Both ideas involve setting aside money periodically (let’s say each month) to help fund a goal.
Andrew Winston’s article on the Harvard Business Publishing website suggests that companies set aside funds to finance green initiatives and green improvements to their businesses. I am interested in real estate, sustainable development, and eco-refurbishment and have often thought that making energy efficient improvements to an existing building was necessary to avoid obsolescence. I believe that one day, installing timers and sensors for lighting, ground source heating and cooling systems, and renewable energy sources (solar panels, wind turbines) would become as necessary as repairing broken windows or a hole in the roof. That day is now. I am still told by business and property owners that sustainable methods and reco-refurbishment is expensive, but I am hearing this less often. Andrew Winston suggests something obvious – set money aside from periodic cashflows to fund green capital expenditure – save for the long-term.
I read a post on Seth Godin’s blog about an for funding new business ventures or business growth. He highlights the need for an investment exit strategy (for private equity investors, the strategy was typically grow the business then sell to a bigger business in the same industry or list the private company on a quoted stock exchange) created an inherently short-termist perspective on growing entrepreneurial businesses (investments typically spanned 3-5 years). Sourcing debt financing was also problematic as banks prefer safe investments with risks mitigated – not typically characterised by innovative businesses with new ideas. His suggested alternative was to return a portion of sales or profits over time and quite possibly into infinity. This is the good old-fashioned royalty income model, but it makes sense and encourages a longer-term relationship rather than a quick-in, quick-out investment approach.
The fast dash for cash and short term incentives characterising the first half of this decade has undoubtedly caused distress in the economy and amongst businesses and individuals. Sustainability isn’t just about the environment, it is about everything that we do including our communities, how we source funding, and how we maintain and grow our businesses. Isn’t it about time we start thinking long-term?
I originally wrote this article for the Blog Paper. The concept of saving periodically to fund the greening of a business over time fit well on my blog. The concept of royalty income or income sharing as a way of incentivising investors is a good example of sustainable finance, so I have also posted this article on Composition Advisory’s website.