“I believe Costco does more for civilization than the Rockefeller Foundation. I think it’s a better place. You get a bunch of very intelligent people sitting around trying to do good, I immediately get kind of suspicious and squirm in my seat.” - Charlie Munger
After years of relative prosperity, we tend to take things for granted and look for new problems. I encourage looking for new challenges but taking things for granted is dangerous. In the last few years, we have rightfully worried about our environment, society, and inequality but our approach to solving these challenges is becoming misguided.
Critics increasingly blame firms and capitalism for damaging the environment and for causing inequality. They want businesses to focus equally on all stakeholders. Some even demand firms to put the environment, employees, and society before customers and owners.
Many investment managers have started so-called SRI/ESG funds where they filter companies primarily or solely based on sustainability criteria either because they believe in it or because they see a demand for it. In my experience this is done poorly because the approach is flawed and because sustainability data is incomplete and unreliable.
People rightly want positive change but making such demands and approaching the challenges this way is dangerous and counterproductive for sustainability, investors and society. The key to success is to have the right focus. If a firm is to contribute to society and the environment, it first needs to be a sustainable business. And businesses are only successful if they focus on creating customers, serving their needs and creating wealth for their owners.
When businesses do that well, they can have a massively beneficial impact on society and the environment because capitalism creates competition and forces them to allocate resources effectively. Technology firms are prime examples. Our quality of life would be far lower if it were not for companies like IBM, Microsoft, Oracle, Google, Amazon, Apple, and Facebook. Yes, they use a lot of resources but think about the amount of time, travel, energy, and resources they save every day by enabling us to create, store and share information and by empowering us to work together effectively. Think about the jobs they create directly and more importantly indirectly.
I am sure when Steve Jobs and his team invented the iPhone, when Google reinvented search and when Mark Zuckerberg started Facebook, environmental sustainability was not their highest priority. They unleashed productivity for billions of people and millions of businesses, created massive new industries and millions of jobs. Due to their success, they have also been able to significantly improve their environmental sustainability as well as to lift entire industries.
Recently the coronavirus forced us to stay and work from home. Some pointed out that the environment has been recovering and flourishing because of that. That may be correct, but the conclusion is not to do less business but rather do business more intelligently because less business also means less productivity, less progress, and a lower quality of life over time.
Companies that score poorly on environmental and social sustainability are often those that can least afford to act responsibly because their businesses are not sustainable. These firms typically have commodity or commodity-like products where competition is primarily based on price - think of mining, energy, transportation, basic food, clothing, etc.. Unfortunately there are no easy solutions here. Governments have to agree on and enforce international sustainability standards and consumers have to pay more for their products because these businesses simply cannot operate sustainability and survive otherwise.
At RICHTWERT CAPITAL, my investment focus is primarily on business sustainability because I know that this translates to sustainability for all stakeholders. Allow me to share with you what I see from a sustainability point of view when I look at our businesses because as a shareholder/business owner, I could not be more delighted:
Our portfolio companies provide patient capital to businesses and improve their productivity.
They invest in and maintain critical infrastructure and they generate massive amounts of clean and renewable energy for their own operations as well as for others.
They provide mission-critical IT infrastructure and software applications vastly cheaper, faster with much higher security and reliability to companies and organizations around the world.
They enable people and businesses to connect, to have a voice, to organize behind great causes, to reach customers and loved ones effectively, to lower costs and save money, to be more productive, to manage risks effectively, to remove friction from commerce and to create millions of jobs.
They put the health of people in their own hands and help them lead healthier lives.
They increase choice and affordability, help customers find what is most relevant to them, help people find jobs and partners, and they entertain us.
They advance artificial intelligence and make them accessible to businesses and people.
They lend money to people who have been left behind without access to conventional financing.
They help us sell unwanted products and thereby reduce waste and pollution as well as save resources.
They help governments, health care professionals and helpers to see and understand where and to what extent infections (like the coronavirus) have and are likely to spread, so that resources can be deployed effectively to save lives and help us get the economy restarted faster.
They even completely reinvent transportation and the entire food value chain.
On top of all that they look after all stakeholders because they can afford to and because it makes sense to do so.
My appeal goes to you as well as to everyone in media and education because you have a crucial responsibility in helping people form well-informed opinions:
Let us be clear on cause and effect so that we don’t put the cart before the horse.
Let us not allow ourselves to discuss the adverse effects of something without also considering its benefits.
Let us inform people so they can be thoughtful customers who guide businesses with their consumption.
Let us teach people the necessary skills to work for innovative companies and to earn an attractive living.
Let us educate people so they can invest and benefit from capitalism with their savings to reduce inequality.
And let us celebrate businesses and capitalism for what they do best by continuing to focus on customers and owners first.
In turn, businesses will continue to succeed and serve society as well as the environment while providing us with the means we need to solve our challenges. Most businesses and certainly ours at RICHTWERT are delivering for all stakeholders. It is time we do as well by celebrating and encouraging them and capitalism to do more.
Bahram Assadollahzadeh, CFA
May 2020