Greenbacks can back greens

Production and 
Consumption



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. ALIGN="LEFT">

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.



stock brokers

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.


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