Optimizing across to many objectives

I have spent some time in the sustainable investing world and, while I am net positive on its contribution to both longer term investment returns and better planet, I am often struck by the number of constraints that a sustainable investor might seek to impose on a company.

It is not to say that Milton Friedman’s ‘social responsibility of every company is maximize profits’ is where I wish to return.

But consider a renewable energy company that has a mission of:

• Reducing power prices
• Providing firm (rather than intermittent) renewable energy
• Providing jobs
• Reaching a renewable energy target

And the fifth, unspoken, is to be financially sustainable.

So we have a five objectives problem.

How do we weight each of the objectives? Which is more important? Are there instances where there is no optimal path?

I think about these multiple in terms of a) could you build an optimization program to solve for the optimal pat, b) what would a deep corporate strategy look like if built by a group of bright and enthusiastic people and c) how would a competitor attack a company with multiple objectives?

In ‘Inadequate Equilibria’ by Eliezer Yudkowsky, he explains that it is hard to find a profitable entry into markets that have only one objective. The issue is that the existing companies are constantly optimizing and re-optimizing to this one objective. Think hedge funds picking stocks on the New York Stock Exchange.

But find an area where there is multiple objectives and you may be able to push into one objective that is under-serviced due to the nature of optimizing to multiple objectives.

So renewable energy might be – bring firm clean energy to the market at any cost or go for the cheapest generation you can find. The implication is that you may not hit a target or create many jobs.

Financial sustainability may be not be an objective but rather an assumption which has to be re-tested.

Investors may be hobbling companies and exposing them to unnecessary competition but seeking multiple objectives.