Raunak Onkar | raunak@ppfas.com
Yesterday while reading I stumbled upon the word ‘Sustainable’. It means, ‘to endure’. So for my curiosity I just did a wikipedia search on the term ‘
Sustainability‘. What jumped out was a list of all the words associated with it. Sustainable development, sustainable systems, sustainable living, and so on. There were thousands of entries related to sustainable <something>. But what amazed me is that there wasn’t a single entry which dealt with sustainability in Finance. Is the finance profession so unsustainable that everything in the world has a sustainable prefix except finance?
So what exactly can be sustainable finance? For me, sustainability in finance is the ability to sustain in the long run with my original net-worth intact. In short, survival of my principal. This doesn’t just apply to the field of money management, but also applies to any field remotely related with money – banking, trading, financial planning and other financial services.
Tonnes of paper has been spilled over on the idea of sustainable living and its one of the buzz words these days, similarly a lot of research has also gone into the idea of how to survive in the world of finance. The most obvious lesson I can think of is, learning about money. In short, learning about the ways money can be compounded over a long period of time, with a decent rate of return & minimum risk. If this lesson is so obvious, why is money also a source of misery, why do booms and busts occur, why do we need a regulator to protect investors, why can’t we just learn this simple lesson and make sure that we invest money wisely?
The whole outrage of sustainability has begun due to the apparent excesses of the human race in abusing natural resources. We have certainly evolved into a much better civilization, but with a total disregard towards our natural environment. Has something like this been happening in the field of finance too? Have we over reached our bounds and created an unsustainable financial environment for ourselves? We very well might have, since we see a lot of tears flowing over money lost in the markets. Probably it might be because the market has been usually looked upon from a wrong perspective.
The market is nothing more than an environment which facilitates us to transact, when we want to, in assets which has some monetary value. Just like natural resources aren’t unlimited (except for a few renewable one’s), financial resources are also limited (except printable currency notes). Most of us just have a limited networth to use and when we aren’t using all of it we would like it to be invested and growing.
Due to availability of various ways this wealth can be compounded, most of them are complicated and are based on specific needs of the market participant (like a lot of derivative products). Most of them aren’t useful to our friendly neighborhood investor/saver. But the lure of exploiting such a source of high returns is so high, that most of us get greedy and go beyond our limits to put our money into such products. This makes the whole process of investment unsustainable, since we have managed to over reach our need for risk. But the irony is that, if we make a lot of money out of it, it doesn’t seem unsustainable at all.
So I think to make finance sustainable, we need to stick to our objectives of investing, our appetite for taking risk and following the law of the farm.
