Thursday, January 10, 2008

You Speak with Your Money: Divestment, Green Investment, and Fair Trade

Sunday morning after the church worship service at Emmanuel Baptist Church in downtown Alexandria, Louisiana, I stayed in the chapel to visit with old church friends. One old family friend, recently retired, remarked to me that he was has been doing very well lately, as he is making more off his mutual fund investments that he ever made when he was working. That is a powerful thought, and it points to the power of money market investment.

Many people evaluate their investments in mutual funds based on one major consideration: maximizing a return on money. Investment portfolios are designed to minimize the risk of loss of funds and to fuel dividend payout and growth. It's the name of the game.

In my opinion, in our capitalist democracy, a person's decisions about where to invest capital has a much greater and immediate impact on the world than, say, voting, contacting your congressman, recycling or buying a fuel efficient car. My International Law teacher at Rice University loved to quip, "Capitalism with ethics is not capitalism." This is a poignant quote, regardless of your feelings about the merits and demerits of living in a capital based economy. Luckily, we've made leaps beyond Adam Smith's invisible hand.

A recognition of the interrelated impact of our personal investments has sparked new considerations when selecting investments. There is a growing trend of emphasis on socially responsible investment strategies, in companies that specialize in "positive forms of social investment."

Currently, the Save Darfur Coalition is running a television ad that features an older couple going over their annual stock market earnings with their financial adviser, who informs them that they are "making a killing in Darfur." They encourage viewers to find out if their mutual funds are "investing in genocide," and if so, to immediately divest their money.

According to Wikipedia, "Disinvestment, sometimes referred to as divestment, refers to the use of a concerted economic boycott, with specific emphasis on liquidating stock, to pressure a government towards policy or regime change. The term was first used in the 1980s, most commonly in the United States, to refer to the use of a concerted economic boycott designed to pressure the government of South Africa into abolishing its policy of apartheid. The term has also been applied to actions targeting Northern Ireland, Myanmar, and Israel."

A contemporary manifestation of this practice, Divestment Iran, is gaining popularity as a tool to combat terrorism by draining Iran and other sponsor states of training and armament funding. They often discuss this in the context of divesting in Islamic charities.

I actually became interested in these issues as I am currently considering investing a small sum of money saved from past work in a mutual fund. I have neglected to actually invest in a money market or a mutual fund in the past on principle, due to a latent concern that my money was going to support actions that I believe are ethically unacceptable. In my research, I have come across the concept and practice of Green Investment, which has given rise to this post.

What is Green Investment? It is the environmentalist's free enterprise tool. Not to be confused with the Green Investment Scheme (which is the Kyoto Protocol's plan to reduce environmental harms through trading 'hot air' on the world market. On a different note, Australia has announced its support of the Kyoto Protocol, making the USA the only country not to have pledged commitment), Green Investment generally refers to the practice of investing in companies that work towards environmental solutions. In the past this has been ignored by many investors with the belief that you cannot make money investing in alternative energy companies that abide by strict sustainability guidelines, but that is no longer the case in the modern market.

The New Alternatives Fund (NALFX), is a Green Investment Portfolio that says their goal is a Long-term growth of capital through environmental investment. They claim to be the "first environmental mutual fund," founded in 1982. They have a long list of companies excluded from their investment scheme, namely those involved with:

Nuclear Energy
Weapons Manufacturers
Socially Irresponsible Business Practices
Unfair/discriminatory labor practices
Employment of children
Poor treatment of people in developing countries
Damaging environmental policies
Animal testing practices
Discrimination of any sort, including religious or non religious choice, women, gays, ethnic groups, the handicapped

There are even websites that have been set up as a testament to interest in this, as a practical an offshoot of the environmental movement, that attempt to promote the very idea of green investment. For example, presents articles that encourage investor confidence in alternative energy markets., an online consultant giving "timely, trusted personal finance advice and business forecasts," researched a sound article on green investment options. They used the traditional approach in their evaluation, outlining the fund's capability for profit maximization, and discovered that you can actually maintain a competitive mutual fund or IRA while holding on to your social or ethical values. They focus on the Winslow Green Growth Fund, which is a high performing small cap fund. It is unfortunate, however, that they only wrote about top performing funds, because they lost out on the whole point of the movement to socially conscious or environmentally friendly investing: where you place your money doesn't just affect you, it directly affects everyone and everything that they companies that you support come into contact with.

Like I mentioned above, all this idealism doesn't have to compromise the profitability of your investments. According to the article, "In Robinson's [Winslow Green Lead Investor] mind, green is good when it comes to investing. Natural and organic food companies are becoming increasingly popular with consumers, and alternative and renewable energy stocks "are going wild" because of rising energy prices. "The technology keeps getting better," Robinson says."

Many Green Investment firms realize the internet's power of universal accessibility of the Internet, and do most of their business online. One can open a fund with them in the matter of minutes from their cyber office locations. Winslow's investment company's webpage features a regular update via email, except that their updates focus on environmental themes that emphasize a capital market approach solution for the problems. An environmental economist's dream.

There is a consensus that Global Climate Change is a reality and many countries and state governments are mandating reductions in greenhouse gas production, driving a huge increase in demand for renewable energy production. There is also an emerging market for carbon trading, which assigns a market value to units of carbon released into the atmosphere and allows international trading of those permitted units. This is a potential multi-billion dollar emerging market. This is a commodity freely traded like any other, and established brokerage firms like CantorCO2e are cashing in.

Some Investment Companies, like Wachovia Corporation, which is one of the largest diversified Investment groups, are making efforts to reduced the carbon-impact of their operations by both building new administrative and branch offices according to strict LEED standards for sustainable building practices and purchasing carbon credits to offset the emissions that their activities produce. In an October 26, 2006 Press Release, Wachovia announced a comprehensive strategy addressing environmental protection, in which they adopt the Equator Principles.

I'm not ready to advocate investing with Wachovia, however, because I have not researched their actual investing practices. They don't seem to offer a specifically "green" package, such as a mutual fund that specialized in alternative energy or sustainable solutions technologies, for example. These are offered by some of their competitors, mentioned above. Wachovia could be engaging in a practice referred to as "green washing" by some environmentalists, which refers specifically to companies that spend a lot of energy marketing themselves as having a strong commitment to environmental sustainability in order to boost sales, but don't actually change a significant amount of their operations. However, it is a step in the right direction that I applaud.

Another high performing green mutual fund portfolio worth looking in to is the SpectraFund. The Spectra Fund has a number of different portfolios, and are well established.

In a small circle in the business world, especially those involved in import, a movement to counteract the perceived negative impacts of globalization on disadvantaged communities is growing. This has generally been referred to "Fair Trade," and is best known (indeed has a greatest impact) in coffee. The movement attempts to redefine what the responsibility of a company is. Rather than merely being expected to turn a profit in order to maximize returns for shareholders while following applicable laws, according to the Fair Trade Federation, Fair Trade company is expected to be committed to Paying fair wages in local context;
* Supporting participatory workplaces;
* Ensuring environmental sustainability;
* Supplying financial and technical support;
* Respecting cultural identity;
* Offering public accountability; and,
* Educating consumers.

They explain that "Fair Trade means an equitable and fair partnership between businesses and organizations in the developed world and producers in the developing world. Fair trade businesses foster long-term and direct relationships with producers, because they know these connections are a highly effective way to help producers help themselves."

Although Fair Trade currently makes up only a fraction of total imports, its popularity is increasing. There is a belief that because they are taking an ethical high ground, eventually their raised standards will affect other companies after it breaks into the mainstream consumer consciousness. The Fairtrade Labeling Organization (FLO International), an independent Fair Trade certification company, states that they are working with 569 Fairtrade Certified Producer Organisations, representing over 1,4 million farmers and workers, in 57 countries in Africa, Asia and Latin America, and that last year consumers worldwide bought 1,6 billion Euros worth of Fairtrade Certified Products, 42 % more than the year before. A number of older labeling organizations have adopted this logo for certified Fair Trade products (not legally binding).

It looks like all those closet capitalist anarchists can finally save the world and make money too.


April said...

Hi Mike-

I was just speaking to your bro on the phone--
Am so very happy to read about ethical investments- something I feel lost about, but what you wrote is a nice window into positive opportunities i hadnt heard of, and im definitely going to "divest" my (very piddling) savings. id love to know more about what you decide to do and how it works out for you. you are quite amazing, living life in a careful, and it seems to me not hypocritical way. i hope that doesnt sound like faint praise, because i think it's such a hard thing to do, and i hope i can figure my shit out someday as well as you already seem to do. anyway- Hope you are having a great time in NOLA. happy dia de los muertos and best wishes


shyam said...

hey this is's been long since I have heard from you...i hope everything is fine with you...So how's it going with the stuff you took from Nepal? The Sheets and the singing bowls? Have you sold them all? These days 2 Americans are here in Nepal on their bikes..So they wanted to buy the singing bowls and ship that but I told them about you..So If You have some of them left please keep it ..I will give them your card to contact you when they get back..They will be back on April..They are from Boston...I am helping them to visit places in Nepal..
let me know how you doing?????????

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Vanessa said...

Hey Mike!

Couldn't find your email so I'm posting ... I know it's been ages since we last spoke, but I just wanted to reach out with some good vibes. I still think about Nola and you and Shuchin and your brother and everyone, and I really hope you're all healthy and happy and doing well. Also I wanted to let you know that I'm going to do my PhD in Tibetan and Himalayan Buddhist Philosophy at Oxford this fall, which should open some inspiring doors, and I hope we stay in touch through our mutual interests. Any chance you'll be crossing the Atlantic soon?
Best wishes always,