Sustainable Investing: From Possibilities to Probabilities

By Joe Keefe, President & CEO, Pax World Management LLC and CEO, Pax Ellevate LLC

When industry leaders look at the future of sustainable investing, our tendency is to pat ourselves on the back for the tremendous progress we have made and make optimistic predictions about the wonderful progress that still lies ahead. While not wanting to be the skunk at the garden party, and while remaining a die-hard optimist when it comes to possibilities, I am more pessimistic about probabilities if we remain on our current course. We need to up our game.

I assume that none of us believe that the global community will adequately address climate change and other critical sustainability issues simply by continuing to do what we have been doing. And I assume that none of us believe that humanity is so smart or gifted or somehow smiled upon by destiny that global sustainability issues will naturally resolve themselves through new technologies and the inevitable march of progress. To the contrary, we will need to consciously shape a revolution in the way we do business and govern and organize societies if we are to build a sustainable capitalism capable of delivering inclusive growth. We will need a Sustainability Revolution equal in significance to the Industrial Revolution that ushered in the modern period.

This revolution is not inevitable. If you read books like Thinking, Fast and Slow by Nobel laureate Daniel Kahneman, about how humans actually make decisions, you understand that deep-seated cognitive biases often prevent us from making rational choices, as short-term, emotional thinking tends to cloud longer-term, more logical and expansive thinking. If we are being asked at the present historical moment to focus on the long term and remake capitalism and re-shape human society in profound ways, there is room for healthy skepticism about whether we are up to the task.

And the task is made more difficult by the current crisis of the public sector.

On July 4, I was in attendance as 101 immigrants from 42 countries and five continents were sworn in as new U.S. citizens at a public ceremony in Portsmouth, NH. To say that I was teary-eyed, or that the ceremony was profoundly moving, would be serious understatements. Afterwards, however, I couldn’t help but reflect on the troubling gulf between this beautiful testament to America’s promise and the sorry state of our public life. Increasing numbers of Americans, feeling left behind by globalization, technological advances and political gridlock, have lost faith in established institutions, including the media, corporations and our democratic system of government itself. We are witnessing a profound trust deficit and a breakdown of what we might call the Enlightenment consensus – shared ideals, shared notions of the truth, a belief in science, reason and democratic norms. Instead, alternative facts, a rejection of science and a rejection of truth itself characterize a new tribalism where group identities and grievances replace traditional notions of the common good.

Against this backdrop of a legitimization crisis in the public sector, we must nevertheless find a way to transition, over the next 25 years, from an industrial age economy fueled by coal and oil to a sustainable economy fueled by renewable energy, conservation, innovation and new technologies. We must also transition from a global system of haves and have-nots to a more vibrant, dynamic and just global community. As the UN Sustainable Development Goals make clear, it is not only the existential threat of climate change that we must tackle but other urgent priorities including gender inequality, extreme poverty, and access to education, health care, nutrition and clean water.

I grew up during an era when we expected a vital public sector to lead the way on such matters. The public sector is no longer vital; it is moribund. Under these circumstances, the private sector – businesses and markets, with some assistance from multi-lateral institutions and NGOs – will need to step into the breach. This is the task of sustainable investing over the next 25 years – to lead the Sustainability Revolution and usher in a new phase of sustainable capitalism, and to do so without the favorable, forward-thinking public policy environment that would otherwise be optimal.

The good news is that the transition to sustainable capitalism provides a clearer path to economic growth and wealth creation. In the year 2016 alone, employment in the solar energy sector grew 17 times faster than overall job growth in the U.S. economy and accounted for 2 percent of all new jobs. More Americans now work in the solar industry than for Apple, Facebook and Google combined [1]. Moreover, business corporations increasingly understand that the future of their businesses are inextricably linked to healthier, better educated employees, vibrant communities and ecological health. Investors, meanwhile, are embracing sustainable investing in record numbers and mainstream asset managers – Morgan Stanley, Blackrock, State Street, Fidelity – are beginning to respond.

The bad news is that financial markets are still dominated by short-term traders whose decisions often distort and undermine positive social and environmental outcomes. The business class is still overly focused on quarterly earnings and other short-term markers that fail to take sustainability concerns into account. Women still face discrimination, unequal pay and other inequities despite overwhelming evidence that advancing gender equality can make companies more profitable and communities more vital. The climate continues to warm. The recalcitrant wing of the business community, represented by the Chamber of Commerce, the Koch Brothers and others, continues to do everything in its power to oppose the sustainability agenda. Indeed, they are busy trying to take away shareholder rights as I write.

According to the 2016 US SIF Foundation Trends report, SRI assets represent approximately 22 percent of the $40.3 trillion in assets under professional management. That means approximately 80 percent of investments still fail to take into account ESG or sustainability factors. A 2016 UN PRI survey of over 1000 chief executives found that, although 88 percent agreed that greater integration of sustainability in financial markets is essential, only 10 percent cited pressure from investors as one of the top three factors driving them to take action[2]. This is insufficient. We need to alter these numbers. We really do need to up our game.

All of us should have a sense of urgency about this moment. The UN Sustainable Development Goals (SDGs) have set an ambitious agenda for where humanity and the planet need to go. To get there – to usher in the Sustainability Revolution – will require a healthy, vibrant sustainable investing industry that changes the face of investing and hence of businesses and capital markets. Despite the growing interest in sustainable investing and the continued mainstreaming we are seeing every day, however, the pace of progress remains too slow. Our current trajectory will not get us to where we need to go. The mere accumulation of well-intentioned efforts will not get us there, nor will technology and innovation come to the rescue and save us. It is not inevitable that we will achieve our goals. There needs to be a new level of intentionality and mindfulness regarding the end game of sustainable investing.

In my view, we should publicly commit ourselves to a goal of having the majority of all assets under management, and all investment inflows, integrate ESG or sustainability factors by the year 2030, which is the target period of the SDGs. This is an ambitious yet achievable goal. We can achieve it through investor education, research, shared best practices and clearer standards, through asset allocation and investment decisions, through company engagement and the development of new financial strategies, tools and products. Setting a more public goal, building consensus around it and consciously devising strategies to implement it will help get us to where we need to go. It will incentivize us to work together more collaboratively, to be more innovative and entrepreneurial, and to set a faster pace – which will ultimately be required.

We must do everything in our power to assure that sustainable investing ultimately prevails and that sustainable development is ultimately achieved. The task ahead is to turn possibilities into probabilities.


Article by Joe Keefe, President and Chief Executive Officer of Pax World Funds and its investment adviser, Pax World Management LLC, as well as its majority-owned subsidiary, Pax Ellevate Management LLC.

Under Joe’s leadership, Pax World has become one of the leading innovators in the rapidly growing field of sustainable investing. Prior to joining Pax World, Joe was President of NewCircle Communications, a strategic consulting and communications firm specializing in corporate social responsibility and public policy-oriented communications. He served as Senior Adviser for Strategic Social Policy at Calvert Group from 2003-2005 and as Executive Vice President and General Counsel of Citizens Advisers from 1997-2000. He is a former member of the Board of Directors (2000-2006) of US SIF, the trade association representing asset managers and investors engaged in sustainable investing throughout the United States.

Joe is a leading advocate for investing in women and the critical role that gender diversity plays in business success. He was one of the founders of the Thirty Percent Coalition and the first chair of its institutional investor committee, whose work has led to women joining over 100 previously non-diverse boards. He is Co-Chair of the Leadership Group for the Women’s Empowerment Principles, a joint program of the United Nations Global Compact and UN Women, and in 2014 was honored at the United Nations as one of five recipients of the Women’s Empowerment Principles of Leadership Award. He also serves on the Board of Directors of Women Thrive Alliance, a global network of over 230 member organizations working to achieve gender equality.

Joe has been named by Ethisphere magazine as one of the “100 Most Influential People in Business Ethics” five times, was recognized in 2012 by Women’s eNews as one of “21 Leaders for the 21st Century” (where he was the sole male honoree,) and in 2015, Financial Times named him one of its 10 “top feminist men” for his work helping women succeed in business and beyond. In 2016, Joe was named the University of New Hampshire’s “Social Innovator of the Year” and received the Global Leadership Award from the World Affairs Council of New Hampshire.

Article Notes
[1] “The Transformation of Growth,” Generation Foundation, June 2017
[2] “What Do the Sustainable Development Goals Mean for Investors?”

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Comments (3)

  • I studied engineering at Cambridge, and a quirk of history made it possible for me also to study economics. After a short time working as an engineer, I trained as a Chartered Accountant with Cooper Brothers and qualified as a Chartered Accountant in 1965. I learned something about measurement, about systems and about management during my education and early in my career. For all my adult life I have watched decision makers at the top of the system trying to make good decisions about complex issues using a system of metrics that is almost exclusively about GDP growth, financial profits and stock prices. This cannot work … and essentially it has not worked except for those already endowed with wealth or controlling it. Society has not been important and the environment almost totally ignored. What we need are metrics that are as rigorous about society and the environment as the metrics we have for financial performance. We need to be accounting for the impact on social capital and natural capital as well as financial capital. And we need an ecosystem for society and environment that is as creative and as robust as the ecosystem for finance! When the banking system was facing imminent collapse, around $4 trillion of new money appeared as if by magic and the system survived, We need to pull the same trick to finance what is needed to solve the world’s social problems (guided maybe by the SDGs) and to remediate the environment and address the issues associated with climate change. The limiting factor is NOT the amount of financial money, but the availability of meaningful solutions and people to implement them now and into the future. We should be able to create ALL the credit we need in order to mobilize everyone to solve the problems that need to be addressed. The possibilities are huge … exciting times
    Peter Burgess

  • Joe:
    Thank you so much for putting your and our same thoughts into words so eloquently. Let’s hope the world listens and gets the “big idea” before it’s too late. It will take a concerted effort and it won’t be easy. What we’re seeing is a last ditch effort to keep the status quo in place. The establishment is going down, but they’re doing some kicking and screaming and creating havoc along the way. However, SRI is on a roll, is a near perfect solution, and the trend is growing. But will sustainable capitalism grow quickly enough? Time will tell, but there is hope! As we like to say “Together we can!” And we must keep our eye on the prize. The natural world is a wonderful and beautiful thing that must be preserved and not destroyed in the process.

  • One of the key challenges to progress such as you describe, Joe, has been a lack of clarity about the end game and our position on the field. Your call to action is a great service. Let’s do what Joe suggests, and reset for radical leaps forward, folks! Again, thanks to the uncompromising GreenMoney for being the forum for true leadership. Elsie

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