Sustainicity: a recent example

I am sometimes puzzled by the challenge of explaining the idea of "social capital" to the very smart people I know who earning their livings by thinking about clever ways to redeploy financial capital. When complex mathematical models are used to explain how investments have performed in the past, there does not seem to be any limit to the ability to synthesize complex variables and predictive statistics.  Tinkering with models to limit such recent nastiness as "tail risk" continues to be a legitimate way forward, with "past performance no guarantee of future results."

Mercifully noted.

Truth-be-told, many sophisticated investment consultants; the folks who, for substantial fees, advise investment committees for pension funds, college endowments, foundations  and the like, are puzzled by the ideas that link financial performance with social outcomes.  The idea that an investment's impact on society could be predictive of its ultimate return is met with indulgent sighs.  A nice idea perhaps, even desirable in a Panglossian  "best of all possible worlds..."

We do live and invest in this world, as I am frequently reminded by savvy investors. The societal impact of business activity and capital allocation belongs to the realm of social scientists, policy makers and preachers.  To spend time modeling social outcomes and relate them to financial outcomes is often viewed as politically naive or impossibly complex.  Or as a cynical attempt to monetize morality.

I disagree.

And apparently so does the American Academy of Pediatrics, which recently published policy guidance on the long term impact of childhood stress---the kind that arises in communities weakened by poverty and other "negative externalities," as the economists like to call them.  The guidance begins with Frederick Douglass' sage observation, "It is easier to build strong children than to repair broken men."

http://pediatrics.aappublications.org/content/129/1/e224.full

A spot on synopsis of the report was provided in a recent column by Nicholas D. Kristof,

http://www.nytimes.com/2012/01/08/opinion/sunday/kristof-a-poverty-solution-that-starts-with-a-hug.html?_r=1&ref=nicholasdkristof

This sort of thinking explains nicely why Adam Smith wrote The Theory of Moral Sentiments (1759) before his more frequently cited (An Inquiry into the Nature and Causes of) the Wealth of Nations (1776).

Adam Smith may well have appreciated sustainicity.