Recently, my Aunt Rhonda Holmes (who along with her brother Peyton is heir to the throne of Russell Hawkes Associates, Inc.) sent me the following inquiry in preparation for the launch of their blog:

Guide me through my first few posts and confer with me about what sustainability is to you.

So, in this post I am going to try to tackle the latter question of what sustainability is.

First, let’s be clear what we’re talking about here:  Financial Sustainability is quite different, albeit perhaps related, to the “Sustainability” that so-called “left-leaning” political activists talk about.  In significant portions of the “green movement,” for example, “sustainability” includes large government programs and very complex and stringent market regulations.

My anarchist sensibilities find government, and big government in particular, to be…. well, quite unsustainable.  I’m moderate enough, however, to make room for the notion that, on a temporary / restorative basis, these kinds of programs might lead to adoption of sustainability as a model in the private sector.  I am convinced that ultimately, sustainability is the most profitable maxim.  That’s really what we’re talking about here.

Among my major influences on this point are Gary Hirschberg, CE-Yo of Stoneyfield Farm, maker of this blogger’s favorite Yogurt.  Hirschberg says:

Ecologically sound practices are also economically sound over the long term….. saving the planet can prove profitable in both a fiscally narrow sense and in a much broader context of job creation and greatly expanded economic development.  Addressing climate and environmental challenges will give twenty-first-century businesspeople and ordinary citizens the chance to grasp what Pogo called “Insurmountable opportunities,” possibilities that may exceed anything humankind has ever seen before.

So, how does a fee-only financial planning firm grasp this and turn it into a (re)workable business model? I have identified nine points that, to me, reflect sustainability in the financial context:

1. An articulated analogy to a natural / organic process.  “Nature,” as difficult to define as it may be, has some distinct properties:  It is a closed, renewable system that reuses all waste in part of another process across the system.  Resources tend to stay relatively local, especially over the short term.  There is no natural analog for the sweatshop, the private prison, or the monoculture farm.  Nor for the payday loan, the short-sell, or fiat currency.  These models and the economic assumptions that underpin them are unlikely to survive.
2. A model that, left unimpeded, will not destroy itself in the foreseeable future.  Fossil fuels, deadly drugs, machines of war (but not necessarily truly defensive weapons) and toxic foods all destroy both their own means of production and their own customer base as they operate.  Thus, these models require new exploitable resources and desperate customers to be sought.  We are approaching, or may have just arrived at, the end of the line in this regard.  Thus, renewable energy, mechanical water purification, plant or fungus-based remedies, and wholesome if basic foodstuffs are likely to be increasingly profitable in the future.
3. A distribution system that requires little or no long-distance transportation.  The combination of increasing travel costs with rising wages in the developing world will work together to make the universal “Made in China” sticker dysfunctional, and businesses that rely on it will follow suit.
4. Open source everything.  The jury is no longer out on this matter.  Whether you find the open source movement frightening or inspirational, it’s clear that it’s not going to be stopped or satisfied until the closed-source model is no longer mainstream.  Expect open-source operating systems to have a majority market share in 15 years or less, and copyright laws to breakdown worldwide within a decade after this.  To (distantly) paraphrase John Gilmore: the open source movement instinctively interprets ‘intellectual property’ and censorship as damage and seamlessly routes around them. Business models that aren’t prepared for this will choke.
5. Ultra-local.  If your clients can be invested down the road, and collect their dividends in the form of staples like food, home maintenance, energy, clothing, etc., their retirement will become much more literal and visible.  Wars, recessions, and collapses in faraway countries will have much less impact on the sustainable client’s ability to survive and even to give back.
6. Independence from but awareness of government bureaucracy. The sustainable model is one that won’t blink an eye if the government fails or falls.  That said, while the government remains part of the equation, it stands ready to lobby and mobilize around its needs and against state incentives to unsustainable competitors.
7. Creative relationships with customers. Why have the US auto makers failed?  Why did Sega buckle?  How did Facebook emerge from total obscurity to become one of the most profitable websites in the world?  The sustainable model generates part of its content in the boardroom, and part of it in the chatroom.  When customers are in charge in a very real way, fewer resources are needed to produce products that satisfy and sell.
8. Conscientiousness. Some assets might seem to represent a sustainable model, but not even know or proclaim it.  Others might claim sustainability, but have major holes. These are unacceptable.  The sustainable model is self-aware.  Look, for example, to foreign bonds from small or medium-sized nations that have a booming and growing green energy infrastructure, a very small prison system, and powerful institutions of higher education.  These will be major economic powerhouses in the future.
9. Balance.   One thing that won’t change is the need for portfolios that have eggs in a wide array of baskets.  Some businesses, sectors, and governments will still wax and wane, and even fail from time to time.  Thus, the general notion of a highly modular portfolio under the care of a fee-only advisor is ever more sensible.

That’s about it.

Feel free to comment (as always) and also look for follow-up at the up-and-coming blog, Invest With Awareness.