Impact investing abroad

Decolonizing one’s mind, investing in stocks, and traveling abroad are all related; trust me. Indigenous people are not primitive and resistant to modernity despite what the history books suggest. In my ancestral homeland of Hawaiʻi, there is simply no evidence that a static culture, slow to change, ever existed. In fact, our ʻIolani Palace had electricity before the White House did and our King Kalākaua was the first head of state—ever—to journey around the world. With great love for the people and aloha ʻāina (love for the land), our leaders selectively appropriated tools and systems from abroad to strengthen the nation. With the catastrophes of climate change so imminent, such aloha ʻāina needs to be the foundation of our actions—even when analyzing stocks—if humanity is to survive. This post aims to discuss how Danish society challenges unsustainable, inequitable business as usual and provides an example of how to evaluate a company’s competitive advantage on those terms.

Denmark’s forward society creates forward companies

Environmental sustainability and workers’ rights are threats to company profits from the American perspective; but these are viewed as sources of long-term prosperity by the Danish. Both the US and Denmark have highly developed economies, but Denmark’s is more resilient because its corporate environment does not incentivize short-termism the way the American system does. For example, since Denmark has had a carbon tax for decades, companies are well ahead of competitors in other countries in making the inevitable transition to renewable energy. This turns out to be the more cost effective and less price volatile solution over time. In addition, over 70% of Denmark’s workers are in unions—one of the highest rates in the world. The high representation of workers in Danish business has made Denmark a country with low wealth and income inequality and an extremely high standard of living for its people. In the US, the middle class is, unfortunately, declining causing debt fueled bubbles (i.e. the 2008 financial collapse) that put the entire economy in a vulnerable position. If it isn’t clear yet, depleting the planet and the working class is not ultimately good for business.

How to evaluate a company’s long-term competitive advantage on the basis of sustainability

Using a PESTEL (political, economic, social, technological, environmental, and legal) and SWOT (strength, weakness, opportunity, and threat) analyses, a company’s long-term ability outperform competitors for years to come is assessed with special attention given to sustainability components (often ignored in US stock analysis). It is important to realize that climate change poses very real financial threats to companies. So, when conducting investing research, be sure to answer the following questions in your evaluation:

· Does the company rely heavily on natural resources to produce its product / service (e.g. cotton for clothing companies or wood for furniture companies)?

· If yes, does environmental collapse make access to these resources more expensive (e.g. lower cotton yields due to super pests)?

· If customers were to gain visibility into how the company treats its workers (throughout its supply chain), would this hurt its brand/reputation and reduce sales?

· Does the company have an ownership or organizational structure that supports innovation and long term strategy in sustainability and equity (e.g. mostly owned by founders who care about more than quarterly earnings, workers representation on the board of directors)?

· Are there legal changes that will occur related to environment that will impact the performance of the business?

Using Carlsberg Group as an example

Carlsberg Group brews several brands of beers; it is one of Denmark’s largest companies and is taking on several ambitious sustainability efforts. As a global giant, Carlsberg faces challenges, as alcohol consumption is trending down and craft beers rise in popularity. The below charts assess the future outlook for the company both through a “traditional” and sustainability lens.

PESTEL analysis

Political

• is relatively unharmed by US trade protectionism since its primary markets are European

• has current free trade arrangements for its exports to UK that may be altered by Brexit

Economic

• has ambitions to innovate in sustainability that may be dampened by Denmark’s skilled labor shortage

• faces more difficult expansion in emerging markets as these countries face slowed growth (e.g. China)

Social

• is proactively addressing the decline in alcohol consumption by providing non-alcoholic varieties

• faces challenges as customers increasingly prefer micro-brews over mass produced beer

Technological

• is headquartered in a country (Denmark) that is conducive to its efforts to innovate in sustainability (e.g. increased renewable energy sources and decreased water usage)

Environmental

• embraces innovation in environmental sustainability

• faces barley shortage due to climate change

Legal

• is well prepared for climate related legislation/activism due to the company’s carbon neutral goals

Conclusion

An indigenous scholar of the University of Hawaiʻi, Dr. Kamana Beamer said, “The dichotomies of the "traditional" and "modern" are false. They compose the conceptual shackles, which preserve Hegemony”. The US constantly attempts to place indigenous people in the past, but when I’m in Denmark, I feel I’m free of such shackles and am in the future. I’ve built a much more tangible relationship with Scandinavian society and ways of doing business. Before this point, I had only analyzed US company stocks. Now, I’m more aware of the possibilities that exist for a better world and how to participate in them through finance.

Although this and many Danish companies score well in sustainability, it is important to note they are still not perfect. The information provided here is a starting point to serve as a guide.