Good Money

Joan Russow flew to New York last month for a United Nations special session on the environment, she was surprised to see some familiar faces -- Canadian corporate lobbyists. Sometimes it's a small world. Russow, the leader of the Green Party of Canada, was there to observe the UN's evaluation of progress on environmental goals set at the 1992 Earth Summit in Rio. She expected to meet researchers and aid workers and diplomats. Instead, she found the Forest Alliance of British Columbia, a timber industry front group. The Canadian Pulp and Paper Association was there too, along with chemical industry associations, biotechnology concerns, even the advocates of global tourism. In every meeting hall of the UN, industry representatives warned that anything more stringent than "voluntary compliance" with environmental regulations would impede "sustainable development" -- "which essentially means, 'sustained economic growth,'" Russow tells me. "I don't think I've ever heard so many euphemisms and oxymorons in my life." It's easy to sneer at the intellectual contortions of the industrialists, but the fact is, more and more of us seem willing to embrace what has long been seen as the strangest of oxymorons -- green capitalism. On the day the UN gathering opened, a survey revealed that 85 percent of Canadians think that a clean environment leads to a strong economy. Plenty of people, it turns out, are convinced that we can have it all: a clean environment, social justice and ever-greater economic growth. Though their politics sound ardently left-wing, these people have faith that the machine of capitalism, powered by some bold new ideas, can be used to save the Earth. In the shopping malls and the stock markets, their legions can be heard as a single voice -- a voice declaring that money can be the root of all good.GREEN CONSUMERS"We have to try," says Sarah Gardner. "If we don't try, there's no change, and if there's no change, there's no future." We are in a modern temple, the Eaton Centre in downtown Victoria. Gardner, 18, works for The Body Shop, probably the only company on the planet that advertises progressive politics in the heart of giant shopping malls. The store's packed with people stocking up on peppermint foot lotion and shampoo made of Brazil nut oil bought from Amazon natives. For weeks, window shoppers faced six-foot posters of burning rainforests; customers were invited to send prepaid postcards to Prime Minister Jean Chritien demanding Canada sign a treaty at this December's Global Climate Summit, pledging a 20 percent reduction in greenhouse gas emissions by 2005. Gardner got her political consciousness from her parents, who live frugally and recycle everything. "We washed out the same yogurt container for six years," she jokes. The Body Shop has a giant placard behind the counter, telling customers they're entitled to a 10 percent discount if they bring in bottles to be refilled. But something's missing: the first "R" of conservation is "Reduce", and nowhere do I see signs warning people not to buy anything they don't need. Gardner admits that's a dilemma, but adds the message the store communicates is the important thing. "There wouldn't be a Body Shop if we didn't offer product." There's a lot of product nowadays. Some 12 percent of goods for sale make claims that they contribute to a better world. Biodegradable dish-washing soap. Recycled office paper. Organic "fair trade" coffee. "The reality is that consumption per capita continues to rise, regardless of whether products are considered to be 'greener' or not," says University of British Columbia ecologist Bill Rees. He figures that each Canadian ties up seven hectares of land per year to meet our appetite for resources. If the rest of the world lived the same way, we'd need three more planets to sustain us. "Green" products change little, Rees says, because we've made few strides in reducing the environmental impact of big-ticket items. Sport utility vehicles are all the rage, and per capita fossil fuel use in Canada continues to increase. Despite widespread recycling programs, the U.S. Environmental Protection Agency reports that, between 1990 and 1994, the waste generated per American per day actually went up from 4.3 to 4.4 pounds. But maybe green shopping is worth it, for the sake of the message. The Body Shop subscribes to the principles of Corporate Social Responsibility, a management theory which holds that business has a duty to provide moral leadership. Now many large corporations have drafted their own internal codes of ethics, and hire consultants to conduct social "audits" to check whether they're living up to them. Many companies also hand out hefty charitable donations or engage in public service. Each of the 114 Body Shops in Canada, for instance, is required to have a community project to which staff must devote at least 16 hours of paid time. There's a risk to righteousness, of course: if you don't live up to what you espouse, you'll be savaged. In a 1994 issue of Business Ethics, journalist Jon Entine detailed a number of moral lapses by green entrepreneurs. In particular, he claimed The Body Shop treated franchisees harshly, used synthetic ingredients, and paid only a tiny percentage of its $1 billion in worldwide sales to indigenous people in its "Trade not Aid" programs. The price of Body Shop stock dropped 15 percent. The company subjected itself to an independent audit, which found Entine's claims to be largely incorrect but still gave the company a mixed review. Nevertheless, some see an important trend in the popularity of companies like The Body Shop. "Green consumerism empowers people to be more responsible," says David Nitkin of EthicScan Canada, a Toronto research firm that audits companies and publishes Shopping With A Conscience, a guidebook ranking the ethical performance of retail businesses. Nitkin says up to 30 percent of consumers apply some ethical principles when buying products, and their numbers are increasing. This seems to reflect the desire many people have to do somethingto improve the world; after all, we vote in elections only every couple of years, but every day we vote with our dollars. Once people start thinking about what they buy and where it comes from, Nitkin adds, some of them go on to become active consumer-citizens, writing to companies to complain about their environmental record, or drafting procurement standards to make sure their office doesn't buy sweatshop products. "The decision where to shop is not the be-all and end-all," says Nitkin. "Once you open the door, you become more aware of all the other aspects you should start considering."ETHICAL INVESTORSLiam doesn't look like a financial planner; after all, he's only one year old. But Donna Barker, his mom, says he had a lot to do with her decision to rethink where she was putting her money."Being pregnant makes you realize you're doing it for a lot longer than your immediate future," she tells me. Donna and her husband, Bill Westhead, aren't tycoons; he's a manager at an outdoor equipment store, she works as a fund-raiser for non-profit groups, and they live in a modest East Vancouver apartment. Like a lot of people, they wanted to put away some money in RRSPs. The first planner they met laid out brochures from some big, heavily-advertised mutual funds. Bill asked whether the funds looked at the ethics of the companies they held stock in. "His reply was, 'They're all ethical. They wouldn't be successful if they weren't.'" Had Donna and Bill followed that planner's advice, they might have bought into Fidelity Investments, for example, which advertises itself on TV as the world's largest "family" of mutual funds. Certain Fidelity portfolios hold shares in cigarette makers, arms manufacturers, and companies building an oil pipeline in the dictatorship of Burma -- with the help of forced labour, according to human rights groups. Bill says his friends were dubious after another financial advisor steered him and Donna toward some ethical investments; they said he was sacrificing money for his principles. He and Donna had the last laugh: a year ago, when everyone else was buying Bre-X, they bought stock in the Burnaby-based fuel-cell research company Ballard Power Systems Inc., which signed a $508-million deal with auto-maker Daimler-Benz this spring. Brian Pinch sees no contradiction in the idea that you can do good and make big money at the same time. A financial planner with Midland Walwyn in Victoria, Pinch has also been a member of the Sierra Club of Canada for some 25 years. He's gotten to meet a fair number of environmentalists, and knowing how conservative most financial planners are, he saw an opportunity. In the U.S., Pinch points out, over $600 billion is already invested in various types of ethical mutual funds. In Canada, about $1 billion is invested in 15 ethical funds. Many of these pick companies that look like good investments, then "screen" them against a set of principles. For instance, Vancouver-based Ethical Funds Inc. (EFI), the oldest and largest family of such funds, screens out, among other things, tobacco, military and nuclear power companies, and those that violate labour or environmental regulations. Pinch says many fund managers tell him that if they screened their investments, they'd eliminate so many companies that they'd never make any money. He contends that companies with skeletons in their closets are bad long-term investments anyway. "I've never seen a shred of evidence that screening has actually hurt," Pinch says. Sometimes screened funds do better. Last year, EFI's Ethical Growth fund showed a 28.2 percent return, two per cent higher than the average Canadian equity fund. Pinch also favours Clean Environment Funds, which actively seek out companies developing innovative environmental technologies; Clean Environment had the best-performing balanced fund of 1996, turning in a 30.7 percent return. Are such funds really so ethical? As it turns out, Ethical Growth holds stock in several Canadian petroleum companies, along with mining giants Inco and Falconbridge; its North American Equity fund holds Disney and Nike, which have used third-world sweat-shop labour. EFI's president, John Linthwaite, explains that they have to have resource companies in the portfolio because they make up nearly 40 percent of the Toronto Stock Exchange; if they eliminated resources altogether, the fund wouldn't be diversified. So, they pick "best in sector" companies, rewarding those which have the best records. What about Disney and Nike? "This is very difficult," replies Linthwaite. "If you compare the wages in Thailand to here, they're not the same. If they have other good practices, we'll invest." Ethical Growth also has stock in the Royal Bank, which continues to post massive profits. This March, at its annual general meeting in Vancouver, shareholder activist Yves Michaud brought a resolution to cut the bank CEO's $2.6-million annual pay to 20 times the salary of the average bank employee. Managers of Ethical Growth voted against the motion, setting off a furor in the ethical-investment community. Linthwaite replied that EFI decided it was important the bank have "competent management that is rewarded appropriately." "The question about 'purity' comes up a lot," explains Pinch in his spartan Douglas Street office. "You will not find any socially responsible fund that you cannot quarrel their investment decisions. But they are better. The perfect shouldn't be the enemy of the good." The other question is whether ethical funds actually influence companies to act better. As critics point out, ethical investors make up less than one per cent of the market, so their impact is often negligible. David Levi, the Vancouver-based chair of EFI's advisory committee on its ethical screens, disagrees. "Some companies have held up the fact that they're in our portfolio, and then feel a little bit unhappy when they've been knocked out." That's because bad PR usually follows: last year, for example, little press coverage was given to gold producer Placer Dome's mine waste spill at a Philippines subsidiary until the company was yanked from the Ethical Growth Fund. EFI uses information from Michael Jantzi Research Associates, a Toronto company that maintains profiles of the environmental, labour and social records of hundreds of Canadian companies, and provides similar reports for the Better Business Bureau. A kind of Heisenberg principle operates in Jantzi's work: his critical review of a company sometimes provokes his clients to write the company and let it know why they're not investing in it, which in turn urges the company to think about cleaning up its act. "Money talks," says Jantzi. "It's a very powerful tool, and companies will and do stand up and take notice when this happens."SHAREHOLDER ACTIVISTSGail Schacter was arrested at the logging-road blockades in Clayoquot Sound in 1993. In her Victoria home, she tells me that the trials that followed gave her an idea about how to get back at the logging executives. "It just kept being brought to us that the companies had a duty to their shareholders to make a profit," she says. "So I thought, 'Well, if that's the case, maybe I should become a shareholder, and they'll be responsible to me.'" Schacter started a project called Taking Stock; pooling her money with other protesters, they bought 100 shares in MacMillan Blodel. As stockholders, they were entitled to speak at the company's 1994 annual general meeting, where they challenged the corporate executives to admit personal culpability for any violation of forestry regulations. The protest garnered plenty of media coverage. This year, Schacter organized a similar protest at International Forest Products' meeting in May, again attracting attention from the press. "It's not going to change the world overnight, but at least it gets the issue out on an annual basis," she says. Unfortunately, the B.C. Company Act, unlike almost all its counterparts in other provinces, does not allow shareholders to bring resolutions -- say, demanding stricter environmental policies -- against the management of B.C. companies.But that legislation has been under review for the past 18 months, and is expected to change soon. When it does, activists like Schacter will be handed a powerful tool. If they only own a couple of shares, it's unlikely they'd be able to win any resolutions. Big institutional investors, on the other hand, could have more success. One of the pioneering groups in shareholder activism in this country is the Toronto-based Taskforce on the Churches and Corporate Responsibility. Formed 22 years ago, the TCCR represents several of Canada's biggest progressive churches, which hold sizable endowment and pension funds in major corporations. Over the years, it has, among other things, lobbied for the rights of the Lubicon first nation against the logging operations of Daishowa, a Japan-based conglomerate, and persuaded Canadian oil companies in Nigeria to support calls for UN human rights protocols. The task force first writes letters and tries to get corporate managers to discuss the group's concerns. If the management fails to act, the TCCR threatens to escalate the debate with a shareholder resolution, backing up its position with hundreds of thousands of shares. Recently the task force convinced nine corporations to improve gender, race and class diversity on their boards of directors. At first NorTel and Renaissance Oil didn't take the TCCR's correspondence seriously. "With ample warning we said we'd come back with a shareholder resolution," says Daniel Gennarelli, coordinator of the TCCR. "Only when we did, did the companies -- the next day, virtually -- enter into dialogue." Other big institutional shareholders in this country have failed to use the monumental power they wield to advance social causes. Today some 35 percent of the shares on the Toronto Stock Exchange are owned by public sector employee pension funds, which have remained utterly silent while the companies they own lay off employees. This not the case south of the border, where the gigantic California Public Employees' Retirement System (CalPERS) -- with over $100 billion in assets worldwide -- declares in its statement of principles that it will take "disciplinary action" against CEOs that act contrary to public employees' interests. In recent years CalPERS has used its clout to force management changes at such corporate giants as General Motors, Westinghouse and Sears. In B.C., however, legislation prohibits any kind of political interference by shareholders with investment decisions made by those who oversee their Public Service Pension Plan, which controls over $7 billion in assets, pooled with other pension plans and tied, for the most part, directly to companies in the blue-chip Toronto Stock Exchange 300 and Standard & Poor's 500 indexes. One of the pension plan's investment managers (who asked not to be named) says member unions have asked many questions about whether the fund is at least ethically screened. "Whose ethics are you going to use?" he asks. "It's certainly fine if you want to run a mutual fund that way, where individuals have the choice as to whether or not they want to participate in a fund that avoids forestry companies or something like that because they don't like forest policy. That's your own money, and if an individual chooses to do that, that's fine." But when it comes to B.C.'s public service pensions, the investment manager says, "fiduciary duty overrides all other concerns." This leads to some bizarre contradictions. Though the provincial government is talking of suing tobacco companies, for example, its own employees probably own a significant chunk of Imasco, the nation's biggest cigarette manufacturer. "If tobacco companies are in the [TSE 300] index, we're going to hold tobacco stock," the plan manager says. "So even though the government may not particularly like that, if it's in the best interests of the fund, that's what we do." Sometimes, the manager adds, shareholder activism is encouraged: on occasion, the plan has banded together with other pension funds to prevent a company's managers from passing a "poison pill" resolution to prevent a hostile takeover. "They really do it to protect their own jobs. It's not in the interest of shareholders."NATURAL CAPITALISTSFor 20 years, Brian Nattrass was a corporate lawyer in Vancouver and Calgary. But in 1992, while he was fundraising for some environmental technology companies, he was asked to chair Earth Day International, the Canadian foundation organizing global Earth Day activities. "I had the opportunity to travel around the world and really see first-hand what was happening," he tells me on the phone from Gibsons. "I came away from that experience pretty shocked and sobered." Nattrass smelled the water and choked on the air in places like Bangkok and Mexico City, and he became convinced the planet was in trouble if it didn't adopt principles of sustainability. In his readings, he came across an environmental program called The Natural Step (TNS). Developed by a Swedish cancer researcher named Karl-Henrik Robert, TNS uses principles of biology to redesign industry. Nature embodies efficiency; nothing goes to waste, and everything becomes fuel for something else. Industries, on the other hand, convert natural resources into trash, useless to nature and to the industries themselves -- which is proof of their inefficiency. TNS pushes the idea that, instead of paying for waste disposal, it's cheaper not to produce such waste in the first place. "It's a simple equation," says Nattrass. "Pollution is waste. Waste is inefficient. And inefficiency is expensive." It's an elegant, ingenious idea. Instead of demanding industries comply with regulations, TNS appeals to their self-interest. In Sweden, companies as diverse as McDonald's and appliance-maker Electrolux have subscribed to TNS principles. Nattrass, who's on the executive of TNS Canada, is setting up relationships with 10 companies here, including the furniture-maker IKEA, which is developing products made from sustainably-harvested wood. That's just the beginning. In The Ecology of Commerce, author and TNS proponent Paul Hawken notes that several companies are realizing they can make even more efficient use of resources by recycling their own products instead of making them from scratch. The world's largest manufacturer of carpet tiles, Interface Inc., is working on a system to lease its petroleum-based carpets and recycle them when they needs to be replaced. German car-maker BMW now designs models so they can be returned to its plants, disassembled, and their components reused. Governments have a big role to play, because the carrot of efficiency is not enough to make many industries want to undergo these changes yet. Irreplaceable raw materials are still artificially cheap: the price of oil or aluminum fails to include the costs to society and the environment of extracting and refining and consuming them. For that reason, sustainability advocates argue that we must revamp our tax structure, reducing the taxes on things we should encourage -- such as income and payrolls -- and shifting the burden onto energy use, waste generation and pollution. This would not only spur more efficient use of diminishing resources, it would increase personal wealth and make labour cheaper, creating new jobs. It's already happening in Europe. In Sweden in 1991, income taxes were cut by four per cent and replaced with environmental surcharges; similar shifts have been made in Denmark, the Netherlands and the United Kingdom. Such ideas are still greeted with horror in Canada, however, where resource industries still make up a huge chunk of our economy and hold great political clout. But as Nattrass says, "Politicians clearly are not leading this. It's the public that has to lead." Even if we made such far-reaching changes, some doubt that "natural capitalism" or an "efficiency revolution" would necessarily get us out of the mess we're creating. UBC's Rees agrees that a dramatic move to greatly increase the efficient use of resources would buy us some time. But the second law of thermodynamics says we'll never be able to fully recapture everything we use, so it's inevitable we'll use up Earth's warehouse, albeit more slowly. "The problem is," says Rees, "none of the efficiency movements address the values that have turned us into competitive consumers." In the next century the population of Earth will double, to 11 billion people. It will be impossible for all those people to live as we do now. If our only goal today is fuel-cell Jeep Cherokees for tomorrow, we won't be much better off; after all, no gee-whiz technology will ever achieve the kind of sustainability the first nations enjoyed on this land for thousands of years. But if we take something resembling a Natural Step, it could be the start of a fascinating journey. As young Sarah Gardner says, back in the mall, we have to try. Sidebar OneThe new capitalist reading list:Shopping With A Conscienceby EthicScan Canada, ranks the ethical performance of retail businesses. The Canadian Ethical Money Guideby Eugene Ellmen, offers excellent advice on how to bank and invest profitably without sacrificing your principles. The Ecology of Commerceby Paul Hawken, the bible of sustainable capitalism, describes how businesses can ensure their own future while reducing their impact on the environment. Many financial planners interested in ethical investing are members of the Social Investment Organization: telephone (416) 360-6047 or e-mail: Brian Nattrassof TNS Canada can be reached by e-mail: The Natural Stephead office is in San Francisco at (415) 332-9394, or

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