Paul Hawken

A Global Democratic Movement Is About to Pop

I have given nearly one thousand talks about the environment in the past fifteen years, and after every speech a smaller crowd gathered to talk, ask questions, and exchange business cards. The people offering their cards were working on the most salient issues of our day: climate change, poverty, deforestation, peace, water, hunger, conservation, human rights, and more. They were from the nonprofit and nongovernmental world, also known as civil society. They looked after rivers and bays, educated consumers about sustainable agriculture, retrofitted houses with solar panels, lobbied state legislatures about pollution, fought against corporate-weighted trade policies, worked to green inner cities, or taught children about the environment. Quite simply, they were trying to safeguard nature and ensure justice.

After being on the road for a week or two, I would return with a couple hundred cards stuffed into various pockets. I would lay them out on the table in my kitchen, read the names, look at the logos, envisage the missions, and marvel at what groups do on behalf of others. Later, I would put them into drawers or paper bags, keepsakes of the journey. I couldn't throw them away.

Over the years the cards mounted into the thousands, and whenever I glanced at the bags in my closet, I kept coming back to one question: did anyone know how many groups there were? At first, this was a matter of curiosity, but it slowly grew into a hunch that something larger was afoot, a significant social movement that was eluding the radar of mainstream culture.

I began to count. I looked at government records for different countries and, using various methods to approximate the number of environmental and social justice groups from tax census data, I initially estimated that there were thirty thousand environmental organizations strung around the globe; when I added social justice and indigenous organizations, the number exceeded one hundred thousand. I then researched past social movements to see if there were any equal in scale and scope, but I couldn't find anything.

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The Truth About Ethical Investing

On Jan. 28 at the World Economic Forum in Davos, Switzerland, a Canadian magazine and Innovest, an investment research firm specializing in corporate social responsibility, released a list of the "100 Most Sustainable Companies in the World." In the words of the press release, these were the "one hundred companies most open to leading the way to a more sustainable world."

On the face of it, this should have been a watershed moment. Corporations that disavowed the word "sustainability" not so many years ago were proudly showcased at the world's most prestigious conference dealing with corporate issues.

Near the top of the alphabetical list was ABB Ltd (ASEA Brown Boveri), a one-time promoter of mega-dams including the Narmada dams in India and the Arun Dam in Nepal. On July 6, 2004, ABB settled a U.S. Federal Court action for bribing government officials in Nigeria, Angola and Kazakhstan, paying $5.9 million in ill-gotten profits. On the same day, it pled guilty to violating the anti-bribery provisions of the U.S. Foreign Corrupt Practices Act (FCPA) and agreed to pay $10.5 million in fines. In Nigeria, ABB paid illicit bribes to officers of NAPIMS, a Nigerian government agency, to evaluate and approve bidders for oil and gas contracts. In Angola, it was doling out money in brown paper bags to government employees. Meanwhile, the U.S. Justice Department continues its ongoing investigation of still more corruption.

Moving from A to B is Bristol-Myers Squibb, under investigation by the SEC for violating the FCPA in Germany following prosecutorial action there. The company was fined $150 million last year by the SEC for cooking its books; it paid $135 million in claims and settled with the Federal Trade Commission on charges that it conspired to prevent the cancer drug Taxol (which was developed by NIH and U.S. taxpayers) from becoming generic after patent expiration, costing women with breast cancer hundreds of millions of dollars (Bristol-Myers Squibb was charging $6.09 per milligram compared to foreign generic producers charging $.07 per milligram). It also paid a $535 million settlement to 29 states to settle litigation over whether it had illegally blocked generic production of BuSpar; and Bristol-Myers Squibb joined with other big pharmaceutical companies in lobbying for a provision in the new Medicare regulations prohibiting the U.S. government from negotiating with drug companies on bulk purchase discounts for drugs, what used to be called price-fixing.

Included on the list of the 100 most sustainable companies were corporations in oil, gas, beer, mining, utilities, defense, soda pop, candy and hard liquor ("Did you know 43 percent of the milk produced in Ireland goes into Bailey's Irish Cream," brags Diageo, which also makes Smirnoff, Johnny Walker, Tanqueray, Cuervo and J&B). Three of the 100 companies have a business model that directly addresses the well-being of the future of the planet: Vestas and Gamesa, both manufacturers of wind turbines, and Whole Foods. There was no explanation at the time of the press release as to why these 100 were the most sustainable companies, or what sustainability means, or which criteria were applied.

Sustainability specifically means living within carrying capacity of the planet, which is to say living on current solar income. Easy to say, difficult to do, and admittedly no company of any scale is doing it. The question is whether they are moving toward or away from it.

There are companies throughout the world that are approaching sustainability; mostly they are small and owner-operated. They are providers and growers of organic food; retrofitters and developers of green buildings; designers of new materials that are biomimetic and compostable; health care providers relying on phyto-pharmaceuticals and natural healing; manufacturers of bicycles; creators of local food webs linking school lunch programs and nearby farmers; makers of hemp clothing; environmental banks; sustainable foresters; trained midwives; and hundreds of other workers and professionals who understand that the work of sustainability is not glamorous and does not accrete into transnational corporations with corporate jets and weekends in Switzerland or Palm Springs to help manage a complex web of affairs.

The mindset that informed the list doesn't stop with the announcement at Davos. Innovest's research is sold to SRI (socially responsible investing) mutual fund companies so they can do ethical investing on our behalf. You can buy shares in a SRI fund, but you can't analyze the methodology, research or data. The research that Innovest and other research companies do for the SRI mutual fund industry is proprietary with heavy restrictions about disclosure. The same research that came up with ABB, Pepsi, Diageo and Bristol-Myers Squibb as the most sustainable companies in the world is used to select stocks for SRI portfolios. Investors are asked to take SRI mutual funds at their word, even though the research and methodology are hidden.

When you invest in such SRI funds as Domini, Calvert, Sierra Club and Pax, you are investing in American corporations that fight against environmental regulation; whose trade associations lobby against living wages or increases in the minimum wage; that lobby for and receive corporate welfare from Congress in the form of pork-barrel tax breaks and subsidies; create non-profit organizations to fight claims that junk food causes obesity; prevent people from getting price breaks on pharmaceuticals, whose CEOs raise millions of dollars for the Bush administration's assault on human rights and the environment, and more. You would never know this because you invest in the "language" of social responsibility, not the reality. The advertisements cater to our desire to do good things with our savings, and based on their language and promotional material, investors trust that the SRI mutual funds live up to their word.

The Sierra Club decided a few years ago to go into the mutual fund business. Why not take a great brand name and invest in environmental companies and make some money for a deserving organization?

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Green Is Good

Imagine an organic food trade association any company could join. Members set the standards to suit themselves. Thus, any store or company can label their products "organic" if they choose because there are no rules defining what organic means.

If your company does anything to improve its production methods, no matter how inconsequential, it qualifies for membership and can use the word "organic" on its labels. The association awards an annual prize to an academic paper showing that, if you eliminate six of the twelve pesticides commonly used on lettuce, you still get just as much lettuce as before.

Consumers who want to know about the food they buy can't find out how it is grown or how it is certified. Instead of an independent outside agency, association members hire private for-profit "screening" companies to determine what is organic. The screening companies compete, each has a different screening method, and none reveal how they define or determine what is "organic." The screening standards allow 90% of all food produced in the world to be labeled organic.

Inside this organization a small group of core producers believe that organic should mean no use of synthetic pesticides and fertilizers. The big food companies are amused by their romanticism and see them as "idealists."

Sound ridiculous? Yes, except this trade association exists. It doesn't sell food; it sells investments. It is the international SRI (socially responsible investing) mutual fund industry. Like our imaginary trade group, it has no standards, no definitions, and no regulations other than financial regulations. Anyone can join; anyone can call his or her fund an SRI fund. Over 90% of Fortune 500 companies are included in SRI portfolios (see sidebar, below).

The term "socially responsible investing" is so broad it is meaningless. If a fund doesn't own companies involved with gambling and pornography, it can be called socially responsible. Never mind that it owns Halliburton and Monsanto. SRI can be determined by what is called a negative screen, i.e., if you don't do something, you qualify. Or if you say you do something even though you really don't (such as screening for environmental responsibility), you also qualify. That's all it takes to be named an SRI mutual fund.

The analogy would be a gang member who is a mugger. If the gang member says he will stop mugging senior citizens over 65, he now qualifies as a socially responsible gang member. By creating an industry that is identified by specific exclusions or inclusions, key information and criteria are conveniently overlooked.

Portfolio Creep

There is a difference between buying food and investing money. When people invest, they want a return, the highest return they can get. SRI returns are compared to conventional investments as a test of their worthiness. Industry advertising claims that SRI funds outperform conventional funds. That is true with some funds. When you look at the makeup of these funds, it's not hard to see why: the stocks held are the same as stocks in conventional funds.

Table One has two lists. One list is the 30 US companies that make up the Dow Jones Industrial Average. The other list is the 30 top US holdings in North American SRI mutual funds. Can you tell which is which?

SRI portfolios not only look like the Dow Jones (list "B"), they use the Dow Jones Industrial Average as a benchmark to evaluate their performance. We don't know what a socially responsible rate of return is because no true SRI portfolio has been tracked over time. Because the industry has hooked people on the idea that SRI funds should do as well or better than other mutual funds, they have to demonstrate it, which leads to portfolio creep – porous and spurious criteria about what is a socially responsible company.

Striving for the highest rate of financial return is a cause of social injustice and environmental degradation worldwide. It consistently leads to "externalization" of costs to workers, people, the environment, and the future.

Colonization, imperialism, slavery, and virtually all wars are directly attributable to oligarchies trying to achieve the highest return on investment. It is called "sacred hunger" in Barry Unsworth's prize-winning novel of the same name on the slave trade. How the SRI industry came to believe that it could use avarice to reverse the suffering that greed causes has everything to do with marketing and nothing to do with philosophy.

The Sullivan Principles

The history of SRI goes back to the ethical precepts embodied in Jewish law. Quakers and other religious orders starting in the 18th century refused to invest in "sinful" industries such as distilleries and weaponry. In the 1960s, the environment, civil rights, and militarism were all brought to the national foreground. Apartheid, the Vietnam War, Bhopal, and later, Exxon Valdez, spurred public indignation about corporate practices. With the adoption of the Sullivan Principles, created by Rev. Leon Sullivan in 1977 to enlist companies to combat apartheid, there was a clear divide between multinational corporations perceived as responsible and those not. Twenty years later, Rev. Sullivan developed the Global Sullivan Principles of Social Responsibility, which called for equal pay, fair employment practices, and affirmative training and promotion of people of color in all communities.

Even before Sullivan, people were creating SRI funds. The first SRI mutual fund was Pax World Funds, a $1 billion fund created in 1971 by Luther Tyson and Jack Corbett both of whom worked for the United Methodist Church. A parishioner queried Tyson whether there was a fund that screened out companies involved in the Vietnam War. There wasn't, so Tyson, Corbett and two businessmen started the first public fund to include social criteria in its investment decisions.

Today, Pax advertises aggressively in the alternative media such as Mother Jones, Green Money Journal and Utne magazine. Its ads are bordered by its guiding investment principles with body copy saying: "For over 33 years, we've subjected potential investments to rigid social and environmental-responsibility screens... We believe our lofty ideals don't hurt our performance."

In Table 2 (Principles vs. Holdings), we can see some of those principles next to a list of portfolio companies in the Pax World Balanced Fund as of June 2003. I don't think anyone questions Pax's commitment to social equity. It is the interpretation and application that is confusing.

How Green And How Good?

I was unaware of what SRI mutual funds did two years ago. But I knew enough about corporations to be skeptical of how SRI funds could invest "responsibly." In a speech at the 2002 Bioneers conference, I made passing reference to the Domini Social Equity Fund's holdings of McDonald's. Immediately after the speech, an ex-manager of Domini's collared me and said I obviously didn't understand SRI investing. For a moment I didn't know what to say.

Then I realized the person was absolutely correct. I didn't understand SRI investing. It didn't make a whit of sense to me that you could own companies like GE, Monsanto, and Coke and pat yourself on the back. I decided to research the industry. At the Natural Capital Institute, our staff created the world's first comprehensive database of SRI mutual fund equity holdings and then we analyzed them.

What became apparent is that the criteria that are being employed by SRI screening companies are upsidedown and backwards. The most important criterion to determine a company's social responsibility is whether it should exist at all. In other words, is the company helpful to the world and its people? Although every company believes in its mission, the raison d'etre of SRI is to challenge the process and purpose of publicly held corporations.

McDonald's spends upwards of $2 billion a year on advertising, much of it aimed at young children. Obesity and Type 2 diabetes in youth are major news stories. The connection to fatty, sugary junk food is undeniable. Yet McDonald's fights all legislative or regulatory moves that would limit its practices. For Domini to cite McDonald's waste management practices as valid criteria for inclusion avoids the real issue: Why is McDonald's wasting our children?

In fact, few SRI funds screen for environmental responsibility. Some funds exclude companies that flagrantly violate environmental law; but, with the exception of Portfolio 21 and a handful of other US and European funds, just about any company is acceptable. Take the Sierra Club Stock Fund. There are few companies in its portfolio that address the environment in a proactive way; only one (Starbucks) that measures its ecological footprint, and no alternative energy companies. Sierra invests in companies that make surge protectors, fastening screws, steakhouses, anti-wrinkle creams, and candy bars.

The Sierra Club invests in Cousins Properties, one of the major contributors to sprawl in Atlanta ("From the time Cousins was founded, the Company has understood the value of land and has sought to control large tracts of strategically located land holdings for future commercial and residential development"). I single out the Sierra Club because it is one of the oldest and most respected NGOs in the world working for land conservation. But it is not just the Sierra Club. Their performance is duplicated by other funds because they use the same investment advisor, Harris Bretall Sullivan & Smith LLC.

The SRI industry needs to change. While SRI investors call for corporate transparency, the industry is closed, proprietary and secret. While SRI calls for workplace diversity, it is an almost entirely white industry. While the industry calls for environmental responsibility, it meets at luxury resort hotels that are far from being environmentally responsible. To put it plainly: if the SRI industry were a corporation, it wouldn't qualify in a rigorously screened portfolio.

Either the industry has to reform in toto (or rename itself), or that portion of the industry that wants to maintain credibility must break off from the pretenders and create an association with real standards, enforceability, and transparency. It needs to model the behavior it purportedly demands in other companies. In the US, there are funds that make real contributions to corporate reform and accountability: Portfolio 21, Calvert, Domini, Citizens, Walden, and Women's Equity are rightfully considered leaders. But they are the minority.

The world needs true fiscal and social responsibility, the ability to respond to poverty, inequity, environmental degradation, income polarization, women's rights, global warming, and the global corporate takeover of the commons. There are companies that meet, or are striving to meet, that standard. If others want to invest in Wal-Mart, ExxonMobil and Clear Channel, so be it, but let us at least have the grace not to confuse funds holding those companies with responsible and ethical investing.

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