Author: Domini, Amy
A recent trip to Southern California brought me within an hour’s drive of the famed Joshua Tree National Park, a 1,235 square-mile tract of land overseen by the U.S. National Park Service. The park is shockingly beautiful when viewed by one who has lived her entire life in New England. It contains unusual, even unique features of desert life, and a trip in March, as mine was, offers a heady display of cacti flowering. I found myself deeply moved by the spiritual space that a pristine piece of wilderness creates.
The park has many interesting features, one of which is that it exists because a woman, Minerva Hamilton Hoyt, advocated for the preservation of desert spaces. In fact, the American people also have her to thank for the protection of Death Valley and the Anzo-Borrego Desert. I often find that, when I stumble upon a really special place, I hear the same story: one person—often one who has no ancillary personal benefit from acting—becomes passionate about protecting a small corner of the universe, and through that passion, is successful in preserving a location full of marvel for generations to come. And always, government plays a vital role.
And so it was with a great deal of surprise that I watched the news unfold in January 2016. In a spot I’d never heard of, the Malheur National Wildlife Refuge, a group of armed individuals gathered to argue that this land, which belongs to all citizens, through our national park system, ought to be turned over to a handful of ranchers. I immediately felt struck by this reversal of the well-known story of preservation and became curious about Malheur’s founding. It turns out that during the 1880s many species of American birds were being decimated because their feathers were used on hats. Ornithologists were alarmed, and in a few short years George Bird Grinnell founded the Audubon Society and appealed to President Theodore Roosevelt to set aside lands for the preservation of breeding grounds for native birds. Malheur was one of these, as it is an important breeding area, especially for the Greater Sandhill Crane.
So what got these individuals so riled up? I could understand an argument that government-owned property had crowded out ranchers and that some of it ought to be freed up. But in fact, that is already the case. The Bureau of Land Management has 155 acres of land set aside for livestock grazing. They award leases for ten years at a time, and the cost to the rancher is $2.11 for enough land to keep a cow and her calf alive for a year. Meanwhile, the BLM spends $79.9 million to keep the land and water healthy enough for grazing. That sort of subsidy to cattle ranchers is pretty impressive.
No, this felt like a land grab – a group of selfish people who wanted to take from the many and give to the few. For the local Burns Paiute tribe, it was a painful reminder of an earlier land grab. National parks are a treasure for all who walk through them. Each is unique and each is under pressure. Would we even have a clue as to what beaches once looked like if we did not have the great national preserves like the Anastasia State Park near St. Augustine, FL or the Cape Cod National Seashore? With the pressures for development in Southern California, would a single Joshua tree even still survive, let alone a whole park of them?
I’ve never fallen into the anti-government category; anarchy doesn’t much appeal to me. But I rarely appreciate government as much as I do when I find myself walking through protected lands. I hope there isn’t any more silliness about removing the parks from federal oversight. As fewer and fewer Americans live in close proximity to pristine places, our national parks become more of a treasure, not less. The National Park Service is turning 100 years old this year. Let’s use this as a chance to celebrate what wilderness brings to us and recall that the few, working together, have preserved many a special spot in this great land of ours.
About 50 years ago, The New Yorker published a cartoon that tickled my father’s funny bone, so he got the artist to give him the original. It featured two men looking at a large flip chart on which was drawn a five-story urban type of building, such as you might see in any city. One man was explaining to the other, “It is designed to use modern energy-efficient technology, with windows that open to let cool breezes in.” Because of that cartoon, I know that people have been talking about the lost art of energy savings for 50 years or more.
When you start looking at the many ways to preserve energy that the typical Victorian knew but that we have forgotten, it gets a bit disheartening.
My neighbor used to have those outdoor awnings covering each of her windows. When you walked into her house on a hot summer’s day, the temperature dropped fifteen degrees. That’s because the glass in the window magnifies heat from the sun. If you don’t let the sun hit the window, you get a much cooler house. Then she’d open the windows at night to let the cooler air in, closing them again the next morning.
I’ll admit, I just don’t like air-conditioning. Somehow it just feels wrong. So I began this article with cooling ideas, but there are other energy savers that have fallen from use. Refrigerators keep getting bigger and bigger, and really, they use energy that our forebears didn’t have so didn’t waste.
A friend of mine grew up in a house built in 1699, with a cellar, not a finished basement; it had a dirt floor. The family had one room down there with floor-to-ceiling shelves. Fresh eggs were stored there for a month or more. Potatoes, carrots, beets, winter squashes, along with apples and pears and grapes, sat in baskets on the shelves. Jars of jam could be left happily for several years with wax poured over the top. The melted wax adhered to the top of the jelly. Since nothing could get in, not even air, there was no mold, so no germs. Even with the door closed, it got enough heat from the kitchen so that nothing froze, but much could be stored there that today would have to be refrigerated.
I’m not trying to make a case that the world should return to dirt floors in the basement. We are creatures of the generation we grew up in. But it is important to remember that we’re not taking the simple steps we could be taking to do our own part in the fight to save the planet from extinction. Climate change is too big a price to pay for personal convenience. So let’s get serious about the steps we can take.
First, let’s change our lightbulbs. Electric lighting accounts for roughly 25 percent of the energy the average home uses. Yes, the newer, more efficient bulbs cost more up front, but estimates say they save you $20 over the lifetime of the bulb. I don’t argue that lower cost is a reason to swap; I only use it to point out how much extra energy the old bulbs are wasting.
Next, let’s think efficiency when we consider the purchase of a car. My city has cars you can rent by the hour, and I’ve found that these work fine for most every need I have. But I do live in a city. If you need a vehicle, at least check the fuel efficiency and factor that into your calculation of the real price of the car. The new electric cars get the miles-per-gallon equivalent of roughly 60 to 120. In other words, they cost you less to fuel (a lot less), and they don’t pollute as you drive.
My last thought will surprise some. Let’s buy more secondhand. As a society, we create an awful lot of new stuff, and making new stuff uses energy. So does shipping new stuff, packaging new stuff, and lighting the stores that sell new stuff. Buying secondhand is fun and an adventure. It supports local owners and nonprofits. But importantly, it saves energy.
That cartoon on the wall is 50 years old and is as amusing today as it was when it was drawn. We giggle at the thought of claiming that opening windows is the height of new technology. But there is an important message there.
Sometimes simple steps are important.
We often overlook what makes an economy healthy. I read stories about reducing the deficit, spurring on businesses, rewarding the job creators, but none address America’s dependence on consumer spending for its gross domestic product (GDP). Debates rage over what we count, but most sources claim that more than 70 percent of our GDP comes from consumer spending, compared to 55 percent during the 1950s.
For many Americans, the 1950s were the glory years. We baby boomers grew up playing with many fewer toys, living in much smaller houses, eating much smaller meals, and we generally view the time as patriotic and happy. Whatever the exact proportion attributable to business and government (the other two drivers of GDP) during the 1950s, it was, to the satisfaction of most economists, clearly larger than it is today. Yet as a nation we have taken a number of steps that have left our economy ever more dependent on consumption.
What big forces rolled back contributions of business and government? I think the root causes are overlooked.
First, back in 1954, just over a third of the U.S. workforce belonged to a union. This meant that business had to spend more, which upped its contribution and made consumers wealthier—thereby also upping consumers’ contribution. Further, unions train their members through apprenticeship programs, so business had a steady supply of capable and qualified workers, the lack of which is often a problem now for businesses looking to hire. Today, 12 percent of the workforce is in a union. Our workers receive a smaller share of the corporate spending budget, so profits rise but spending does not.
The second cause, a shift in the American psyche, is harder to quantify. Saving has fallen off, while spending has become respectable. It may be that we feel pulled to spend by advertising that bombards us, but it is also true that we no longer honor the hardworking, simple-living, solid-saving person. Perhaps the availability of credit lulls us into thinking the rainy day will never come. When I was quite young, a man told me that of course he could afford a better car, but being wasteful wasn’t Christian. Wow. Even if you substitute “a good person” for “Christian,” that’s a rare sentiment today.
A third factor is the influence of Wall Street on corporations. While in the 1950s top executives were paid 20 times what average workers received, today that figure is 204 times. This pay differential is generally granted as a reward for stock performance—the theory is you want the CEO’s interest to be in synch with the investors’. Good stock performance is the result of two factors: rising corporate earnings and a larger profit margin. Spending now on something that might pay off in five years might help future CEOs but doesn’t help now; stretching out maintenance expenses or cutting quality does. Average corporate profit margins during the 1950s were in the high 20 percent range; today they are in the high 30s. That’s nice for shareholders and executive bonuses but lousy for growing the economy.
Then there’s government. Government spending is dependent on two factors. The U.S. government must have the money to spend (collected via either tax revenues or borrowing), and it must have permission to spend, granted by Congress. Records from the Office of Management and Budget show a slight creep in spending of about 1 percent of GDP since the 1950s. The big contributor is health-care costs, but although the Affordable Care Act might bring government spending (relative to businesses and consumers) more in line with the 1950s, it still hasn’t come close to taking up the slack left by lagging business spending.
So what’s needed to grow the economy? Since corporations are unlikely to shift the executive incentives, perhaps we need to levy an “alternative tax” on these corporations. Ronald Reagan introduced this tax, which requires individuals to pay at least a base tax, loopholes or not. But the same isn’t true for corporations.
We could eventually train and incentivize saving, but in the short term that will dampen the economy. Corporations could be given incentives to contribute more, though it is hard to see how. But government can spend right away. An alternative tax on corporate profits would make that possible. The ever-growing profit margins among companies aren’t good enough for Americans— the nation needs the cash.
One of the truly humiliating experiences of aging is getting to see just how wrong you can be. I was a big fan of David Korten’s book, When Corporations Rule the World, when it was first published in 1995. So when it was was reissued in 2001 with new concepts added I bought and read it at once. My response: “God bless the man; he is a hopeless dreamer.”
How wrong I was. In his re-released edition, Korten argued that only a vibrant and concerted movement to celebrate and support locally owned businesses could sustain a healthy economic life for most of us. He wrote that although large corporations are good at selling a lot of a product, they squash the neighborhood vendors and fail to provide the local basketball teams with bus money. I agreed with that much. But what I could not envision was that people would shift their habits to support locally owned businesses and locally sourced products. That just seemed too farfetched.
But this is a new world, and localism, as it is called, has taken hold. As I pass a farm stand in South Carolina, the “certified South Carolina produce sold” sign urges me in. As I walk to the subway stop in my neighborhood, I pass five “locally owned and operated” signs in windows. In Kentucky, I see “Kentucky Proud” signs to announce the local nature of the business inside. Even at the large chain supermarket where I shop, “locally grown” signs loom over vegetables.
This is an important trend. We always had the tourist who insisted on Maine lobster or Vermont maple syrup to enrich their traveling experiences, more as a memento than a movement. This is something else. The shopper at the locally owned pharmacy is saying that they get it, that they choose to support the local family that has, in turn, been serving the community, supporting the local elementary school spelling bee and keeping the developmentally disabled son of a neighbor employed stacking shelves. And if the toothpaste costs 20 cents more (simply because the local pharmacist can’t benefit from scale the way the majors can), the customer doesn’t see it as a rip-off but as a fair trade.
Some years ago, I wrote about the slow food movement, wherein advocates urge us to source locally, organically and humanely. They are asking us to prepare traditional recipes and to take the time to enjoy the meal. I wrote that it was a subversive trend. While it was fun, it taught us about what it was not, and it was not industrial agri-business. It helped remind us that there was something precious in the simpler, older ways. Like slow food, localism teaches us something about what it is not. It teaches us to look more broadly at the ecosystem within which we get goods and services and to shop in ways that more directly lead to the creation of communities in which we want to live.
Localism seems to have taken hold because it speaks to something fundamental about the way humans want to live. We want to feel as though we are part of a community, whether it is our block in the big city or the rural county we call home. Our communities offer resources to finance our lives, that allow us to enjoy dignity, common respect and companionship with our shopkeepers, our public servants and our neighbors. These resources don’t easily grow out of minimum wage jobs at big box stores, but they are immediately tangible at the local market where we stop and chat about the new stoplight in town while we pick up a carton of milk.
As I think about the larger implications of localism, I see nothing but positives. It isn’t like being a fan of your hometown team, fostering resentment and competition. Localism in South Carolina isn’t better or worse than localism in Massachusetts. I enjoy the shared commitment to community that localism means everywhere I find it. Rather than fragmenting us, going local seems to be a way of making us all part of something big.
I keep hoping I’ll become wise enough to recognize a great thought when I see it, but I’m still waiting. Meanwhile, I’ll have to satisfy myself with a quiet apology to David Korten for ever having thought he was a fluffy, softhearted soul instead of the visionary that he is.
Originally appeared in Green Living Journal (Fall 2013)
Rian Fried, one of a handful of people who shaped what is now called “socially responsible investing,” passed away on July 3. A passionate and disciplined man, Rian sought to return capitalism to its initial purpose of helping to create a good life, and he was boundless in his enthusiasm for sustainable investing.
Along with Doug Fleer, Rian founded Clean Yield in 1984. In addition to managing assets, they also began publishing a newsletter by the same name. I have received it ever since and have never ceased to be amazed by the bold voice with which it presents groundbreaking new ideas. Whether seeking alternatives to fossil-fuels or finding ways to capitalize a local organic seed farm, Clean Yield has brought all of us along into its cozy Vermont way of doing things.
During the 1980s, Rian Fried traveled to Boston many times, as a small group of us met to discuss our shared vision of investing and to learn from each other. From these meetings grew a shared commitment to the values of responsible investing that endure today. We determined that we must select investments carefully, with environmental and social standards considered. We determined that we must take our Wall Street voice to another level by directly contacting companies and government agencies to raise issues and to mitigate injustices and harms that ordinary business can create. We determined that we must be ready to support grassroots efforts to expand the economic well-being of more people, through innovative financial institutions and from non-traditional companies alike. I will always be grateful to Rian for his quiet insistence that values come first.
Not every passing of a giant is recorded in the headlines, but we in the field of socially responsible investing know full well that Rian Fried was a cornerstone to our thinking and our work. Our hearts are heavy at his passing.
As a nation of immigrants, we sure spend a lot of time worrying about whether immigrants make good Americans. As the daughter of an immigrant, I find myself quite personally fascinated by the discussion. My father didn’t come to America for opportunity; he came because he had married an American. He also came because he had a vision of “the land of freedom” and wanted to be a part of it. America had just liberated his country from the Fascists, something he had fought for his entire young life, since he had the misfortune of being the son of a prominent Socialist.
My parents met in an odd sort of way. After World War II, the American government sent thousands of volunteers to rebuild Europe. My mother was one. There she met Italian volunteers who were trying to save street orphans by attempting to locate relatives who might take them in.
One of the Italian volunteers spoke English, and eventually my mother brought him to America as her husband. Italians and Italian Americans were not much liked at the time. There were nasty words used to describe us, and my father could not seem to get a job except from his own kinsmen. He tried importing pasta from Italy, but although it was cheaper than American pasta, Americans found it too chewy for their taste. Yet during my own lifetime, I have seen the visceral disgust that so many New Englanders felt toward Italian Americans completely fall away. And I have seen them come to love Italian-made pasta.
What are the elements that cause the distrust of an ethnic group to emerge and then fade? Can it still happen? The current group that is most central to the debate is the Hispanic population. They represent the big new constituency. Are Hispanics too overwhelmingly different to fit in America? They come for freedom. Freedom from random tyranny and poverty will allow them to prosper and raise families. We understand that, but we also want them to be like us.
The Immigration Restriction League was founded in 1894 by people who opposed the influx of “undesirable immigrants” who were coming from southern and eastern Europe. My mother’s grandfather, a very fine man in most ways, was one of them. He felt that the new types of immigrants were threatening the American way of life and especially the high wage scale that we Americans enjoyed. He wrote articles about it and was published widely.
His last point, wages, is a tough one. Arguably, if we completely ran out of workers, it seems that we’d be forced, as a nation, to do a better job of bringing those who are currently shut out into the mainstream. I’m not so sure. It is true that during the last few years of President Clinton’s administration, unemployment was so low (4.1 percent in 1999) that the papers ran stories of new jobs for the mentally disabled or recently incarcerated. But if you look at the segregated figures, each worker demographic group (Hispanic, black, elderly, teen) improved, but the harder-hit remained the harderhit. We did not see the gap between college-educated males and teenagers narrow, for instance. So worker scarcity does not seem to lead to a fairer distribution of jobs. Meanwhile, most studies indicate that the new immigrant taxpayers support our social security systems, and their purchases fuel our economic growth.
So really, nothing is new in the debate over immigration. We still fear otherness, we still fear a new language, and we still fear job or wage loss. This time is not different. The reasons for opposing a path to citizenship have not changed. The actual movement from alien cluster to mainstream citizen has not changed. The acceptance—even celebration—of the ethnicity of our own family’s past continues to be appreciated, not abhorred, by our neighbors, but only after a generation or two.
In the end, for me it comes down to the gut. My father was a good man. In spite of a certain amount of prejudice, he made a living, became admired by friends and neighbors, built a modest business (cooking eggplants), and left a mark on the world. His simple factory created jobs and taxpayers; his values were key to shaping mine. His life would have been good, very good, if he had stayed in Italy, but America was a shining beacon of something more than a good life: freedom. That is what he craved, and what he found. Should we now deny this to others? I think not.
Some change happens very quickly. Occasionally the thing that has been accepted for generations disappears very quickly. I’m too young to remember the women’s struggle to vote, but as I look back at the history of the vote, it seems that once it really began, it happened right away.
I’m not too young to remember the birth of feminism. I grew up believing that I’d probably be a mom, but I might teach kindergarten. There weren’t really any sports for me to play, although I did get into a synchronized swimming program in high school. When I graduated from college, I no longer wanted to teach kindergarten and I wasn’t married so I went to typing school. But the change came, and it came in a big hurry. Five years later, I was supporting myself as a financial advisor, teaching investment courses and writing about ethical investing.
I’m not too young to remember the end of smoking. When I was pregnant with my son, who’s now 30, the small office I shared with four others was always full of smoke. In fact after lunch, it was full of cigar smoke. It never even occurred to me that I might ask my fellow workers to show some consideration to a pregnant and uncomfortable woman. But once the ball got rolling, smoking was banned in setting after setting.
The process of long-term sustained change seems to involve a few vital components. First, one needs a countervailing thesis. Women are as much citizens as men are. Smoking is unpleasant and harmful to non-smokers. Next, you need some people to get really, really worked up about it. This vanguard has to be brave about confronting people who disagree with them. After that, the notion is aided by righteousness. Only a fool would consider his wife, mother, daughter or sister incapable of thought. Only a selfish jerk would poison his or her family and friends while poisoning one’s own body. Then comes the toboggan slide, when laws, social norms and manners all come together to assist, rushing to embrace the new understanding.
Recently I got a wedding invitation in the mail. Tommy and Brian were getting married. Because Tommy and Brian live in Massachusetts, this same-sex couple was granted access to the institution of marriage, but in most of the U.S. they would not have had the option. Still, it feels a lot like the “smoking is harmful” days. Polls tell us that Americans in every age group don’t care about sexual orientation and that all but the oldest Americans believe that granting the right to marry to all is long overdue. In fact, I recently heard openly gay former U.S. Representative Barney Frank describe the right to marry as enjoying a tsunami of support, not just on the Eastern seaboard, not just across America, but increasingly, across Europe.
It feels like such a short time ago that I myself did not see any reason to support homosexual marriage. My friend and colleague in the field of responsible investing, Julie Goodridge, sued for the right to marry. I thought it was an awful lot of work and loss of privacy, and there wasn’t anything wrong with living together. But she had been denied the presence of her spouse in the delivery room, and that seemed wrong. She was also denied the benefit of marriage in filing her tax returns, obtaining health care, retirement planning and estate planning. Nobody really cared that Hilary and she were partners, but everyone wanted to deny them the most natural results. So I came around. They won that case. And now Tommy and Brian are married.
These things fill me with great hope. I know in my core that important and positive change can occur. What will be next? Will we use the power of common sense to get our proliferating automatic weapons out of the hands of killers? Will we use it to get help, rather than prison sentences, for the addicted? Will we seek systemic means of providing the highest quality education, food, shelter and health care to our population? There is such a thing as the power of the people, and when you see it used, it is thrilling.
Recently, I found it necessary to be part of what is euphemistically called “an intervention”: intervening in someone’s life to try to stop self-destructive behavior and get the person on the road to recovery. Sadly, the person involved, someone who is dear to me, drank for two straight days before I figured out that we had a problem. It is remarkable how easy it is for a determined addict to cover their tracks.
But this is not a tale of gloom. My friend is in a program at present. That program will help to allow sobriety to return. It may also assist in building a resolve to conquer the demons that clearly have had dominance of late. After that comes a lifetime of work, and that’s what I have been studying. That’s where the hope comes in.
From what I can find, a key aspect to recovery is acknowledging that there is logic to the universe that is beyond the individual. This logic is often called God, and a lot of recovery programs speak of giving yourself over to God. It is also called science, harmony, your higher power and a good many other things. Apparently, when the addict acknowledges this larger logic, he or she is able to more easily defeat the smaller demon.
This reminded me of a concept I’d recently heard about. Rabbi Arthur Wascow is a man whose religion has led him to a lifetime of fighting for the disempowered. He spoke of YHWH, or Yahweh. The original Hebrew word is never to be pronounced. This is made clear by giving it no vowels, rendering the letters unpronounceable. But it is also a core teaching that the word is too sacred to speak aloud. The rabbi had his audience attempt to sound those letters, YHWH. What came out sounded like blowing.
It is a beautiful concept, that the deity is expressed as breath, which is essential to life. Taking it further, all animals breathe. Actually, plants breathe as well. And then the winds that form as the planet turns sustain the life below. Even the more distant sun and other stars fit into this magical breath. As Rabbi Wascow spoke, I could easily see a single, breathing universality.
Sometimes, in a yoga class, I’ve spent time making that YHWH sound, pacing my own motion, even heartbeat to it. I never had thought of it as universal. That is probably because it is also centering. It helps the yoga practitioner to deepen their pose as it exercises the lungs. Do all the ancient wisdoms hold the sound of breath as a central concept?
I thought of all this as I thought of my dear one. My first action after the act of getting help had been to put my lips together and blow. Now that I’ve done some reading and some thinking, I wonder if I had known I was uttering a prayer of sorts.
The past few days, I’ve learned a lot about how to help when the treatment ends. It is important that many of us lend support. We will organize ourselves to take on tasks, perhaps reading groups, perhaps drawing classes, perhaps sailing. We will find means of being present. We know that an addict cannot solve addiction, but can live with it and without the alcohol. We will help make that new life fun. In doing so it will make my life more fun. It will enrich me.
I know that a lot of people, probably most people, have trouble with the concept of a “personal” God, or some deity that deals with you one to one. That’s a part of recovery that doesn’t seem easy to swallow. But the concept of a universal breath seems very easy to give one’s self to. Wikipedia says that YHWH is probably related to a prayer that means “that which creates” (I took out gender).
If addiction recovery has to do with strong community and the embracing of that which creates, then it seems achievable. If it is achievable, then I can breathe. I find myself pursing my lips, blowing softly, feeling the relief and hope. I’m sad for my friend and the relations involved, but passing through this has caused me to do a good deal of thinking. I think it was time.
People sometimes ask why I don’t invest in liquor company stocks. I don’t know, maybe I’m being a bit puritanical. But the pervasiveness of alcohol in our society comes with high human cost. And when you add social pressure, slick advertising and relentless cheerfulness, drinking can lead to addiction and misery. Myself, I’d rather take a deep breath.
Looking forward ten, even twenty years, what will Socially Responsible Investing (SRI) have become? What will it have accomplished? What will the field look like? Today, I build a case for a good future. In a word, it will largely be marvelous.
Roughly 15 years ago, I spoke in Jackson Hole, Wyoming. It is a spectacular setting, one that makes a person proud to be in a great nation like ours, one that protects such places. Yet, as I reminded the audience that day, it had not been the public that had kept the Grand Tetons pristine. It was one man, John D. Rockefeller, who had purchased the land and given it to the nation.
This is the classic dilemma we in SRI struggle with every day. It is great that the Grand Tetons are a public treasure, but they became so on the backs of crushed labor forces, pollution and selfishness. One man made his money and then gave it away, but he set in motion the international oil industry, an industry that is robbing us of a climate, a future.
That day I challenged SRI to become relevant. Today, I can see clearly that it has. Over the next twenty years, the positions we have taken and the battles we have fought will lead to a universal understanding that what we have been saying, the way you invest matters, is absolutely correct. We will see our guiding principles integrated into the mainstream. We will be astonished at the acceptance and the impact that we have had.
How We Became Relevant – Performance Matters
Perhaps the most devastating argument we faced early on was the Modern Portfolio Theory (MPT). It argues that the previous “prudent man” idea of buying good stocks alone, created risk. Introduced in 1952 by Harry Markowitz, the original premise was simple: investors should focus on overall portfolio risk. Simply put, even if you love software, you still shouldn’t build an entire portfolio of software stocks. Astonishingly, this revelation won Mr. Markowitz a Nobel Prize in Economics and caused the entire financial services industry to argue that the individual risk characteristics of a company mattered little.
Against this backdrop, SRI seemed hopelessly old fashioned. We argue that each company, by virtue of the industry within which it operates, faces a series of risks that we label as risks to people or the planet. We then argue that taking too large a risk is not necessary and further, that it perpetuates an acceptance of these risks. Wall Street pundits stated with great authority, but with no basis, that our form of analysis flew in the face of Modern Portfolio Theory and so would fail. Our largest barrier was that, to use the vernacular, every smart person knew SRI was stupid.
The evidence proved otherwise. The MSCI KLD 400 Social Index has not only debunked the premise of MPT, but also shown that risk avoidance works. The index has outperformed — and has done so with a lower standard deviation. Clearly, examining the risk of corporate behavior tells us something about a company that is useful to investors.
Why We Are Relevant – An Increase in Reporting
SRI practitioners have pushed for “extra-financial” data and have gotten it. At first, true comparative data on companies was extremely scarce in some areas of keen interest to the concerned investor. Any good researcher understands that the newspapers are a lousy place to start. The fact that we know that Apple sourced from Foxconn does not tell us what Hewlett Packard does. What is needed is data that is universally ascertainable, without the company answering a questionnaire (which allows them to self-define), and the data must be quantitative in nature, e.g. I don’t care as much about a statement that a company seeks diversity as I do about how many minorities have been hired.
Today, thousands of companies self-report. Whereas the one or two companies that issued Social Responsibility reports thirty years ago were real outliers, today it is so mainstream that Forbes magazine maintains a blog to follow them. Accounting giant PWC makes available the 2010 survey of CSR reporting on their website. The highlights: 81 percent of all companies have CSR information on their websites; 31 percent have these assured (or verified) by a third party. Their 2012 update contains examples of what to look for when writing (or reading) them.
Who was pushing for this disclosure? It wasn’t civil society, it wasn’t Wall Street; it wasn’t government. It was a loose confederation of concerned investors who consistently pushed for greater and more standardized “non-financial” information.
Why We Are Relevant – An Increase in Regulation to Disclose
Regulators are beginning to expand on the data corporations are required to disclose. Remember, there was no God-given definition of the right way to report financials to investors. In 1932, when reforms to protect investors began, regulators looked at some of the pre-existing methods and evaluated them. This led to audited annual reports on income statements and balance sheets. It led to quarterly unaudited reports. These had, in the past, come to be viewed as important in judging the financial soundness of a corporation.
However, the regulators did not stop with accounting issues. Given that the 1930s were a period of high unemployment, the number of company employees was considered important, and so its disclosure became mandated. There is no reason that more robust social and environmental reporting shouldn’t be in the financial reports. We already disclose a company’s hometown, without companies complaining of the inappropriateness and burden of so doing.
The Initiative for Responsible Investment at Harvard University maintains a database of Global CSR Disclosure requirements. In it we find 34 nations are taking steps. In 2009, Denmark, required companies to disclose CSR activities and use of environmental resources. In 2010, the United Kingdom required companies that use more than 6,000MWh per year to report on all emissions related to energy use. Malaysia, in 2007, required companies to publish CSR information on a “comply or explain” basis. Regulators, recognizing the societal costs of less than full cost accounting, are moving in to mandate disclosure.
Mainstreaming – With this solid base, here come the “big boys”
Conventional asset managers and the academic community have brought SRI to the mainstream. I began by saying the future for SRI is marvelous. Consider a world in which every major financial asset management firm demands that its staff study the social and environmental implications of the investments they make and bases recommendations upon it.
But this has already begun. Consider MEAG, the American portfolio management branch of Munich Re. Their team buys only publicly traded bonds which then back the insurance the firm issues. They use ESG criteria to give their research the edge and to avoid risk. When I met with their research team, I found that they use several of Domini’s Key Indicators. No, we don’t publish the indicators. It also was not a coincidence. The two firms independently discovered the same indicators to be telling because they both use the same logic in approaching the issues. Or there is UBS Investment Bank, where analysts specifically address the social, environmental or governance risks of a company they are recommending.
Finally, look at the all-important realm of academia, where MPT began. Just three recent examples are telling:
The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance by Professors Robert Eccles and George Serafeim, Harvard Business School. “… we provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. The outperformance is stronger in sectors where the customers are individual consumers, companies compete on the basis of brands and reputation, and in sectors where companies’ products significantly depend upon extracting large amounts of natural resources.”
Corporate Social Responsibility and Access to Finance by Beiting Cheng, Harvard Business School, Ioannis Ioannou, London Business School, and George Serafeim, Harvard Business School. “Using a large cross-section of firms, we show that firms with better CSR performance face significantly lower capital constraints. The results are confirmed using an instrumental variables and a simultaneous equations approach. Finally, we find that the relation is primarily driven by social and environmental performance, rather than corporate governance.”
An FDA (Food and Drug Administration) for Financial Innovation: Applying the Insurable Interest Doctrine to Twenty-FirstCentury Financial Markets, by Eric A. Posner and E. Glen Weyl, Law School, University of Chicago. “We propose that when firms invent new financial products, they be forbidden to sell them until they receive approval from a government agency designed along the lines of the FDA, which screens pharmaceutical innovations. The agency would approve financial products if they satisfy a test for social utility …”
The Next Twenty Years
This article limits its scope to only one leg of the SRI stool. It does not discuss the growth of shareholder activism, which is vibrant. Nor does it address the mainstreaming of selling products with narrow and specific social purpose, also a burgeoning field. Rather, by looking at the application of social criteria to an investable universe alone, we see that barriers have been removed, and that now both a mountain of money, and the force of government and academia, will work with us and introduce our goals into mainstream investment thinking.
We know we can make money, government is increasingly with us, and academia is swinging our way. Now, the rapid acceptance of more robust and integrated accounting has done away with the last barriers. This brings us the assets to have impact. As society sees the full cost of traditional business behavior, SRI will be embraced as the single most important lever towards building a better world than the planet has ever seen.
I’ll admit that I’ve never been particularly careful about honeybees. As a kid, I’d catch them in jars and threaten my younger brother with them. As a gardener, I find it fun to stare hard and watch as they bob in and out of the blooms, covering their legs especially with yellow pollen. I don’t worry about getting stung. It doesn’t take much to start noticing the difference between wasps and honeybees. The honeybees are fuzzy. They don’t want to sting you.
My garden has been a bit of a haven for bees and for butterflies. I like to watch them, so I always try to have something flowering to tempt them in. But last year, it was July before I had any good bees. That was really late and I was really worried. It has been a number of years since I’ve seen bats in my yard. They used to come swoop around each summer evening, putting on a show for me. I don’t want to lose bees, too.
I’ve been reading that there is an international phenomenon of colonies of bees just dying. A scientist at Harvard recently wrote a study that implicated the pesticides used on many crops. Of course, the company making the pesticide said the study was full of holes. One line of thinking was that maybe cell phones were the cause. But a few countries in Europe stopped using the pesticide in question a couple of years ago and their bees came back.
That strikes me as a pretty big coincidence, if true. In fact, this is beginning to feel as if we’re experimenting on the planet, and that makes me mad.
When do we stop experimenting this way? It’s been 50 years since Rachel Carson published Silent Spring. Her revelations about the impacts of DDT showed that that pesticide was devastating. Fifty years later, we haven’t admitted that sometimes it is a lot better to prove safety before approving products for widespread use. It’s a commonsense argument, but there are those who worry more about the economic impact of not using the newfangled product. This makes no sense to me. The line of reasoning pits a known economic benefit against an unknown cost. Should the cost be, as it was with diethylstilbestrol, or DES, that for at least three generations those exposed develop cancers, are born with intersexual characteristics and now appear to have permanently affected DNA chains? And the benefit there was not to the mothers-to-be. They took it to ease nausea, but it didn’t do much about that. The only benefit was corporate profit.
Back to the honeybees. I did some looking around and there is a lot of information about the bee collapse and the economic costs of it. Almond growers, blueberry growers, orange growers… in fact, any farmer with a crop that flowers needs bees. Trucks with hives drive around the country bringing bees from place to place, charging farmers for the service. The estimates you read are mostly about the $15 billion worth of American crops that depend on the honeybees. Then there are the honey business and other support businesses. That seems like a lot of economic impact, but it is being ignored so far.
The jury is out on this one. In the end, it may be that colony collapse disorder is the result of solar storms or some other oddity. But I’m ready to bet that when we get to the bottom of this we are going to find out that the cause is rushing ahead with some great new product without regard to the broader implications of using it.
I used to think my mother was funny. Way back when, we went to a new store with a new parking lot. She complained, “Why do they have to make such an ugly parking lot? It wouldn’t kill them to put in some trees and shrubbery.”
“In a parking lot?” I giggled.
“Just because you need it doesn’t mean it has to be awful,” she retorted.
Now I think she was prophetic. We may need ways to progress, but we don’t need to degrade our environment to do so. We don’t need to be awful. Haven’t most of us enjoyed a lazy summer day watching the bees dip in and out of flowers? Haven’t most of us been treated to hot water, lemon and honey to cure our ailments? Fifty years after Silent Spring, 25 years after the California Condor Program, can we take a moment to assure ourselves that we are preserving the wonders we now enjoy?