The tipping point toward sustainability as a truly compelling investment thesis won't come until pension funds and other institutional investors start to write checks of hundreds of millions or even billions of dollars.
That day may already have come, says Dave Chen, CEO of Equilibrium Capital in Portland, Ore., which counts pension funds as investors in its $250 million ACM Permanent Crop Fund and other real assets investment strategies (see “The Case for Owning and Operating Real Assets”).
In a new podcast interview with ImpactAlpha, Chen discusses how the sustainability thesis is driving interest from European, Canadian and some leading U.S. pension funds in green real estate, agriculture, timber and, increasingly, water. To basic investment concepts such as long-term value, risk-mitigation and non-correlation with the volatility of the broader market, sustainability adds an additional factor: growth opportunities.
“It is no longer about goodness and the imperative,” Chen says in the interview. “It now becomes an issue of, ‘Am I managing my assets in accordance with my desire for them to be a long-term hold? A long-term productive asset? A long-term resilient asset?'”
“So it’s not that sustainability drives duration,” he continues. “I’d say that embracing duration actually helps you understand why sustainability makes sense.”
In particular, with the California drought focusing attention on long-term scarcity, the water market is in for fundamental change, Chen says.
“The moment that water is priced as an asset, truly to market and to the regional supply / demand curve, the changes are going to be very fast,” he says. “When that happens the market will transform itself.”
In the same episode, Brian Walsh, head of corporate impact for the New York financial services firm, Liquidnet, and Imogen Rose-Smith, senior writer at Institutional Investor, join David Bank, editor of ImpactAlpha, to discuss the Pope's call for a more “inclusive capitalism.”
Equilibrium Capital is a sponsor of ImpactAlpha.