Continuing my previous post on excerpts from Tim Koller’s recent interview podcast that offer some wisdom for sustainability professionals.
- On corporate culture around risk:
“One of the biases that many large companies have is loss aversion. They weigh losses much more than gains. As a result, they’re unwilling to undertake investments that are risky but that may have massive payoffs. One of the techniques you can use is to look at investments as part of a portfolio, rather than the risk of an individual investment. You find that when you look at your portfolio projects, the overall risk is a lot lower…
Another big bias that companies have is confirmation bias, which involves looking for data that confirms what they want to believe rather than disconfirming it.”
My take: Sustainability CapEx planning runs into the loss aversion wall frequently. One way to help counter this is to show the dollar value of other corporate sustainability initiatives – even those not involving CapEx – to break the perception (i.e., confirmation bias) that sustainability doesn’t create returns.
- On flaws of capital markets:
“What I’ve learned over the years is that the stock market is very good at valuing companies for the most part, but there are times when the stock market gets it wrong.
… there are times in certain stocks—not for the market as a whole—where a group of investors might be buying without doing any of the numbers. They’re excited because the company is in the news. Well, that pushes up the share price. Then you’ve got professional traders who trade on momentum pushing up the share price. Then you’ve got big funds that are concerned they don’t have those hot stocks in their portfolios, so they buy the shares…
To me, retail investors typically don’t get their computers out and build a spreadsheet to figure out whether they should buy a company’s shares or not.
They buy it based on what people are saying, what the news says, or whether it’s going up or not. So when you have a lot of retail investors in a stock, that’s typically a sign that maybe there’s an imbalance in the way the stock is being traded and to be cautious about that. One of the things I’ve learned: Markets are not as perfect as I thought they were.”
My take: Sustainability professionals should not look to the capital markets for value justification. Focus on business fundamentals.
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