When contemplating if a sustainable Earth is possible, utilising some fundamental concepts from science and economics provides an interesting perspective for insight into investment opportunities, starting first with the ecology concept of carrying capacity. Carrying capacity sets out to answer the question for a single species in a defined space: is there a maximum number of individuals for that species that can be supported by its surrounding environment? One of the most often cited examples is the moose population on Isle Royale. The island in Michigan, United States, is a designated wilderness environment that can only be accessed by boat. Analysis of the moose population shows that its size is directly connected to vegetation and predator levels of the island.

The idea of environmental sustainability expands on this island view of carrying capacity by viewing the Earth, from outer space, as an island.

Earth: an island in space

Viewing the Earth as an island then implies it has limited resources to support a maximum population. If that's the case, then one might wonder how life persists with limited resources available. This is best answered by considering a fundamental scientific principle - The Law of Conservation of Mass, which states that mass is neither created nor destroyed in a chemical reaction, only converted. Based on this principle, it means all matter needed to live on Earth must come from something on Earth. So, we must, therefore, recognise as a collective society that the Earth has a finite amount and fixed number of resources (e.g., mass) to share amongst all living things. These resources form a common-pool that everyone can use, but once consumed, they are unavailable for others. If resources are only taken from this pool and not replenished, they would eventually run out. However, Earth has natural recycling processes like the water cycle, carbon cycle, oxygen cycle, and other biogeochemical cycles that help make used resources reusable, although these processes require time to complete.

On the surface, this makes it seem like sustainability is possible. For Earth to be sustainable, the rate of resource consumption must not exceed the rate at which they can be recycled. This balance is crucial for sustainability, but it becomes complicated by the 'Tragedy of the Commons'. This economic theory describes how individuals, if given unregulated access to a shared resource, tend to overuse it, depleting the resource at a rate faster than it can regenerate.

A classic example is overgrazing of a village's common, shared grassland. If too many sheep were placed in the field by each villager resulting in the grass being eaten faster than it could grow back, it would ultimately result in a sheep population that could not be supported by the field. The 'Tragedy of the Commons' highlights that if a common resource is left unregulated then the potential for it to be overconsumed is highly likely. The challenge of sustainability, therefore, lies in finding ways to ensure that consumption of a common resource does not surpass Earth's or technological ability to recycle these resources, ensuring they are available for future use.

The investment case for sustainability

So, what does viewing the Earth as an island with a common-pool of resources mean for an investor? Investors should:

1. Consider the systemic risk of their holdings to overconsumption and evaluate holdings from a systemic impact perspective;
2. Consider the environment as an asset in long-term models of investments; and
3. Consider investing in firms that are taking proper steps towards ensuring a sustainable economy to protect the long-term value of their holdings.

A clear investment case emerges for companies thoughtfully considering the use and reuse of common-pool resources. Saint-Gobain, a global building materials company, aims to become the worldwide leader in light and sustainable construction. Operating in 76 countries with 160,000 employees and generating revenues close to €50 billion, the company is driven by its mission to "make the world a better home". It is particularly influential in the realm of low-cost homebuilding and renovation, addressing the needs of expanding populations. Saint-Gobain's integrated solutions offer numerous environmental and social advantages, such as enhancing energy efficiency, reducing embedded carbon, optimising the use of natural resources, and improving the thermal, acoustic, and safety features of homes, all while maintaining affordability.

In the context of circularity, the construction industry is notorious for its substantial environmental footprint, responsible for 40% of solid waste and nearly 50% of natural resource consumption. Saint-Gobain is actively working to mitigate these impacts with several initiatives aimed at enhancing sustainability. The company has adapted its factories and manufacturing processes to utilise recycled inputs and collaborates with governments to improve the collection of recycled materials. A significant portion of its products, including plasterboard, glass wool, and flat glass, are infinitely recyclable, reinforcing its commitment to sustainable practices.

Saint-Gobain not only adheres to best practices in the building materials sector but also gains a competitive edge as sustainability becomes a more integral factor in consumer decisions. The company has noted a rising customer interest in Environmental Product Declarations (EPDs). Utilising EPDs, which rely on Life Cycle Analysis, Saint-Gobain can benchmark its products against competitors and establish itself as a leader in sustainable construction. By issuing EPDs, Saint-Gobain Glass supports clients such as architects, engineering firms, and general contractors who aim to secure building certifications like Leadership in Energy and Environmental Design (LEED), Building Research Establishment Environmental Assessment Method (BREEAM), Deutsche Gesellschaft für Nachhaltiges Bauen (DGNB), among others.

With an eye to the future, Saint-Gobain is also designing its products and construction solutions to be easily separated in the event of deconstruction. It has a 2030 target to reduce non-recoverable waste by 80% and reduce virgin material consumption by 30%, and currently more than 50% of sales are generated by products covered by verified life-cycle assessments and environmental product declarations with a 2030 target of 100%.¹ This forward-thinking approach not only enhances its investment appeal but also solidifies its role in promoting sustainable practices in high-impact sectors like construction.

This is exactly the type of strategy that we look for in companies that we consider having strong investment appeal. We find that companies that solidify their role in promoting sustainable practices have strong, long-term potential to deliver financially material advantages to investors.