Green Investing? Or Investing For The Green?
The woods are full of "right-thinking" investment experts who counsel those with a modicum or more of sensitivity and concern for democracy, the environment, human rights, and other important causes of the day to do their investing "with a social conscience." This investment approach, often called "green" investing, emphasizes the importance of dealing only with companies that operate on the correct side of all the environmental, political, social, gender, and other vital issues we can think of at any given point in time.
Simply for contrast, let's call the more conventional investment approach -- the one that doesn't mind buying stocks in companies that do bad things -- the "grey" approach. Let's also make the point that we're discussing whether or not to invest in particular stocks, not whether or not to buy or boycott particular products.
To its advocates, this "green" approach means generally staying away from companies like Freeport McMoran, with its civil rights and environmental abuses in Indonesia and elsewhere, Nike, with its low-pay and terroristic management policies governing its factories in Asia, General Motors, with its long-term disregard for human life expressed in the forms of foot-dragging on safety belts and airbags, and hundreds more.
On the surface, the arguments in favor of "green" investing appear quite sound, and have actually taken root to support a modern urban legend or myth. This myth now has the power to keep good-hearted people from sinking their money into any known "evil" organizations and encouraging them instead to favor the kind of well-intentioned investment vehicles that make low-dollar loans to poverty-stricken women or promote the sale of hemp-based clothing.
But for me, this "green" fever is just the latest extension of the misguided notion that people who are fighting for what's "right" don't need -- and shouldn't want -- large amounts of money. Since money is corrupting, goes the syllogism, having too large a budget on our side will only sway us from our purpose, and can easily transform us into the enemy of the same good causes we originally had hoped to push forward.
This argument has always been -- and continues to be -- dead wrong. It's a variation on the slave-holders' traditional admiration for the simplicity of their slaves' lifestyles, and on their soft-spoken warning to their chattel that "you wouldn't want to live here in the big house... it wouldn't make you any happier."
But consider that the soft-drink, beer, tobacco, automobile, clothing, sporting goods, entertainment, and military weapons industries -- just to name a few industrial sectors that are the very model of "grey" investing opportunities -- all spend billions of dollars per year promoting, dramatizing, glamorizing, and justifying a particular vision of how to live in today's world -- a vision that is becoming ever-more-widely recognized as producing a destructive, profligate, and not-very-sustainable "lifestyle." As a direct result, an average person in one of the so-called "advanced" countries on Earth is subjected every day to dozens if not hundreds of subtle and not-so-subtle messages conveying a heavy dose of basically incorrect -- and very often suicidal -- information.
Without a comparably large and counterbalancing promotional budget there is simply no way these average people can be encouraged to vote -- with their dollars, with their feet, or with their franchise power -- in favor of "green" issues like environmental protection, long-term health and safety measures, fundamental improvements in matters of quality of life, peace, justice, or truth.
In human behavior as in so much else on this planet, dominance goes not to the swift, the wise, the good, or the just, but to the wealthy.
So it's clear why the official, establishment message to the rapidly growing ranks of "green" investors is something along the lines of: "You don't want to lend your money to any dirty companies. You're too clean and pure and high-minded to buy stock in a venture that profits from sweat and pain and exploitation of resources on this planet. Instead, stay with something clean -- even if it is a bit marginal."
The strategy underlying this and many other self-serving messages put forward for popular consumption today is remarkably simple: Say and do whatever it takes to keep everyone with different values, challenging ideas, creative solutions, or upsetting questions from getting their hands on any important amounts of money. As long as they're poor, they can't really have a big voice in the ongoing conversation about what we're doing as a society, what we ought to be doing, and how to make the appropriate changes.
So with all this as background, let's take a closer look at the notion of "grey" investing. Is it really harmful to the investor? Or might it provide a better avenue to a rosier future for us, and for the rest of mankind?
To understand the truth about "green" versus "grey" investing, it's important to answer three basic questions:
Who gets the money we invest?
What's the impact of our investment on company policies?
What happens to corporate profits?
Who Gets The Money We Invest?
This is not a trick question. But it's a fundamental one. To understand who gets the money we invest in a company, you need only look at who's selling us the shares of stock we buy.
Almost all of those hundreds of millions of shares traded on the NASDAQ, the New York Stock Exchange, the American Stock Exchange, or any of the other stock exchanges around the world are sold by other investors. That is, for me to buy 100 shares of General Motors, you -- or someone else -- must first agree to sell them.
This is the direct transaction that has taken place every time you see a stock symbol followed by a price scroll by on the "ticker." The investor buying the stock pays some money -- through a broker -- to another investor who is selling the stock.
Not a penny of this money goes to the company whose shares are being bought and sold.
The only way the company itself receives money from the sale of stock is when it issues shares that have never before been traded. For example, when a company sells 1,000 of its shares to its own president, the money paid for the stock goes into the company treasury. Or when a company issues 1,000,000 shares of new stock -- this is what's happening with an "initial public offering" -- it receives most of the proceeds, less only commissions and fees, from the sale of these shares.
Companies frequently get started or expand their operations by selling new stock into the market, and the money they receive from this sale is used to pay salaries, buy equipment, and otherwise get the company operations up and running. But from that day forward, the money involved in the daily trading of those same shares never even gets close to the company treasury.
This means that when I buy shares of General Motors, I'm not giving the company my money. In fact, it's often the opposite. If the company pays dividends, then buying stock actually puts me in a position to receive money from the company!
What's The Impact Of Our Investment On Company Policies?
Since I'm not supplying money to a company when I buy its stock on the open market, it's fair to ask if I'm having any impact on company policies at all. In fact, it's also fair to wonder whether or not owning the company shares makes me a party to all its outrages -- such as tearing open the earth to strip-mine copper or clear cutting a rain forest to raise beef cattle.
Ethicists and moralists have been debating questions like this for centuries, if not longer. But for me, the answer boils down to what I'm trying to do. If I'm trying to get the company to clear-cut more rain forests, than I'm a party to its outrages. But if I'm trying to use my meager influence to stop the clear-cutting and the strip mining, then I'm not guilty of what I'm honestly trying to stop.
The mere fact that I'm a stock holder doesn't make me guilty, any more than being a German citizen during World War II made people guilty of Nazi war crimes. Generally, a citizen has more standing in a country's national discussion, and as a result might wield more influence than an outsider in the outcome of its policy debates. So it's sensible that if you're trying to stop an action, joining the group gives you more clout than staying outside of it.
In 1997, for example, some interesting stockholder actions were initiated at Chevron: one aimed at forcing the company to give up all plans to drill for oil in the Arctic National Wildlife Refuge, and another urging the board of directors to develop guidelines for withdrawing investments from foreign countries that violate human rights, suffer under an illegitimate government, or otherwise have been listed for economic sanctions.
Other shareholder initiatives were raised at AT&T, including one that the company divulge the recipients of all its political contributions, one that the company stop doing business with companies maintaining substandard working conditions within China and the former Soviet Union, and one that company directors make a public statement of their personal beliefs regarding "where they want the company to go, what they have done in the past, and more importantly, how they want to get it there."
Whether or not these actions are finally voted up or down by stockholders, they enjoyed a far better chance of approval simply because they were introduced and backed by stockholders rather than by outsiders.
Already corporations like Philips Electronics and others have begun reporting not just raw financial profits, but also the social and environmental impacts of their activities. More will follow, particularly if stockholders push in the right direction.
The parallel is clear: When you're dealing with a nation, effective participation in decision-making is made easier via citizenship. When you're dealing with a corporation, effective participation in decision-making is made easier via stock ownership.
What Happens To Corporate Profits?
But there is an important difference between national citizenship and corporate citizenship, more commonly called stock ownership. The difference is that citizens generally pay taxes to support their national government, but stock holders get paid.
Now, let's assume for the moment that whether or not you personally own stock in a particular corporation has little or no impact on its current policies, and thus virtually no impact on its profit. So whether or not you own stock in a company is not going to change how much profit it makes.
But it will change who receives a share of that profit.
If you don't buy that stock, the profits will very likely go to some fat-cat investor who will use it to buy and waste some non-renewable resources, or to contribute to a wrong-headed political campaign, or to purchase products made by oppressed and underpaid people in a factory moved out of the U.S. and into some underdeveloped country.
But if you buy that stock, the situation is fundamentally changed for the better. Now you get the money. And you can use it not only in "green" ways, but to further "green" causes and promote the "green" lifestyle.
So for me, at least, the logic is clear. As I pursue my investment objectives, I'm as free to invest in "grey" companies as I am to invest in "green" ones. There's no intrinsic wrong-doing involved when I invest in a "grey" company. In fact, there's a certain poetic justice for a "green"-minded person to own a "grey" stock. Not only does it shift resources from a "grey" to a "green" pocketbook, it also increases the potential for a "green" takeover of the "grey" company, and a commensurate shift in the company's operational policies from clear-cutting and strip-mining to sustainable agriculture and renewable resources.