Greenbacks can back greens
MAX DEML
maintains that environmental investment pays off, but
warns of 'green-washing' and 'fig-leaves'
Money can be used to destroy nature - but it can also
help to protect it.
Even the financial world has recently begun to talk of 'sustainability'.
The World Bank and commercial banking establishments are paying more
attention to environmental concerns in their lending policies, and private
and institutional investors are increasingly tending to consider how their
money is actually being used.
Environmental, civil rights and peace groups have put forward a variety of
ideas for making investments more ethically and ecologically responsible.
People who took to the streets in the 1960s, 1970s or 1980s to protest
against war, destruction of the environment or racial discrimination
suddenly realized that their own money, held by the banks, was helping to
finance just what they were fighting against. A search for alternatives
was launched.
There are now green alternatives for virtually every type of financial
investment option - environmental savings accounts, environmental shares,
environmental bonds and even, most recently, environmental life-insurance
schemes.
Alternative banks, such as Germany's Ökobank (a cooperative bank with
over 20,000 members), have been set up. And more than 140 investment funds
have been established worldwide, using more or less strict criteria to
assess the ecological quality of their investments.
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Furthermore, many projects have only been made feasible in the first place
by private financing - including most of the 3,000-odd wind power plants
built in Germany since 1990.
Profit or sacrifice?
Many people think that environmental investment means forgoing profits.
This may be true of some of Ökobank's projects - so that loans can be
made available to borrowers on more favourable terms. But where shares are
concerned, an environmentally conscious investment can actually bring
economic advantages. Companies who already produce emissions well below
statutory levels will have an easier time when stricter limits are
introduced than less progressive competitors, who will have to carry out
costly investment programmes, and then there are the marketing advantages
of having a green corporate image.
Political factors often have a considerable impact on a company's success.
One of the best share performances during 1995 (a rise in value of 240 per
cent over the year) was achieved by the Norwegian company, Tomra Systems,
which develops and manufactures machines for processing returnable
bottles. Its market grows with each new country which legislates for the
compulsory use of returnable bottles - and so (usually) do the company's
turnover and profits.
Tomra shares are among the most favoured by socially responsible and
environmental investment funds. In the United States alone, these
currently manage investments worth some $11 billion. Worldwide well over
$1 trillion worth of investments are made according to clear-cut social
and ecological criteria.
Nevertheless, eco-investors still have relatively small clout in the
market as too many of them are interested only in the rate of return on
their investment. At some time in the future they may start to exercise a
more active influence over markets. This could be as effective as the
buying or boycotting of specific goods has been.
Eco-ratings
After the Exxon Valdez disaster, the non-profit-making organization CERES
(Coalition for Environmentally Responsible Economics) drew up a list of
rules of behaviour - the so-called CERES Principles - which it asked
company managers to sign. Just under 80 companies, including large ones,
duly signed this solemn undertaking to use raw materials sparingly, reduce
waste, filter emissions and create places for environmental protection
experts on their supervisory boards, among other things. Shareholder
groups and investment fund managers are now demanding, at AGMs, that their
companies should subscribe to the CERES Principles.
For many decades now, financial ratings have provided information about
the performance of individual firms. Today, consumers and investors are
increasingly calling for an assessment of companies according to
ecological criteria. They want to know whether the environmental
information provided by a company is mere 'green-washing' or reflects real
progress.
There are some 20 social/environmental evaluation organizations throughout
the world: the best known are the Council on Economic Priorities, which
publishes Shopping for a Better World, and the Investor
Responsibility Research Center in the United States, which has a staff of
over 70 and scrutinizes companies' environmental performance, from present
emission levels to past misdemeanours.
Environmental considerations also play an increasingly important role in
the purely financial assessment of companies. For example, it is extremely
difficult to rent out or sell any office block in the United States that
does not have a certificate stating that it is free of asbestos.
Since mid-1994 the stock market newsletter Eco-Invest and some
licence-holders, such as the German weekly magazine
Börse-Online, have been publishing a monthly 'eco-rating'
which ranks individual companies on a scale of -5 to +5. Many small and
medium-sized companies, including Tomra Systems, have cooperated with the
scheme. But some larger ones have so far refused to complete the lengthy
questionnaires involved.
If an environmental scale for the assessment of companies could be agreed,
a company's eco-rating could be expected to influence share prices (or the
prospects for issuing bonds etc.). This might spur companies to show
greater concern for the environment.
No fig-leaf
Green investment should not be allowed to become a fig-leaf which covers
up the real workings of the financial world.
Every day billions of dollars are electronically transferred across the
globe in search of the most profitable investment opportunities. The
system of compound interest operating in financial markets means that the
credits and debits can register exponential increases. But it also means
that hundreds of thousands of people are forced into misery and death as a
result of debt. Countries are forced to export food in order to repay the
interest on their debts - despite the fact that their own populations are
dying of malnutrition.
The system of compound interest means, roughly speaking, that every single
day there is a redistribution of wealth from the 80 per cent of the
world's population who live in poverty to the 10 per cent who are rich.
The remaining 10 per cent end up neither profiting nor losing out. This
goes on in the 'developed' countries, as well as in the developing ones,
where the discrepancy between the haves and have-nots is perhaps even
greater.
Savers who think that the interest they receive on their savings accounts
makes them into winners are deceiving themselves. About a third of the
money spent, even by those who have no personal debts at all, goes on
interest payments on business or state borrowing, which are more or less
hidden in rents, prices or taxes. In industrial countries, each household
would have to invest almost $200,000 in order to recoup these payments.
Anyone with less interest-bearing savings than this is losing out, while
those with savings above this level are profiting purely because they
receive more interest than they pay out in rent, prices and taxes
(assuming average levels of consumption). The sums involved in this
automatic redistribution amount to many millions of dollars every day.
Sadly, eco-investments alone will not reverse this situation. That would
require a fundamental reform of our financial system.
Max Deml is Editor in Chief of the bi-weekly stock market newsletter
Eco-Invest (Schweizertalstr. 8-10/5, A-1130 Vienna. Fax +43 1 535
4669). Readers of Our Planet are invited to request a free
copy.
