The Deeper Meaning of Sustainable Investment

This article appeared this morning (April 3rd) on the Green Biz website. (Adapted from The Nine Elements of a Sustainable Campus (The MIT Press, 2014)

Green Biz has an outstanding newsletter. I follow it to see what progressive-minded businesses are doing in regard to sustainability. 

There are two crucial obstacles that limit sustainability initiatives on college and university campuses. The first is financing and capital investment. The second is organizational process. I experienced these issues first hand when I was the president of Unity College from 2006-2011. Since then, in my capacity as the Director of the Presidential Fellows Program at Second Nature, I have visited several dozen campuses and spoken with many several hundred senior leaders on other campuses. I am convinced that these challenges are ubiquitous.

Almost every campus I visit is legitimately concerned about its finances.  In this report, I’ll focus on capital investment and suggest that if more campuses broadened how they conceive of wealth they might find that their resources are not as limited as they think.

Let’s start by reconsidering the meaning of sustainable investment. From a strictly financial perspective, it suggests that the campus endowment will be more oriented toward ecologically and socially responsible equities. Or that campus budgeting will give priority to energy efficiency and conservation. Campus leadership will investigate and implement financial incentives to stimulate comprehensive, ecologically sound approaches to energy, materials, and food infrastructure. The campus will work with the regional community to develop sustainability markets, serving as a dynamic economic multiplier for sustainable businesses. More broadly, campus sustainable investment implies ways of reconsidering all of the institution’s capital assets.

We often conceive of investment as a financial term implying the exchange of current income for future assets. However, in common parlance “investment” has a broader meaning. We use it to convey the amount of time we are willing to spend doing something in the hope of a future reward. As individuals, we think about the resources we are willing to commit to a project or process. These resources might include time, money, knowledge, talent, and effort—a range of abstracted or tangible qualities that coordinate our personal assets. Surely the cost-benefit analysis of an investment goes way beyond a simple financial assessment.

The concept of investment can be similarly expanded for institutions, especially colleges and universities. The endowment is the repository of the system’s financial capital, reduced to an investment portfolio. The assets (time, money, knowledge, talent, effort) of a system transcend this financial reduction, although a financial equivalence is always presumed. When institutions engage in planning and thereby balance present needs with their anticipation of the future, they have comprehensive discussions about the deeper meaning of investment. On which projects should we spend time? In what ways will our present efforts be rewarded tomorrow? How do our knowledge contributions manifest themselves in future outcomes? How should we be spending our money?

But there are other ways to assess an institution’s capital assets if we broaden the meaning of capital. For example, several prominent ecological economists use the term natural capital to signify “the goods and services from nature which are essential to human life.” Robert Costanza elaborates:

“Natural capital is the extension of the economic notion of capital (manufactured means of production) to environmental goods and services. A functional definition of capital in general is “a stock that yields a flow of valuable goods or services into the future.”

Similarly, we can distinguish social capital as an important campus asset. Lew Feldstein and Robert Putnam describe social capital as “the collective value of all ‘social networks’ (who people know) and the inclinations that arise from these networks to do things for each other.” Campuses also have significant     intellectual capital in the form of the collective knowledge of their students, staff, and faculty.  

How might a campus assess, organize, project and even measure sustainable investment by considering wealth and capital in these terms? When you consider this broadened approach to capital (natural, social, intellectual, and financial), you realize that college and university campuses have an extraordinary variety of assets. If you measure a campus’s capital assets in exclusively financial terms, you overlook other forms of wealth that are additional prospects for sustainable investment.

Financial capital is the standard measure of a campus’s financial health. A package of comprehensive ratios serves as the foundation of best-practices financial assessment—viability ratio, primary reserve ratio, and net income ratio as calculated through expendable net assets, plant debt, total revenues, total operating expenses, total non-operating expenses, and change in total net assets. These ratios reflect an assumption that wealth is best measured through its representation as money.

What happens when we assess a campus’s wealth by considering the other forms of capital? Although there have been several attempts to measure intellectual capital as a campus’s asset, these mainly focus on standard academic productivity criteria—publications, collaborations, research grants, credits, courses, and other ways of verifying knowledge production. A similar approach could be used to organize, catalog, and understand campus sustainability initiatives—sustainability as knowledge production. The most conventional way to do this would be to use the proposed knowledge production as a base layer of measurement, and then apply knowledge production to all academic projects that are oriented around sustainability research, teaching, and service. This is an asset in the sense that it adds value to the institution’s prestige and research, leveraging its potential to develop conceptual breakthroughs in the sustainability field.

Colleges and universities rely heavily on promoting social capital as a means to enrich campus life, stature, influence, and effectiveness. Campus life is typically rich with affiliations, clubs, networks, and associations. The desire to increase one’s social capital is a primary reason for attending a college. Sustainability advocates often promote social capital by emphasizing community partnerships. Most of the sustainability initiatives on a campus, including food growing, recycling, energy efficiency, collaborative research efforts, and service projects, typically involve people working together to improve campus life. Pick up just about any college’s catalog (or peruse just about any college’s website) and you are likely to see photos of happy and engaged people working together on sustainability projects or in sustainability programs. The social capital accrued through campus sustainability adds to a campus’s wealth.

All campuses have natural capital assets. Natural capital is typically interpreted as the visual appeal of a campus’s landscape (“please visit our beautiful campus”) or as a campus’s exceptional location (“our campus has easy access to the diverse cultural resources of our city”). Campuses are built environments in natural places. They may be “endowed” with energy assets (solar gain, wind, geothermal), ecological assets (habitat, farmland, wetlands, watercourses), wildlife, and all of the intrinsic values and services of the ecosystem. Ecological economists refer to these assets and functions as ecosystem services. These include services related to provisioning (food, water, minerals, energy), regulating (carbon sequestration, waste decomposition, air and water purification, crop pollination), supporting (nutrient dispersal and cycling, seed dispersal, primary production), and culture (inspiration, recreation, scientific discovery).    

What I wish to convey here and what I often suggest to campus leaders is that sustainable investment entails an understanding that wealth, assets, and capital come in many forms. There are diverse ways for a campus to invest in a sustainable future and it can do so more effectively by broadening its understanding of value. By doing so, it more comprehensively coordinates its approach to wealth, helps the entire campus understand how it contributes to that wealth, and builds a renewed sense of optimism in the value of sustainability, one that goes beyond mere finances alone.