Socially Responsible Investing

Make money. Save the planet, too.

May 6, 2010

Like most big problems, climate change will require big solutions. Governments and business will have to make massive investment in clean energy–$45 trillion between now and 2025, says the International Energy Agency. This could make some people very rich. Wall Street, are you listening?

dbmsgDeutsche Bank is. No financial institution has done more to promote investment in climate change solutions than Deutsche Bank. In 2007, it started a unit called DB Climate Change Advisors that has produced path-breaking research and developed products for institutional investors. The bank has also said—loudly and often—that climate change is a crisis that needs to be addressed. That huge digital billboard (left) by Madison Square Garden in midtown Manhattan proclaims that “Climate Change Affects Everyone” and keeps a running tally of the greenhouse gases in the atmosphere.

This week, I met with Kevin Parker, the global head of asset management for Deutsche Bank and the driver of the bank’s climate change commitment. Parker was a managing director at Morgan Stanley before joining DB in 1997, where he now oversees a group that has about $727 billion under management. Of that,about $7 billion, or 1%, is invested in products with a climate-change focus. That number, he says, really should be much higher.

“Climate change is not merely an investment sector that may hold future promise,” he wrote recently, in the introduction to a detailed report called Investing in Climate Change 2010. [PDF, download here.] “It is a sector that has already delivered and is continuing to deliver.”

More about that claim in a moment, but first a word or two about Kevin. For him, it turns out, the climate change issue is both personal and business. Parker, who is 50, told me that [click to continue…]

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JP Morgan Chase’s coal problem

May 4, 2010

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Activists target Chase

Do we really want to keep blasting the tops off mountains, destroying forests and dumping the rubble into waterways, in order to extract and burn coal that is messing up the climate?

For now, the answer to that question is yes, despite vigorous efforts by environmentalists and activists in Appalachia to stop mountaintop removal mining. Some are behind a bill in Congress sponsored by Lamar Alexander, a Republican, to end the practice. Others are calling on big banks–in particular JP Morgan Chase–to stop financing mountaintop mining.

The pressure on JP Morgan Chase is coming from activist groups including the Sierra Club, the Rainforest Action Network and an Appalachian group called Climate Ground Zero which calls itself an “ongoing campaign of nonviolent civil disobedience in southern West Virginia to address mountaintop removal coal mining.” All are stepping up their efforts in advance of JP Morgan Chase’s annual shareholder meeting on May 18. They plan to release a list of the worst funders of MTR mining before then, and chances are Chase will be at or near the top.

What’s wrong with mountaintop removal mining? Lots. Here’s an overview from a [click to continue…]

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How to be a HIP Investor

April 20, 2010

R. Paul Herman

R. Paul Herman

Make money by making the world a better place.

What’s not to like about that? So appealing is the idea of doing well by doing good that a significant slice of the financial services industry is devoted to persuading people that they can invest with their values without sacrificing returns. That’s what so-called socially responsible mutual funds are all about.

R. Paul Herman, the founder and CEO of an investment advisory firm called HIP Investor, goes a step further:  He argues that companies that are leaders in sustainability and corporate responsibility are likely to outperform their peers. Those companies can be identified by using publicly-available data, he says. So by constructing an index of big companies, and investing more money into the better companies and less into the not-so-good, Herman says he both promote good corporate behavior and make money for his investors.

HIP stands for Human Impact plus Profit, Herman explained today during a talk at the  Kenan Flagler business school at the University of North Carolina. (I’m in Chapel Hill for a couple of days, participating in a conference called Global Innovations in Energy organized by Kenan Flagler’s Center for Sustainable Enterprise.) I interviewed Herman, who gave a talk about HIP investing and his brand-new book, called The HIP Investor: Make Bigger Profits by Building a Better World. He’s a personable, 41-year-old Wharton grad who did a stint at McKinsey and worked at Ashoka.org and the Omidyar Network before starting HIP.

The core of his argument, as expressed on the HIP website, goes like this:

Our world of more than six billion people faces many human problems that need solutions, many of which can be served by companies.  By solving these human needs profitably through products and services (from Walmart’s $4 generic drug program to ICICI Bank’s micro-loans to Vestas’s wind turbines), a company can benefit customers, inspire employees, engage suppliers,  and deliver sustainable profitable growth for its investors.

Well, sure. Like many, I believe that Herman’s fundamental investing thesis makes sense.  I wrote it right into my bio: “Companies that make the world a better place—by serving their customers, their workers and their communities—will deliver superior results to their owners in the long run.”

The challenge for an investor comes in identifying those better companies and deciding whether they are fairly priced by the market. [click to continue…]

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Shareholders say: Tell the truth about fracking

March 7, 2010

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No form of energy–not solar, wind, hydropower, obviously not coal or oil–comes without environmental tradeoffs.

One promising new energy source–a vast supplies of natural gas, trapped in shale deep beneath the earth’s surface–is getting renewed scrutiny these days, and for good reason.

While natural gas is often called a “bridge” to a clean energy future, critics are bombing the bridge with a frack attack, says energy policy analyst Kevin Book of Clearview Energy Partners.

Book was referring to the drumbeat of questions being raised by environmentalists, community activists, reporters and  members of Congress about  hydraulic fracturing, or fracking, a process during which water, chemicals and sand are pumped underground at  high pressure to cause tiny fissures in rock and force natural gas to the surface.

In the weeks ahead, new pressures will come from activist shareholders of a dozen energy companies. They’ve filed shareholder resolutions asking the companies to take a hard look at fracking and its risk, and they will raise the issue at annual shareholder meetings. [click to continue…]

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Paul Hawken’s winning investment strategy

February 11, 2010

If you believe that companies that are strongly committed to socially and environmentally sound practices will outperform their peers in the long run, then you would expect so-called socially responsible investment (SRI) funds to deliver superior returns to investors.

The trouble is, they don’t. Sure, some years the mutual funds run by the Calvert, Domini, Parnassus and the rest do very well—they excelled during the tech boom of the late 1990s because they tend to eschew heavy industry—but other years, they lag market indexes. Over time, most track the broader market.

paul-hawkenOver the three years ending December 31, 2009, for instance, among the big SRI funds, Calvert Social Investment is down by a cumulative 13.02%, Domini Social Equity is down by a total of 16.2% and Parnussus Equity Income is up by 0.14%. Only Parnussus performed significantly above the S&P500, which was down by 15.9%,

Why haven’t they done better. Some of us have long believed that the problem with conventional SRI funds is that their definition of “socially responsible” is not nearly as rigorous as it could or should be.

Paul Hawken has been vocal in his critique of the SRI establishment, and since 2005 he has put his money where his mouth is. In a partnership with Baldwin Brothers, a Massachusetts-based investment firm, Hawken has overseen the Highwater Global Fund, a fund for qualified investors (i.e., the rich) that invests in companies “that have a clear sense of current global trends and future societal needs.” His results have been impressive, to say the least.

Since inception in the fall of 2005, Highwater is up by a total of 52.55%. During the three years ended in December (the same period cited above), Highwater is up by a total of 19.75%.  This is, in part, because Hawken and the other fund managers are very picky about what stocks they hold. More than 90% of the FORTUNE 500 fail their screens.

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A historic win for green investors

August 24, 2009

ceres_logoSometimes, history is made quietly.

For decades, shareholder activists have filed dozens, if not hundreds, of resolutions with public companies asking them to improve their environmental policies and practices. Not one passed—until this year.

The breakthrough vote came in May at IdaCorp.,  a $988-million a year utility company and independent power producer based in Boise, Idaho. Despite the usual opposition from management, the owners of 51.2 percent of IdaCorp.’s shares voted to ask the company to adopt greenhouse gas reduction goals.

Hardly anyone noticed at the time because, well, it was Idaho and not even the shareholder activists expected a victory. “I expected a vote of about 25%,” said Michael Passoff of As You Sow, a nonprofit group that organized the investor vote.

Since then, the company responded. Legally, it didn’t have to act because, as you may know, most shareholder votes are “precatory,” a fancy legal term meaning that management can ignore even a majority of the company’s owners. In any event, IdaCorp. agreed to adopt goals for curbing the heat-trapping gases that cause global warming, issued its first request for a proposal for a wind farm and submitted a “smart grid” proposal, hoping to tap into the federal government’s stimulus money to upgrade the grid. [click to continue…]

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Social investing (finally) grows up

August 23, 2009

Calvert_Web_Logo_72dpiDo you agree or disagree that…

…nuclear power may help solve the climate crisis.

…we need weapons to prevent humanitarian disasters like the Darfur genocide.

…Wal-Mart’s sustainability efforts are making the world better.

…A cold beer at a summer ballgame is a wonderful thing.

Reasonable people will differ about those assertions (except, perhaps, for the one about beer, which is inarguable). But until recently, most  socially responsible mutual funds—funds designed to appeal to people who want their portfolio to reflect their mostly liberal values—screened out companies that provided nuclear energy, manufactured weapons or brewed beer. As for Wal-Mart, forget about it.

That’s changing, and it’s about time. Calvert Investments, a leader in social responsibility investing (SRI), has introduced new funds that—are you sitting down?—own shares in oil and mining companies, in a utility that sells nuclear power and in Wal-Mart. [click to continue…]

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Goldman’s Hormats: A genocide problem?

August 3, 2009

Setting aside, for a moment, whether we really need yet another senior Goldman Sachs executive in a big job in Washington, the nomination of Robert Hormats to be Undersecretary of State for Economic, Energy and Agricultural Affairs raises anew troubling questions about Goldman’s role in raising money for a Chinese oil company that helped finance the genocide in Darfur.

Robert Hormats

Robert Hormats

Hormats played a leading role in defending PetroChina (NYSE:PTR) when Goldman took the Chinese oil company public in 2000. Worse, Hormats’ statements at the time, which included assurances that money from the public offering would not flow to the Sudanese government, were later investigated by the Securities and Exchange Commission, which brought a case against Goldman that the company settled for $2 million. (Here’s a Washington Post story on the settlement.)

That’s not enough money, to be sure, to matter at Goldman, but still, it makes you wonder: How much due diligence did  the Obama administration and Secretary of State Hillary Clinton do before nominating Hormats?

You’d think that misleading people about genocide might be sufficient cause to disqualify an executive, even one with impeccable Goldman ties, from a state department post.
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A low carbon mutual fund?

July 22, 2009

You want a car that gets good gas mileage and you want energy-efficient appliances (or at least I hope you do). But do you want a low-carbon investment portfolio?

The Green Century Balanced Fund is betting that you do. The Boston-based mutual fund says it is the first U.S.-based fund to disclose its carbon footprint, which is 66% less than the carbon intensity of the S&P500 Index.

GCFLogo

Let’s be clear what we’re talking about here. This isn’t an accounting of how much energy the mutual fund company uses in its offices or how often its staffers get on planes. It’s an analysis of the tons of carbon emissions per million dollars of revenue that are generated by the companies held by the Balanced Fund, compared to the firms in the S&P500.

Why would you care? Not merely because you want to invest in mutual funds and companies that are greener and cleaner than average (although, again, I hope you do) but because those funds and companies will over time outperform their peers—an arguable but much iffier proposition.

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Fidelity, Vanguard and the genocide in Darfur

June 18, 2009

Recently, I voted in a contested election with repercussions for a big Islamic nation. (No, not Iran.) As a shareholder in mutual funds run by Vanguard and Fidelity, I voted to ask both mutual fund companies to sell their holdings in companies doing substantial business with Sudan, and thereby helping to finance the genocide in the Darfur region.

If you own stocks or mutual funds, this is the time of year when shareholder proxy ballots arrive in the mail, usually accompanied by pages of small print asking you to change the corporate bylaws or “elect” a slate of directors who have already been chosen. They’re boring and easy to ignore.

This year, however, shareholders of Vanguard, Fidelity and other mutual fund groups should keep an eye out for the important shareholder proposals about genocide on the ballot. These proposals don’t mentions Sudan because they are broader in scope. They ask but the funds to refrain from investing in companies that “substantially contribute to genocide or crimes against humanity.”
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Perhaps surprisingly, Vanguard and Fidelity both recommend a “no” vote on the proposals.

“They don’t want to have limits on where they invest,” says Eric Cohen, the co-founder of Investors Against Genocide, a volunteer organization that got both proposals on the ballot.

Cohen, a retired tech executive, is a soft-spoken and usually understated guy but he says this of Vanguard and Fidelity: “Their lack of due diligence connects their customers to the very worst companies in the world.”

The Investors Against Genocide website puts it this way:

Looking back, who would support the idea of investing in firms that sought to make a profit by selling Zyklon-B gas to the Nazis or machetes for the genocide in Rwanda? Looking forward, who wants their personal savings and pension funds invested in companies that help fund genocide?

Investors Against Genocide was formed in January, 2007. (I wrote one of the first stories about the group, under the headline Fidelity’s Sudan Problem, for CNNmoney.com.) By then, campus activists had persuaded the endowment managers at Harvard, Yale and Stanford to sell stocks of companies that were doing business with the government of Sudan, which is responsible for the genocide that has now taken the lives of an estimated 300,000 people in the Darfur region. (Another 2.7 million have been forced out of their homes.) Pension funds in half a dozen states, including California, had also agreed to divest.
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