Happy New Year! And good riddance to 2011, a year during which we made little or no progress on some of the issues that I care most about: climate change, the long-term federal debt, social mobility (aka the American dream), and our dysfunctional Congress. Yet I remain an optimist.

Texas drought 2011

I could write many words about our woes. Instead, I’ll try to be succinct. On the climate issue, global emissions of carbon dioxide from fossil-fuel burning jumped by the largest amount on record in 2010, we learned recently, and 2011 surely brought further increases.  Concentrations of CO₂ are 39% above where they were at the start of the industrial era and approaching the point when some scientists say it will be nearly impossible to contain global warming, the Guardian reports. Neither the US nor the UN moved closer to regulating CO2. In a discouraging development, Republicans Mitt Romney and Newt Gingrich backed away from their once-sensible support of greenhouse gas regulation, in what can only be seen as shameless pandering to the know-nothing wing of the Republican Party. Discouraging, too, was the Fukushima nuclear disaster, which will slow down the growth of carbon-free nuclear power. So will the failure of Solyndra. Meanwhile, the U.S. suffered massive flooding of the Mississippi and Missouri Rivers, a terrible drought in Texas, record wildfires and at least 2,941 monthly weather records that were broken by extreme events, according to the NRDC.. Coincidence? Uh, no.

Like the atmospheric concentrations of CO2, the federal budget deficit has been growing.That’s no coincidence either. We’re living beyond our means, whether by burning fossil fuels or taxpayer dollars, and sticking future generations with the cleanup bill. Just last week, the White House asked for a $1.2 trillion increase in the federal debt limit, raising it to about $16.4 trillion. According to Marketplace Radio, that amounts to about $52,000 for every American. For a typical  family of four, that’s bigger than the mortgage.

Social mobility is harder to measure than income inequality (and more important, methinks), but indications are that it’s more difficult to climb the economic ladder in the U.S. than in other western democracies. The Economic Mobility Project, a  bipartisan effort to study the issue, reported recently on a study of 10 western nations that concluded: “In the United States, there is a stronger link between parental education and children’s economic, educational, and socio-emotional outcomes than in any other country investigated.” The sluggish U.S. economy in 2011 didn’t make life easier for those on the bottom who want to work hard and better themselves.

And yet.

As I wrote a year ago (see my blogpost, China, cappuccino and cell phones: reasons to cheer!),  life on this planet is getting better all the time. We humans are richer, healthier and and more peaceful than ever. It’s easiest to forget that, especially if you focus too much on the day-to-day headlines.

Here are several reasons to feel good about the year ahead:

Western economies are slumping, but the rest of the world is growing robustly. The most urgent problem facing mankind isn’t climate change: It’s the human misery that’s caused by poverty. There’s less of that today than there was a year ago, and there will be less on Jan 1, 2013, I’d bet. China’s GDP grew by about 10% in 2010 and by an estimated 9% in 2011. India grew by 6 to 7 percent last year.

A Nairobi street

Then there’s Africa. As Forbes reported last week, in the middle of the 2009 global economic recession, Africa was the only region apart from Asia that grew positively, at about 2%. The continent’s growth has been on an upward trajectory ever since then- 4.5% in 2010 and 5.0% in 2011.

Reliable statistics are hard to come by, but you can be sure that this means that many millions of people are living longer and healthier lives, and that their children have a better shot at an education. This is good  for all of us because the global economy is not a zero-sum game. An expanding pie means a safer world, and more markets for U.S. goods. And there’s even reason to hope believe that the US economy is due for a rebound. See what Matthew Yglesias writes in Slate that Happy Days Are Here Again.

Corporations are taking a more expansive view of their responsibilities: One reason why I write about business is that I believe that corporations can be a powerful force for good. Many are not, but I found reason in 2011 to applaud changes at Walmart (Have I Fallen in Love with Walmart?), McDonald’s (Mainstreaming Sustainability? ), Smithfield Foods (Sustainable pork?), Office Depot (No tree hugging, please), Shaw Carpets (This carpet has moral fiber), Unilever (CEO Paul Polman: Don’t stay on the sidelines), Starbucks (We are indivisible), Marks & Spencer (Sustainability, profits and a carbon-neutral bra),  TD Bank (America’s greenest bank?) and GE (How GE learned to think small and serve the poor). My most popular post of the year, by far, was about Patagonia (Maybe the best retail ad ever).

These companies are responding to rising expectations–from advocacy groups, consumers, a handful of shareholder activists and especially from their own workers. The changes they are making aren’t big enough, and they aren’t happening fast enough, but the forces driving companies to become more sustainable are getting stronger all the time.

Protesters in Egypt

Citizens’ movements are growing here and abroad. Whatever you think of Occupy Wall Street, they got one thing right–the deck is stacked in the US in favor of the well-to-do and the powerful, not just the 1% but the 10 or 20 or 30%, and it’s stacked against those at the bottom of the income ladder. So many laws and cultural practices that we take for granted–from the mortgage interest deduction to the dismal quality of the public education system in our big cities and poorest rural areas–serve the interests of the rich and powerful. Wall Street got bailed out. Main Street got left behind. Thank goodness for people didn’t take that lying down. Thanks, too, to the Tea Party, which is wrong about most things but right about the fact that the federal government can’t keep spending money that it doesn’t have.

Of course, Occupy Wall Street was largely inspired by citizens uprising in Tunisia and Egypt, which in turn seem to inspired people in Russia and even in China to demand more of a voice in their own affairs. This is all to the good, and it should be a reminder to those of us here in the U.S. not to take our freedoms for granted and to exercise our rights as citizens. A big job ahead is to convince Congress to act like adults and treat us that way, understanding that they were elected to solve big problems, even if that requires. We can’t have big government, generous services and low taxes. Or cheap energy without climate risk. Or affordable, unlimited health care for all.

Sure, there’s reason to be gloomy but it always helps to think long term. More people are free today than at any time in human history. More people live comfortably. We’re more tolerant and loving that we used to be. We’ve got an African American president and my daughter, who is gay, will get legally married in June. MLK Jr. had it right: “The arc of the moral universe is long but it bends toward justice.”

I’m not much for patriotic displays, but I’m proud to wear this red, white and blue wristband inscribed with the word INDIVISIBLE.

I hope you’ll wear one, too. They’re available, beginning Tuesday, at Starbucks, for a donation of $5 or more to a project called Let’s Create Jobs for USA.

The program aims to create thousands of jobs across the country, by investing community development financial institutions (CDFIs) — mostly credit unions and community banks — that will then lend to small businesses, nonprofits, housing and commercial developers, micro-enterprises and the like, all to spark the economy and create jobs.

I’m a fan of this project,  for several reasons.

First, there’s no more front-of-mind issue in America today than jobs. So this a great example of how a big company can help tackle an important  problem–while enhancing its reputation as a business that supports its communities.

Second, Let’s Create Jobs for USA underscores the fact that, despite the rhetoric from politicians, jobs are best created by the private sector.  If you’re anti-business, you’re anti-jobs.

Ben Packard

Third, although credit for the campaign ultimately belongs to Howard Schultz, Starbucks CEO, Let’s Create Jobs for USA unfolded as it did because of a connection between Ben Packard, vice president of global responsibility at Starbucks and Mark Pinsky, president and CEO of the Opportunity Finance Network, a national network of CDFIs. Ben, Mark and I serve together on the board of Net Impact, a great organization of students and young professionals whose purpose is to inspire and equip young people to use the power of business to make the world a better place.

Let’s Create Jobs for USA is very much in the spirit of Net Impact.

I chatted about the program with Ben and Mark this weekend during Net Impact’s annual conference in Portland, Oregon.  Ben told me the idea grew out of a long-running loan program for farmers that Starbucks supports in coffee-growing countries. Last year alone, Starbucks made loans to 56,000 farmers in 10 countries; the company has promised to make $20 million in loans by 2015.

Mark Pinsky

With the US economy reeling last summer, Schultz wondered out loud whether Starbucks could do for its retail communities in the U.S. something comparable to what it does in coffee-growing regions. The company needed a partner, and so Ben recommended Mark, an indefatigable expert on community development and finance. (Ben hastens to add that after making the connection, he stepped aside, and work on the project was done by others at Starbucks.)  Through Opportunity Finance Network, Mark and his team can get the money raised at Starbucks into low-income communities quickly and with little or no red tape. Through its foundation, Starbucks donated $5 million to Opportunity Finance Network to get things rolling.

“That money will get out and it will get out right away,” Mark told me. “CDFIs have been lending in the past few years, and at a pace faster than traditional financial institutions.”

CDFIs have been around for decades. Many, in fact, get support from the much-maligned Wall Street banks, as well as the U.S. Treasury. But their lending has been constrained by a shortage of capital. Money raised by Let’s Create Jobs for USA will go to meet their capital requirements, enabling the impact of the donations to multiply. “Every dollar that gets donated will enable $7 in new financing,” Mark said. Loans support business ranging from local grocery stores to charter schools to affordable housing, all aimed at serving the poor and working class.

Schultz and La Russa show their wristbands

The effort crosses party lines. “Howard (Schultz) gave a wristband to President Obama, and he gave one to Tony La Russa,” said Mark. La Russa, as you may know, has Tea Party sympathies (see this and this) but that didn’t stop him from wearing an “indivisible” wristband during game seven of the World Serious.

The speed with which all this came together is breathtaking. Mark visited Starbucks HQ in Seattle in early September. The program was announced in early October, and it rolls out to 7,000 Starbucks stores and online on Tuesday. Many big companies would need a month or two just to run an idea like this past their lawyers.

The payback to Starbucks will come in the form of an enhanced reputation and, in the long run, healthier communities. People without jobs don’t spend $3 for a grande latte.

“This is about using our scale for good,” Schultz said.

Nice to see a CEO stand up for the 99%.

Aron Cramer

Today, I’m pleased to publish the first in a series of guest posts from Aron Cramer, the president and CEO of BSR. BSR (formerly Business for Social Responsibility) works with its 250 member companies to promote a more just and sustainable world, through research, consulting and industry collaborations. Aron, who’s a longtime colleague and friend, has worked all over the world on business issues ranging from labor rights in global supply chains to Internet freedoms in China to the meaning of “sustainable consumption.” Here, looking ahead to BSR’s 2011 conference in San Francisco, he writes about the need for business leaders to step outside the boundaries of their companies to re-energize the sustainability agenda.

Most years, people are reluctant to see summer fade into fall. But the summer of 2011 was a bit of a bummer, bringing hurricanes and earthquakes in the American Northeast; ongoing political stagnation in the United States, Europe, and Japan; and signs that the world’s mature economies are stuck in neutral—and may remain that way for some time. Leaving this summer behind feels like a relief.

It’s up to business to turn things around. That’s why BSR has made redefining leadership as the theme of the BSR Conference 2011.

We view this opportunity as having four dimensions, which we outlined in our most recent annual report. In this series of blog posts, I want to elaborate on each one, beginning with the need for business leaders to invest in the infrastructure required for sustainability.

Building the infrastructure for sustainability goes far beyond green buildings. It means advocating for systemic solutions that create the right incentives for business to make progress on crucial issues like human rights and climate change. Making this happen requires a different kind of engagement in public policy.

These solutions fall into three categories: changing the rules that guide companies, reorienting governments to embrace a sustainability agenda and galvanizing the public. This is not the usual checklist for business. But with policymakers paralyzed by the current economic crisis, both the public and business need to help change the policy agenda.

How to change the rules to reward companies that take sustainability seriously? We can start by supporting stock-exchange listing requirements that make medium- and long-term questions as an explicit part of fiduciary duty. Efforts like this are underway from South Africa, where companies are required to report on their sustainability work, to Sacramento, where California’s legislature is considering a “flexible purpose corporation,” which explicitly enables companies to consider long-term impacts. Globally, the work of the International Integrated Reporting Committee (on which I serve), which is developing a model that brings sustainability into financial reporting, holds out the prospect of further mainstreaming.

Second, we should do what we can to ensure that, within the existing rules, governments advance a sustainable growth agenda. The highest-profile vehicle for this is the Rio+20 summit next June. Many governments, including the United States, have grown very timid on climate action since Copenhagen. This makes it even more important for business to work through groups such as Business Action for Sustainable Development to push and prod government to limit climate change and promote a green growth agenda. Companies like Nike are taking this responsibility seriously. The company has been a strong advocate for public policies that shift our energy system to a lower-carbon model, through BICEP and other entities. Nike has also demonstrated its commitment by creating a unit within its sustainability team that is dedicated to “mobilizing” other actors to realize its vision.

Third, business should exercise its voice, which is too often muted or expressed through trade associations’ efforts to block policies that embrace social and environmental progress. Just this week, the White House, allegedly responding to business pressure, withdrew implementation of new air pollution regulations. Pressure is intensifying to take other steps like this, in the name of restarting a stalled economy.

Starbucks’ Howard Schultz is an example of a chief executive who is taking a different approach, and aiming to be a statesman. His recent effort to halt contributions to political candidates, while not explicitly tied to sustainability, demonstrates how business leaders can influence public debates. Other business executives, like Jim Rogers of Duke Energy and Lars Josefsson of Vattenfall, have also spoken out about the need for governments to act to promote clean energy. With public support for sustainability flagging amid severe economic doldrums, business leaders have the obligation to argue on behalf of environmental protection. The bully pulpit is not just for presidents and prime ministers.

In times of economic difficulty, it’s tempting to put off investments in a sustainable future. Our times require business leaders to think not only about their own performance, but also about the robustness of the systems in which they operate. Those systems are sputtering right now. We as business must reshape the rules, reorient the system, and rebuild public support for sustainability.

Judging by the number of books about business and the environment piling up on my shelves, the corporate sustainability movement is alive and well.

One of the best is Business Lessons from a Radical Industrialist by Ray Anderson, the founder and chairman of the commercial carpet company Interface.

I’ve been provided with two signed copes of the paperback edition to give away. I’m expecting a signed copy of Howard Schultz’s book, which I’m also going to give to a blog reader. More on that, in a moment.

But first, a few thoughts about Ray and his book. Ray is a terrific guy who has had a great influence on business people across America, by tirelessly promoting the idea that a truly sustainable approach to business  is good for business. (See my 2009 interview, Ray Anderson, Radical Industrialist.) “Take nothing from the earth that cannot be replaced by the earth” is how he puts it.

Fifteen years after setting that goal for Interface, the company has cut its greenhouse gas emissions by 94 percent, cut fossil fuel consumption by 60 percent, cut waste by 80 percent, increased sales, doubled earnings and re-invented the way carpets are made, sold and recycled.

Says environmental activist Bill McKibben: “Ray Anderson is a hero.”

A soft-spoken, genial Georgian, Ray, who is in his late 70s, can’t get out to promote the paperback edition because, as he writes in a new foreword: “I have spent the last year dealing with cancer, thankfully holding my own–barely.”

He can’t help but draw analogies between his own experience with disease and environmental pollution. Neither his father, who was one of seven siblings, nor his mother, who was also one of seven, nor any of their brothers and sisters had cancer. But he and and his two brothers have had the disease. Could it be something in the environment? Hard to say.

But Ray writes:

Irresponsible business–the diggers, the drillers, the processors of poison, all of whom ought to know better–they and their abusive industries–are a cancer on society.

…It is high time we all started on the right treatment of this disease before it takes us all down.

Strong words, to be sure, but coming from a CEO and businessman with his own inspiring story, they resonate.

Interestingly, I’ve found that the best books about business and sustainability are written by CEOs and insiders, and not by journalists or consultants. My personal favorites include Natural Capitalism by Paul Hawken, Amory Lovins and Hunter Lovins, Stirring it Up by Gary Hirshberg and What Matters Most by Jeff Hollender and Stephen Fenichell.  I liked Howard Schultz’s first book, Pour Your Heart Into It, a lot, although it’s less about the environment and more broadly about doing business right. Jim Collins’ work, especially on leadership in Good to Great, has had a big influence on my thinking. My friend Barbara Waugh’s The Soul in a Computer is another inspiring read.

What about you? Which books about business, values and sustainability have influenced you most? I invite you to nominate a favorite or two in the comments below or, if you prefer, email me at marc.gunther@gmail.com. I’ll do a blogpost in the next week or so highlighting some of the nominations. Here’s a Top 10 list I found online to get you thinking.

I’ll send my two signed copies of Ray Anderson’s book and my  copy of Howard Schultz’s Onward (assuming it arrives soon) out to those who sent in the most interesting or original nominations. Ancient as well as contemporary wisdom is welcome.

I’ve also decided to reduce my pile of books (below) by sending them to people who write guest posts to this blog, so if you’re passionate about a corporate sustainability issue, please let me know if you like to contribute a post.

Recently, after posting a column about BP and socially responsible mutual funds (See Social Funds and BP: How embarrassing!)  I heard from Adam Kanzer, who is managing director and general counsel at Domini Social Investments. While Domini has never owned shares of BP, Adam and I began a conversation about the role  of socially-responsible mutual funds. Adam, who has been in the fund business for twelve years, is a smart and committed executive, but we don’t always agree, so we decided to engage in a dialog about social funds.

Adam Kanzer

Marc: Adam, let’s start with BP. Why did Domini exclude the company? Do you hold any other oil or coal companies?

Adam: Domini has consistently excluded BP from our portfolios because of our concerns about their safety record. Our initial review followed the Texas City explosion in 2005, but our decision was quickly reinforced by the Prudhoe Bay spill the following year.  We met with BP to discuss these and related issues with them. And each time we revisited BP, we found more violations.

We’re looking to identify the key sustainability challenges each company faces. For the oil and gas industries, worker safety and environmental compliance are among a handful of core issues we consider.  I should also note that we have consistently excluded Transocean and Halliburton, both of whom played a role in the Deepwater Horizon project. In addition we have also consistently excluded Massey Energy, the other current poster-child for disaster, as well as Toyota for substantial safety, employee relations and human rights concerns.  We discuss these decisions on our website. And yes, we do hold other oil and gas companies, although we set a high bar for entry. We do not invest in companies whose core business is coal mining.

Marc: Any thoughts on why BP was so widely held by other socially-responsible funds?

Adam: As CEO of BP, Lord Browne made very important statements about the reality of climate change at a time when others in his industry were denying its existence. That was important. In addition, BP has been committed to transparency on its social and environmental performance. I can’t speak for other firms, but I can see how those factors may have led some to hold BP. We felt that the safety and environmental issues outweighed these positives.

If a fund’s benchmark is heavily weighted towards oil, then an SRI manager will need to consider that. This tyranny of the benchmark certainly led many to hold BP and other oil companies that in a perfect world they would have preferred to avoid.

Which brings me to the important question that I have not heard – why did all of the so-called ‘mainstream’ investors buy BP? Why did investors allow this company to become one of the largest in the world by market capitalization? At least social investors weighed these issues and came to a decision. The rest of the market acted as if there was no problem.

Marc: That’s an excellent point, and it makes me wonder why people pay mutual fund managers such high fees. They missed the housing and Wall Street bubbles, and didn’t see or care about the safety issues at BP. Clearly most  funds aren’t very good at managing risk.

Turning to another topic, many SRI funds have their roots in the anti-war movement of the 1960s and 1970s as well as in faith-based investing. So funds like Domini exclude companies that make weapons, alcohol, tobacco and nuclear power. My question is, why? Let’s start with weapons. Don’t we need companies that make weapons in the post 9/11 era?

Adam:   First, it is important to understand that we divide those industries into two general categories – companies that provide addictive products and services, and companies whose products contribute to geopolitical instability. We place military weapons manufacturers and nuclear power in the latter category. We do not consider investments in addiction and global instability to be productive uses of capital.

National defense is too important to be placed in the hands of the same system that brought us the financial crisis. When Eisenhower issued his warnings about the growth of the military-industrial complex, he wasn’t questioning our need for a strong national defense. Yes, we need weapons, but do we need publicly traded companies manufacturing weapons? Are the capital markets an appropriate mechanism for providing these goods, or have the markets distorted our national priorities? That’s a critical debate our nation needs to have.

There are also categories of weapons that violate international humanitarian law because they cannot distinguish between military and civilian targets. These include landmines, clusterbombs and nuclear weapons. These ‘products’ make the world more dangerous, and landmines have caused incalculable misery to innocent civilians – including children – around the world. As investors, we have a responsibility to choose wisely. Our Funds’ shareholders choose not to profit from these violations, so we exclude these manufacturers and companies that manufacture nuclear weapons delivery systems.

Marc: What about nuclear power? Some environmentalists, notably Stewart Brand, say we need to seriously consider nukes in light of the climate crisis?

Adam: Before nuclear power can be seriously considered to be an effective answer to climate change, we need to solve the nuclear waste problem and we need to address the link between nuclear power and nuclear weapons proliferation. To date there is no way to distinguish between the uranium enrichment process that is necessary to fuel a nuclear power plant and the enrichment of uranium for use in a nuclear bomb.This is an issue that Amory Lovins raised decades ago, and it has only increased in importance since then. The risks and the upfront costs of nuclear power are still, in our view, far too high. I believe this is still the ‘mainstream’ view among environmentalists.

Marc: So you don’t like nukes or coal. Do you invest in any companies that provide the baseload power we need to run our lives (including this blog!)?

Adam: Yes. We do invest in energy companies, such as AGL (Australia), EOG and Noble.. We have also approved utilities, such as National Grid, but evaluate the source of the energy. We review each industry and subindustry against a set of corresponding key indicators. For example, we would look at a water utility differently than a company involved in natural gas distribution and transmission, or a nuclear or coal-based utility. And, of course, we’re looking for companies with significant commitments to renewable energy such as wind and solar power generation.

Marc: You mentioned addictive products–do you exclude Starbucks? Coffee’s addictive, right?

Adam: We’ve consistently approved Starbucks. We do not place caffeine addiction on the same level as alcohol, gambling or tobacco addiction in terms of harm to society. It doesn’t distort your decision-making and impair your daily functions in nearly the same way.

Marc: Let’s talk about performance now. Many of us want to invest in ways that are consistent with our values. That’s why I’m a shareholder in the Domini Social Equity Fund. But we also want to maximize our returns.

Generally speaking, SRI funds have tracked broader market indexes, running slightly ahead during some time periods and behind during others. Domini Social Equity, for example, has averaged a –1.02% annual return over the five years ended on June 30, 2010, compared to –0.79% annual return for the S&P500, meaning that an investor would have done slightly better with an index fund.

If I’m not mistaken, you and I share the belief that companies that are socially and environmentally responsible will provide superior shareholder value in long run.So I’m wondering–why haven’t social funds, as a group, outperformed?

Adam: First, if you want an apples to apples comparison, you might want to look at the S&P 500 Index versus the FTSE KLD 400 Social Index, which now has a 20-year track record. From May 1, 1990 through July 31, 2010, the S&P had an annualized return of 8.39% and the KLD 400 an annualized return of 9.14%..

Whether this outperformance on an index-to-index basis will continue is anyone’s guess, but there’s absolutely nothing wrong with simply tracking broader market averages, without outperforming. That means you can do just as well by investing responsibly, and that’s certainly good news.

We have never made any claims that SRI will always outperform. There are times when greed, dishonesty and environmental destruction pays. The market does not consistently reward responsibility, or punish irresponsibility. I think Gap is doing a great job addressing labor conditions in its supply chain, for example, but that doesn’t necessarily mean that the next style they introduce will be well received. Compare BP to Shell. A decision to avoid BP was only rewarded after disaster struck. Meanwhile, the New York Times reports that Shell has had the equivalent of an Exxon-Valdez oil spill in Nigeria every year for the past fifty years. That doesn’t seem to be reflected in Shell’s stock price. Incidentally, we have also never approved Shell for the Domini funds.

We need to be very careful on two fronts here. First, we must never overstate the potential for long-term performance of SRI funds – or any investment strategy for that matter. There are many factors that can affect a fund’s performance over time, including the fund manager’s expertise. When SRI funds underperform in a particular time period, they often do so for the same reasons many actively managed funds underperform. We do believe that social and environmental factors are financially material and can help us to identify better long-term investments, but the market is not always going to reward these particular characteristics.

Second, we need to begin a more important conversation about what it means to earn a ‘responsible’ rate of return. What are the appropriate benchmarks? Why do I need to demonstrate that I can outperform a benchmark dominated by polluters and human rights violators?

What do you mean when you say we wish to ‘maximize’ our returns? Certainly not at any cost? If I could guarantee you a 1,000% return on a direct investment in genocide, I’m sure you wouldn’t have any problem passing up that opportunity. Profit ‘maximization’ is another one of those myths that needs to be exposed. Nobody is truly seeking to ‘maximize’ returns. I would prefer to see a national discussion on the ends we wish to achieve through our investments, rather than this rather narrow discussion of whether SRI can perform. Yes, it can. That’s only the beginning of the story.

The definition of success in investing as outperforming a benchmark is ultimately weak and incomplete. Surely investing has something to do with creating real value—a stable, equitable society moving toward ideals of justice and sustainability. If we define success in investing simply as beating your neighbor, even if the market as a whole or society as a whole is suffering significant losses, I think we have drained the activity of all intrinsic value.

Marc: Interesting points. Of course no one wants to maximize returns at any social and environmental cost. But I don’t agree that there’s a tension between doing the right thing and doing well as a business, at least in the long run. if you don’t believe that over time, companies that are most socially and environmentally responsible will outperform their peers, then we are both fighting a losing battle when it comes to changing the way business is done.

I’ve always longed for an SRI fund that would do deep research and select 20 to 30 leading  companies—companies with strong values and solid businesses—with the belief that those companies would, in fact, outperform the market as a whole. I wrote about companies like Starbucks, Southwest Airlines, Timberland, UPS and Domini in my book, Faith and Fortune, and they were all top performers in every sense. (I picked HP, too, which hasn’t turned out so well.) What do you think of a focused SRI fund that selects a small number of the best companies?

Finally, you write that “we must never overstate the potential for the long-term performance o SRI funds,” but don’t you find it strange that the SRI funds are about the only mutual funds out there that don’t claim to be the best way to invest?

Adam: You’ve packed a number of important points into that question, so let me try to take them one at a time.

First, I’m glad you agree that no one wants to maximize returns at any social or environmental cost. But I see very little evidence of that thinking outside of a relatively small group of investors. BP and Massey are the latest examples – investors were quite happy to own their stock despite their miserable safety records.  PetroChina’s connections to genocide have not led to a mass exodus by investors.

So let me rephrase my statement slightly. When I say nobody really seeks to maximize return, I mean that virtually everyone places some limitation on that quest for profit. We all impose some sort of limit on that “profit maximization” objective. Milton Friedman would say profit “within the rules of the game”, but didn’t define what those rules were. Social investors, and most ordinary rational human beings, would say “without harming others.”

It’s a fairly simple concept that is still largely absent in  mainstream investment circles. Financial theory has established financial risk as the only meaningful limit on profit maximization. It is an inherently amoral, and therefore inhuman system. Thankfully, this attitude appears to be changing. I would strongly disagree that we’re fighting a losing battle. To me, the evidence suggests that we’re winning.

I think it is also important not to get caught in the trap of measuring performance solely in financial terms. Some companies provide greater social and environmental benefits to society than others. Markets may recognize that fact at some times and fail to recognize it at others. But we at Domini invest to achieve a combination of the two—both the social/environmental benefits and the financial return.

Domini does believe that companies with stronger social and environmental profiles should perform better in the long term, and that the use of social and environmental factors can help manage certain types of investment risk. We do believe it is a better way to invest, as well as a more rational, civilized, humane and ultimately beneficial way to invest.

If we sell SRI purely on this concept of ‘outperformance’ we will lose investors the moment the markets turn. SRI is not the latest get rich quick scheme. Social investors tend to stick around, rather than pursue the latest performance fad, because they understand this is a systemic answer to global problems.

Your idea for a focused ‘good guy’ fund is an interesting way to hold out exemplars of good corporate behavior, but it largely ignores the crux of the problem. We can’t simply ignore mid-cap and-large cap companies because they don’t currently meet our definition of purity. Unless you’re willing to say that it is inherently irresponsible to invest in large companies, then large cap investors need responsible options as well. Investors should not have to give up the opportunity to invest as responsibly as possible in well-diversified portfolios of large-cap companies, and they certainly should not give up the opportunity to engage with those companies and move them towards more sustainable business models.

Is SRI the ‘best’ way to invest? That depends on your definition of ‘best’ and the benchmarks you use to make that determination. Once you recognize that our investment decisions have an impact on the world, however, you come to accept that it is not appropriate to ‘outperform’ while destroying ecosystems and harming people. And in that sense, SRI becomes the only way to invest.

Marc: Adam, thank you. Maybe I’m asking too much, but I think it’s desirable–and possible–for a fund to deliver superior financial, social and environmental value. In the meantime, best of luck with your good work at Domini.

Somehow Americans manage to turn every holiday—from Christmas to Valentine’s Day, Mother’s Day, Father’s Day, the 4^th of July, Veterans Day, Memorial Day, so-called President’s Day and the rest —into a shopping opportunity.

Perversely, this is now happening to Earth Day, as companies try to persuade us that we can  shop our way to a cleaner, greener planet.

Crazy, isn’t it? Along with coal plants, gas-guzzling SUVs and climate deniers, the American way of producing and consuming and discarding, buying lots of stuff we don’t need that isn’t going to make us happy anyway is, not to put too fine a point on it, trashing the only planet we have.

This is not what the first Earth Day–40 years ago, in 1970—was all about. It was a political event. It was about building an environmental movement. It was led by young people and scientists and counter-culture types and it arrived at a time when support was building for other political and social movements as well—the opposition to the Vietnam War, the feminist movement and the gay rights movement, all of which were inspired by the civil rights movements of the 1950s and 1960s.

None of these were mainstream, at least not at first. None were about shopping.

Earth Day led to the environmental laws of the early 1970s, which brought real and dramatic change: Our air and water are cleaner, parks and wilderness have been conserved, species have been protected.

Today, Earth Day is mainstream. An recent MBA grad I know says that’s a good thing. She told me by email:

I think it’s generally good if green is mainstream as more companies are offering environmental products.  That way we Berkeley types aren’t the only crazy ones!

I’m not so sure. Buying a T-shirt or tote bag won’t curb climate change or protect endangered habitat. That takes politics, organizing, hard work.

Here are some of the Earth Day products that have been brought to my attention  in the days leading up to the 40th anniversary. These are bhappybags — I’m not making this up — and they are described as an “attractive yet durable line of reusable shopping/tote, wine, yoga and dry-cleaning bags” that  “help to eliminate the destructive overuse of disposable bags.”

This is a shower curtain made from natural hemp fabric that, I’m told, “does not require a plastic or vinyl liner, thus eliminating the concerns for toxic off gasing.  When it’s dirty, just throw it in the washing machine.” Available from Dream Designs.

And there is this “only all-natural, whole-kernel corn litter that is biodegradable and renewable, flushable, septic safe and chemical free (no synthetic chemicals, clays or perfumes),” sold by World’s Best Cat Litter.

There’s more, much more, alas.

Fortunately, not all companies see Earth Day as just another revenue driver. Starbucks, as an example, did something smart and meaningful  last week. It gave away a free cup of coffee to everyone who brought in a re-usable mug, using social media, including this entertaining video, to promote the event. This may be about branding but it’s  true to the spirit of Earth Day, a reminder to people that you don’t need that iconic white-and-green cup, which is going to find its way into the trash, to enjoy your morning brew. Nor is this a one time event. Starbucks has also made public commitments to serve more of its coffee in reusable mugs and making the cup recyclable.

Major league baseball is also taking Earth Day seriously. Teams are hosting Earth Day events to promote recycling, energy efficiency and conservation. The Phillies are recycling cell phones and buying renewable energy, the Indians are giving away caps made out of recycled plastic bottles, and my Washington Nationals are discounting tickets for fans who take metro, as opposed to driving to the game. Good stuff.

More important, big league baseball has agreed to begin collecting environmental data at all 30 stadiums about energy use, waste generation, water use and paper procurement, and then share best practices among the teams. You can read more about it from Allen Hershkowitz of NRDC, who calls this “arguably, the most important environmental initiative in the history of professional sports, worldwide.”

So you can see that I’m not opposed to companies capitalizing on Earth Day to promote themselves, provided they are pushing for change–as opposed to selling us T-shirts, tote bags and mugs that we probably don’t need.

Lake Kivu

As natural disasters go, the limnic eruption — an explosion of gas from beneath a lake  — of Lake Nyos in Cameroon in 1986 ranks among the most horrifying and bizarre:  About 1,700 people and 3,500 livestock were suffocated when a large cloud of CO2 descended silently on their villages.

Lake Kivu, one of Africa’s great lakes, which lies on the border of Rwanda and the Democratic Republic of the Congo, poses a similar danger because vast amounts of methane gas and CO2 are buried in its depths. At the same time, rural Rwanda desperately needs more electricity–only about 6 percent of the nation’s 9.7 million people are connected to the electricity grid, according to the government.

To Contour Global, a private company that specializes in power-generation projects in the global south, this is a business opportunity. The company has embarked on an ambitious $325 million plan to extract the methane gas from the lake to provide about 100 megawatts of gas-fired electricity to Rwanda.

To put that in context, total generating capacity in Rwanda is now just 69 megawatts — about 10% of the capacity of a single coal-fired power plant in the U.S.

Recently, I spoke will Bill Fox, senior vice president of Contour Global, who is overseeing the Lake Kivu project. The company, he told me, was founded in 2005 by Joe Brandt, a former executive with the global power generation company AES, and funded by Reservoir Capital, a $4 billion investment fund. Contour Global and Reservoir Capital are based in New York.

Fox, who is 62, spent most of his career in the U.S. before joining Contour Global two years ago. Since then, he has managed a hydroelectric project in Brazil and made four trips to Lake Kivu.

“The country, under President Kagame, has a very ambitious goal to increase the electrification rate,” Fox told me. “They’re going about it in a major way, building transmission and generation.”

The technology behind the Lake Kivu project is a bit of a mystery to me but, as Fox explained it, Contour Global will build a gas extraction facility that will be mounted on a big barge. It will then siphon gases to the surface from a depth of about 350 meters.

Bill Fox

The barge will process the liquid, separate out methane gas (CH4), which is the principal component of natural gas, and return the CO2 safely to the lake. The gas will then be sent by pipeline to a power plant in lakeside town of Kibuye. Methane emitted from coal mines and landfills is often burned to make electricity.

In fact, as Fox explained, the technology behind the Lake Kivu power plan isn’t that complex. What’s harder is getting the project built in landlocked nation with limited infrastructure. “We’re 1900 kilometers from the closest seaport. The logistics of the job are going to be more challenging than the project itself,” he said.

Then again, getting the job done could literally be a matter of life and death. “In the next 200 years, if nothing is done, the lake could erupt,” Fox said.

Just as crucial are the potential economic benefits. I’ve followed the Rwanda story since visiting the country in 2005 with Rick Warren, the evangelical minister, and seeing first-hand the aftermath of the genocide there. In recent years, U.S. corporations, including Starbucks, Costco and Google, have taken an special interest in the country known as the Land of a Thousand Hills (see Why CEOs Love Rwanda). Rwanda’s business-friendly president, Paul Kagame, even spoke at a Starbucks annual meeting. A can-do spirit animates their efforts, As Rob Glaser, the tech entrepreneur, once told me: “If you make a Rwanda a better place, you haven’t solved all the world’s problems but you have demonstrated that the problems can be solved.”

But there are troubling reports coming out of Rwanda, too. The Kagame administration has repressed Rwandan journalists, advocacy groups and opposition leaders, according to Amnesty International. Just this month, Human Rights Watch said that the regime’s opponents face increasing threats, attacks, and harassment in advance of Rwanda’s August 2010 presidential election. Some of this reflects the lingering effects of the 1994 genocide which killed an estimated 800,000 people in about 100 days.

In that context, the Contour Global project is particularly important because economic growth and democracy often go hand-in-hand.The relationship between economic growth and democracy isn’t simple but there’s considerable evidence that “countries are likely to become democratic if economic growth succeeds in raising their average incomes to high enough levels,” according to this analysis by economist Gary Becker.

And, of course,a growing economy needs access to electricity. Google, for example, has a partnership with Rwanda’s schools and ministries that will have more if Internet access becomes widespread. As I write this blogpost on my laptop in a coffee shop with free wi-fi in Bethesda, Md., it’s easy to forget that one-quarter of the world’s population lacks access to electricity.

Making an on-off switch part of their lives is transformative. That’s why Bill Fox, who has been in the power business for 30 years, is so jazzed about his work.

“This is a great opportunity for us as Contour Global,” Fox said. “Obviously, we’re getting paid but it’s almost like a mission to be benefiting countries like Rwanda.”

Since joining The Coca-Cola Co. in 1997, Scott Vitters has gone to work most days with one question on his mind:

“How do we get to our vision of a 100% renewable, 100% recyclable bottle?”

It’s a simple question, with anything but a  simple answer—getting to a renewable, zero-waste bottle requires technology breakthroughs, favorable economics that will drive recycling, changes in human behavior and supporting policy from governments around the country, if not around the world.

This winter, though, Coca-Cola is taking a meaningful  step towards its goal with the introduction of what it calls a PlantBottle – a bottle made of PET plastic, 30% of which is sourced from Brazilian sugar cane and molasses.

That puts Coke on the road to 100% renewable.

PET, meanwhile, is 100% recyclable—although actual recycling rates are far lower.

It’s a start.

“It’s incredibly exciting for us to be able to see a route forward to zero waste,” says Vitters, who is head of global sustainable packaging for Coca-Cola.

Scott and I met in Coca-Cola’s Washington office, where we enjoyed turkey sandwiches and Coke beverages. (Diet Coke for me, Honest Tea organic mango green tea for him.) Scott is 36 and a self-styled environmental geek, though he’s not an engineer. He’s got a degree is in political science from Franklin & Marshall, which should come in handy because his job is largely about mustering support for the company’s efforts to remake packaging. Most Coke products, remember, are made by independent bottlers, while  recycling systems are run mostly by private companies and shaped by a mishmash of state and local government rules. So his work is mostly about persuading people to change.

While other beverage companies have labored for years to lower the environmental impact of their packages—my friend Ben Packard has toiled for a decade or so to come up with a recyclable paper cup for Starbucks—Coca-Cola has done more than most. The company light-weighted its bottles, built the world’s largest  bottle-to-bottle PET recycling plant in South Carolina with bottler Coca-Cola Enterprises, and invested in RecycleBank, an innovative startup that rewards consumers who recycle more of their household trash.

Producing a renewable, recyclable bottle is hard because you have to consider the entire lifetime of the product—where it comes from and where it goes, as well as its cost and performance. Right now, most PET bottles come from petrochemicals and more than 60% end up in landfills, a literal waste.

Some people want to get away from PET. Packaging made from a material called PLA (and marketed under the trade name Ingeo) comes from plants and it can be composted. But PLA bottles don’t hold carbonation and they can’t be blended easily into the existing plastic recycling stream.

So Coca-Cola has been trying to “green” PET.

PET “works for sparkling and still beverages,” Vitters says. “It’s extremely efficient. And we’ve built a whole infrastructure for PET over the years.”

The company’s scientists have figured out how to make monoethylene glycol, which makes up 30% of PET, from sugar cane and other plants. Now they are trying to find economical ways to make terephthalic acid, which makes up the other 70% of PET, from plant material as well.

“We see the potential of a carbon neutral bottle,” Vitters says.

Of course, it’s a long way from here to there. Right now, Coca Cola uses raw materials from Brazil to make bottles that first be introduced in Denmark (for the Copenhagen climate talks), Vancouver (for the 2010 Winter Olympics) and select U.S. markets including Seattle, San Francisco and Los Angeles. You can see the marketing gurus at work. Future launches are expected in Brazil, Japan and Mexico.

“We don’t have an optimized supply chain today,” Vitters admits, “but we wanted to get moving.”

Eventually, Coca-Cola would like to use non-food, plant-based waste, such as wood chips or wheat stalks, to produce recyclable PET bottles.

That leaves the other end of the life cycle–disposing of bottles. Until the company, its consumers and recyclers can find ways to get more bottles into the recycling stream and keep them out of the trash, a carbon-neutral package will remain a dream. Changing the makeup of the bottles may prove easier than getting Americans to throw less stuff away. I say Americans because in poor countries, glass and plastic bottle recycling rates are much higher for what should be obvious reasons.

My takeaway: Coca-Cola’s packaging work is impressive. As the world’s largest beverage company, Coke has impact. Others will follow.

My wish: That Coca-Cola, which delivers nearly 1.6 billion servings a day, will make what’s inside its bottle healthier and more sustainable, too.

Here’s a video from Coca-Cola about the PlantBottle. I did a podcast with Scott, below, that will be posted soon at Greenbiz.com.

Scott Vitters, Coca-Cola

Seattle surely has more coffee shops per capita than any American city, so the arrival of another one would ordinarily not get much attention. But a newly-renovated coffee shop called 15th Avenue Coffee and Tea in the city’s Capitol Hill neighborhood is attracting interest—because it’s a Starbucks in disguise.

YOUR neighborhood coffeeshop is a Starbucks!

Crazy as it sounds, Starbucks, which has its headquarters in Seattle, operates 16,000 stores around the world and has spent countless millions to build its brand, is going undercover.

15th Avenue Coffee and Tea, which used to be a Starbucks, is one of several stores in the Seattle area that will be un-branded, as a way to see whether the chain might do better by adopting what a company executive called “a community personality.”

“This one is definitely a little neighborhood coffee shop,” said Tim Pfeiffer, senior vice president of global design at Starbucks, according to the Seattle Times.

You can imagine where this unbranding campaign could lead. A little neighborhood burger place run by McDonald’s? A little neighborhood hardware store owned by Home Depot? A little neighborhood five-and-dime operated by Wal-Mart?

Visiting Seattle the other day, I trekked up to Capitol Hill to check out the new store. Alas, it’s not going to open until this week. But the city’s newspapers are reporting that all traces of the Starbucks brand or logo will be erased from 15th Avenue Coffee and Tea.

Transparency? Authenticity? Aw, never mind.

Here’s how a company spokeswoman explained it to SeattlePi.com:

We’re continuing our commitment to delivering specialty coffee excellence while refreshing our store design approach with amplified focus on local relevance. Ultimately, we hope customers will feel an enhanced sense of community and a deeper connection to our coffee heritage.

Those, my friends, are words only a corporate PR person could utter. Any resemblance to spoken English is purely coincidental.

To be sure, Starbucks is responding to strain of public opinion that says local is better than global, small is better than big and independent is better than chain-owned. I’ve never been much persuaded by this line of thinking, if indeed it is thinking. The primary reason why Barnes & Noble hurt some but not all independent bookstores is that it offered a bigger selection in a more pleasant environment. But there’s no doubt that the small-is-beautiful bias is out there. The morning that I visited 15th Avenue Coffee and Tea (and I’m not making this up), I walked by a young woman wearing a T-shirt with a fake Starbucks logo that said “Corporate Coffee Sucks.” It’s possible that Starbucks’ “amplified focus on local relevance” will turn her into an ally, but somehow I don’t think so.

I’m actually a big fan of Starbucks. The company’s coffee-buying practices are admirable. Starbucks has worked hard to develop more environmentally-friendly packaging (as the Environmental Defense Fund has said). And of course CEO Howard Schultz has won deserved praise for providing health-care benefits and stock options to even part-time employees.
While Starbucks has been accused of destroying independent coffee houses, the opposite is true: The company transformed a commodity into a premium product, taught millions of Americans to spend $3 (or more) for lattes and cappuccinos, and thus spurred the growth of the specialty coffee industry.

Now, because Starbucks is suffering after years of hyper-growth, you can’t blame the company for trying new approaches, or copying others. (Owners of three independent coffee shops in Seattle report that Starbucks’ employees have been visiting their stores and taking notes, with some carrying folders labeled “Observation.”) The new unbranded neighborhood stores will “serve wine and beer, host live music and poetry readings and sell espresso from a manual machine rather than the automated type found in most Starbucks stores,” the Seattle Times reports.

But I wonder if the people running Starbucks are overcomplicating it business. The company grew too fast and lost focus (dabbling in music and movies) and so quality suffered—particularly the quality of store managers and baristas. I frequent three Starbucks near my home in Bethesda, Md. One is unfailingly clean and pleasant, with baristas who appear happy to be there. A second offers spotty service and décor. A third is predictably subpar—and often empty.

Starbucks will come back. It’s a great company with a great brand, and it doesn’t hurt that its core product happens to be addicting. Why go into hiding?

Like a good neighbor, State Farm is there. Fly the Friendly Skies. You’re in good hands with Allstate. Talk to Chuck.  You have a friend at Chase Manhattan. (I know, I’m dating myself with that last one.)

For a long time, companies have sought to be our friends, neighbors and companions. Many tell their workers that they are all part of the family. Or at a minimum playing on the same team.

Is this all marketing b.s. or can companies care? I believe they can. My 2004 book, Faith and Fortune: How Compassionate Capitalism is Transforming American Business argued that smart companies (Herman Miller, Timberland, UPS, Southwest Airlines and Starbucks, among others) are driven by an ethic of service—to their employees, their customers and their shareholders, frequently in that order. This ethic of service generates loyalty and creates a powerful competitive advantage: Happier and more fulfilled employees mean satisfied customers, and satisfied customers generate long-term value for shareholders. Caring is good business.

The thing is, companies that say they care need to behave that way.  In tough times, that’s tough: Starbucks eliminated more than 6,000 jobs when its business went south last year. This doesn’t make Starbucks hypocritical when it cames to be a good employer, but, at the least, it puts a burden on the company to treat people well on the way out.

A provocative and lively book I’ve been reading, called Predictably Irrational: The Hidden Forces That Shape Our Decisions, explores these question in a chapter called The Cost of Social Norms: Why We Are Happy to Do Things, but Not When We Are Paid to Them. The author, Dan Ariely, argues that we live simultaneously in two worlds, one characterized by social exchanges and the other characterized by market exchanges. The first is the world of family, friends, neighbors and community, the second the world of business, wages, prices and rents. “When we keep social norms and market norms on their separate paths,” Ariely writes, “life hums along pretty well.” But when they collide, look out. Think about what happens when a guy tries to persuade his wife or girlfriend to have sex with him because he just bought her an expensive dinner—Ariely’s example, not mine.

Businesses gain when they bring social norms to the marketplace, Ariely says:

If customers and a company are family, then the company gets several benefits. Loyalty is paramount. Minor infractions—screwing up your bill or even imposing a modest hike in your insurance rates—are accommodated. Relationships of course have ups and downs but of course they are a pretty good thing.

I’m willing to bet that Southwest customers are less grumpy about flight delays than those on United or Delta because they have a sense that the company wants to treat them right. When I buy something at Nordstrom or L.L. Bean and something’s amiss, I’m okay with that because I know they’ll happily take the merchandise back.

Trouble arises when companies don’t deliver what they promise. We know that we can’t literally “talk to Chuck” but Charles Schwab had better make sure that the people who answer its phones are friendly, responsive and knowledgeable. State Farm has to act like a neighbor when a customer submits a claim. As Ariely writes:

If you’re a company, my advice is to remember that you can’t have it both ways. You can’t treat your customers like family one moment, and then treat them impersonally—or even worse as a nuisance or a competitor—a moment later when this becomes more convenient or profitable.

Just to be clear, Ariely isn’t saying that companies should only operate by market norms. He believes in the power of social norms, and his experiments in behavioral economics back him up.

“Cash will only take you so far,” he writes. “Social norms are the forces that can make a difference in the long run.” Money, he goes on to say, is “very often the most expensive way to motivate people. Social norms are not only cheaper, but more effective.”

Put simply, we’ll all work hard for a cause – or a company – that we believe in. Look at the success of open-source software or Wikipedia, where creators don’t get paid at all.

Much of this dovetails (pun intended) with the work of one of my writing/consulting clients, Dov Seidman, the founder and CEO of a company called LRN and author of a book, HOW: Why HOW We Do Anything Means Everything in Business (and in Life). Dov talks about how companies need to inspire, rather than coerce or motivate, their workforce. He also says that the best businesses need to “out-behave” their competition. I agree, but Ariely reminds us that this is a risky way of doing business.

Those who say that they care create high expectations that they had better meet.