GCX responds to FinWeek article on Socially Responsible Investing

In the 18 August issue of FinWeek magazine, the cover story title was “Tree-hugging – Not an investment strategy”  (subscribers only) and the article itself focused on the performance of socially responsible investments versus regular investments. While the article raised some pertinent points, the general sentiment was don’t bother with socially responsible investments as they don’t pay off. 

Kevin James, CEO of Global Carbon Exchange was quoted in the article and by association; it seems he agrees with the sentiments in the article.  However, Kevin does not fully agree and has prepared a response to FInWeek that we have shared below.

With reference to the cover story titled "Tree Hugging - Not an Investment Strategy" and having been quoted by Marc Ashton in the article, I found the choice of cover message and conclusion to be disappointing.



The irony is that despite the beginning and the end of the cover feature, I found the articles to be fair and many of the points raised to be valid. In particular I refer to those points relating to the need for standardisation across corporate environmental and social activities that provide stakeholders with a more transparent way of benchmarking the triple bottom line performance of the disclosing companies.



The conclusion as per the article, "if you want to do something good with your money, give it to charity but don't give up investment return for the sake of doing something good" suggests however that investment in ANY company with a "socially responsible" agenda will not deliver the kind of yields to which investors have become accustomed and therefore investment of this nature should not even be considered.



The writer failed to offer data neither on international ethical investment funds nor on the numerous sustainability success stories of companies in more mature overseas markets whose investment into meaningful green strategies started many years ago and are only now starting to bear fruit.



Besides having identified sustainability as a massive opportunity as well as a significant risk, leaders of some of South Africa’s most successful company's have also come to the realisation that the future financial sustainability of the company's they run will ultimately depend on the way they manage the social and environmental challenges they currently face.



In my opinion, a more appropriate and responsible conclusion would have been:



"If you want to do something good with your money, please do give some to charity but also make sure you evaluate your current investments not only on the merits of their short term returns but also on criteria that demonstrate a commitment to innovation and efficiency to ensure that these companies are well positioned and remain competitive as markets respond to changing corporate governance requirements and consumer and employee preferences."



"You would also be wise to gain a thorough understanding of proposed and current legislation as it relates to social and environmental issues and avoid investments that may expose you to unnecessarily high levels of risk in this area.

"

Given your choice of words and in the absence of clear qualification, Finweek basically delivered a message to its readers that the "profit before people and planet" investment philosophy is ok even though we all know it is one that has been the cornerstone of much of the commercial activity over the last 100 years and that is at the core of the social and environmental inequality and degradation that prevails across our planet today.



Its time for everyone to wake up to the reality that environmental and social impacts have a cost that can no longer be external to a company's activities and for which we all have to take responsibility as human beings.



This is no longer a business issue but rather a moral one that now more than ever requires an enlightened response from politicians, consumers, business leaders, employees, students, journalists and investors alike.

On 25 August, Marc Ashton responded to the many comments he’d received on his cover feature on Fin24. Read his response here: http://www.fin24.com/Columnists/Marc-Ashton/Beware-the-bunny-huggers-20100825
 

And Kevin James continues the debate below:

Over the last couple of years, we have seen the introduction of the UN Principles for Responsible Investment, the Global Reporting Initiative (GRI), the JSE's SRI index and the internationally acclaimed Carbon Disclosure Project (CDP) where all the largest companies in the world have been reporting and making disclosures relating to the social and environmental sustainability of their operations. 



While we still find ourselves in a voluntary situation, where criteria and claims still have the potential to be loosely applied, I concur with Marc Ashton that many may still view this space as a minefield and may struggle to understand what is and what isn't meaningful activity as it relates to sustainability. It is here that I believe Investors, pension funds, investment funds, need to show greater commitment and ensure that they have the skills and the insight to be able to independently understand the subject matter to be able formulate a legitimate opinion regarding what lies beneath these companies' claims and disclosures. 



Just like these same investment funds employ the services of chartered accountants, actuaries and the like to help them determine what is and isn't a good financial investment, they should be showing the same kind of commitment to triple bottom line reporting by employing the services of sustainability professionals to help them determine how socially responsible these target investments actually are. The initiative mentioned in the first paragraph are innovative and forward thinking initiatives that indicate the global and local investment community is definitely moving in this direction. It is however going to take a bit more effort and time before a fund manager with a CA can simply look up a company in an index to get the answers they are looking for.



My main issue with the Finweek's article however, is that it doesn’t provide a solution but rather offers a binary conclusion which implies that investors should not invest in any company with a socially responsible agenda. In my opinion, it should rather be sending out a message that this is becoming an increasingly important and relevant issue and should therefore be encouraging investors to acquire skills and knowledge in order to be better placed to understand this new paradigm in more detail. Furthermore, the global sentiment is clear about the opportunity at hand. This new “green” economy is the biggest opportunity facing companies today. If investment funds are not geared toward recognising these opportunities they may find themselves missing out on the wave-ride of their lives. The following announcement by HSBC where they mention that the “Low Carbon Market will Treble to $2.2 trillion by 2020” in the press this week is just one example of the kind of sentiment being expressed by global business leaders. Click here to read more.


 I would like to conclude this by saying that hopefully in the not too distant future, there will be sufficient political will that will ensure that appropriate legislation as well as an audit process much like that required for verifying the financial performance of a company, is extended to the other triple bottom line accounting categories. This will ultimately provide investors and consumers with the increased assurance that the claims and disclosures are in fact credible and not merely a "thinly disguised marketing" initiative, designed to deceive the various stakeholders of a company. In the meantime my message to investors is to roll up your sleeves, employ people with the relevant skills to better understand the new playing field and show a bit more commitment to the issue. After-all, its not going away!

 On 7 September, Alan Power CEO of Power Optimisa joins in the debate:

Here’s my penny’s worth.
In Power Optimisa’s experience clever money  follows good SRI opportunities. Nearly all our own worldwide voltage power optimization licences are owned by internationally seasoned corporate finance professionals who can see a win: win: win for investor: customer: environment alike when it stares them in the face. Its whatgets us up in the morning.
Yes, I have done fund management (and yes, I am also a CA !) and good green investment opportunities abound. Opportunities abound but need a strong medium term outlook to scale. Like you said, the one important stimulus for the long term is to have proper Government direction via clear simple efficiency targets, and tax incentives (and/or  penalties if you must). Mean time, as climate change experts frequently tell me, ‘ just get the emissions down asap’ via instant measurable means. 

We would love to hear your thoughts on socially responsible investing. Please This e-mail address is being protected from spambots. You need JavaScript enabled to view it to join the discussion.