Is Corporate 'Sustainability' Predictable?

Given the professional culture of the financial community, it is not surprising large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot.”

DANIEL KAHNEMAN“THINKING, FAST AND SLOW” (2011)

Predictive Judgments and Corporate ‘Sustainability’

This Letter was sparked by two catalysts. The first was my reading of two books: 1. Michael Lewis’ new book on the quest of psychologists Daniel Kahneman and Amos Tversky to understand how we make decisions (“The Undoing Project”), and 2. Kahneman’s earlier, more challenging book “Thinking, Fast and Slow”. The second catalyst was an extended expert email exchange related to making predictive judgements about corporate ‘sustainability’. This exchange challenged me to clarify my own thinking on this question, and do so below.   

Let me state up front why I believe making predictive judgements about corporate sustainability is such an important topic. John Maynard Keynes captured the essence of it by defining investing as turning  financial savings into wealth-producing capital. Taken seriously, this cannot be a short-term thing. It   requires predictive judgments about returns on capital, and about the successful design, implementation, and management of corporate capital capable of generating those returns, all with an eye on fostering long-term (i.e., sustainable) wealth-creation. Investors who take this definition of investing  seriously require mindsets and tools very different from those who continue participate in the trading-oriented short-termism culture that still dominates much of today’s investment community.