New Opportunities and Conflicts for Sustainable Investors

The Boston investment firm Reynders, McVeigh Capital Management has produced a new paper called “Capital and Climate Change” arguing that climate change is creating new investment opportunities in such areas as water management, sustainable agriculture and energy.

It’s a thought-provoking paper for socially responsible investors, also called sustainable investors, who are looking for new ways to earn a return on their money while maintaining their social principles. The trend towards greater corporate social responsibility is helping their cause. As the Reynders, McVeigh paper points out, major banks such as Citigroup, JP Morgan Chase and Morgan Stanley have signed on to climate change industry standards, related to carbon risks in financing electric power projects. No doubt they have bottom line concerns, such as the financial liability connected to mountain top blasting. But their changing posture also means greater environmental awareness by companies who borrow money from them and that’s of interest to social investors.

But there’s still the question of what constitutes a “good” company. The common thread among social investors is their desire to invest their money in more than just financial return. Yet social investors come in many stripes. There are environmentally responsible investors, faith-based investors who avoid investing in financial institutions, morally responsible investors who will not put their money into companies connected with what they consider pornography, and investors who are most opposed to weapons producers.

Charlton Reynders III, chairman and chief executive of Reynders, McVeigh, told the New York Times that his firm invests in companies like Novozymes, which finds enzymes that can be substituted for chemicals in detergents and fertilizers. But it also invests in John Deere, a manufacturer of gasoline-powered, carbon-emitting tractors.

“You don’t think of tractors as being green, but the technology going into tractors is improving the efficiency of how crops are grown,” Mr. Reynders said.

In other words, sustainable investing isn’t always black and white. Many companies have shades of gray. Tractors do not run on wind, but they operate well enough today that environmental investors should factor in other benefits they produce and not immediately eliminate Deere.

Among the major corporations today none can create an argument among social investors and traditional investors more than the industrial giant General Electric Co. On its surface it has so many flaws from a socially responsible investing perspective one would consider it unlikely to be in any SRI-oriented mutual fund.

When the stock market crashed in 2007, many investors considered GE to be oversold. The share price fell about 40 percent, despite the fact that the company was still hugely profitable. The concern was that GE Capital could become another banking albatross. General Electric cut its dividend, which was painful to investors but a smart measure to save cash. Then its AAA bond rating was downgraded, but not to the degree that many feared.

Traditional investors saw an opportunity in GE, but social investors considered the fact that that GE has a military equipment division, is involved in nuclear power and fossil fuel production and that the content of some of the programming from NBC Universal is objectionable to faith-based investors. But GE makes military engines, not handguns. Can an investor believe that a government should be able to defend its citizens and still be socially responsible? Nuclear power plants produce radioactive waste. But nuclear plants are much cleaner than coal-burning plants and GE also finances wind farms. Could you be an environmentally irresponsible investor if you bought GE shares because you believe we’ve reached a crisis point in global warming?

Those are questions that investors who want to do well while doing good are asking. There are many young companies far simpler than GE, led by progressive managers in emerging industries. But there are also established corporations such as Deere and GE that are changing with the times and causing some skeptics to take a second look. Just as climate change has become a disruptive force in the way people live on the planet, it’s becoming a disruptive force in the investing world as well.

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