Green Yield

A Brief History:
Soon after Bangladesh gained independence in 1971, Middle Tennessee State University Economics Professor Muhammed Yunus returned to his native land to take a similar position where he found Bangladesh suffering from extreme poverty and famine. In 1976 after extensive study of how to alleviate the suffering, he was able to lift 42 people from the village of Jobra out of debt servitude from moneylenders with just $27. This proved to be a success, but since banks were not interested in conducting business this way, because poor people of Bangladesh had no collateral, no credit history, no ID’s, and were mostly illiterate, he had to co-sign for additional loans to continue with his pilot project.

Out of necessity, Professor Yunus started Grameen Bank in 1977 with some of his students as bankers. He soon realized women would be the most reliable borrowers and the bank began to grow steadily. Through years of trial and error, successful patterns were developed and gradually growth and success grew to numerous awards culminating in the 2006 Nobel Peace Prize to “Banker to the Poor” Mohammed Yunus.

Micro-credit / Micro-loans
Grameen loan officers measure success not in terms of profit, but by how well people pay back their loans [Borrowers don’t fail, the bank does - Repayment is now 98.15%.], how many children of Grameen families attend and complete school, how well borrowers follow guidelines for better living, and how many people are able to pull themselves out of poverty.

The goal of Grameen bank, which is owned by Grameen Bank members, is to reduce poverty. 65% of all borrowers have risen above the Grameen Bank’s own 10-point poverty line measurement. Only 20% of Grameen members live below the poverty line, whereas 56% of non-members live below the poverty line, This averages out to 45% below poverty for all of Bangladesh.

Borrowers, who are 97% women, have to offer their own business plans for use of their loans. They become part of a peer group that meets regularly to discuss ways of helping each other succeed. When someone dies, their debt dies with them. Originally loans were given for small businesses, but have expanded to health, education, housing, transportation, and other purposes.

Grameen has grown to 7.45 million borrowers at 2,499 branches, in 81,334 villages, covering more than 97 percent of the total villages in Bangladesh. Interest free / no repayment loans are even given to beggars, turning 78,000 beggars into merchants.

Grameen has now branched out into sister businesses created to help society through education, health services, cell phones, renewable energy, knitting, housing, and even internet services. By working with women, births per family in Bangladesh have been reduced from 6.3 children per household in 1975 to 3.3 in 1999.

What a blessing for one of the most densely populated countries in the world, endowed with few natural resources, prone to frequent natural disasters, and politically unstable.

The micro-loan concept has now spread throughout the world, inspiring similar institutions in third-world countries & even some affluent ones.

The latest book by Mohammed Yunus is Creating a World Without Poverty [c. 2007]

Perhaps the Triple Bottom Line (People, Planet & Profit) is best, but “Two out of Three Ain’t Bad!”

OK, this may not prove to be a useful book report, but it is interesting. The full title: The Corporate Report Card: Rating 250 of America’s Corporations for the Socially responsible investor, written by the Council on Economic Priorities [CEP] one decade ago: 1998.

From a database of 700 companies, 250 “of the largest corporations in a wide range of industries” were chosen for this report. Each company is rated in 8 categories:
*****Women’s Advancement,*****Social Disclosure, *****Community Outreach, *****Family Benefits,
*****Minority Advancement, *****Workplace Issues, *****Charitable Giving, ***** and Environment.
Six pages are devoted to the details of this rating system & the criteria used for the grades, which are A to F and N = not enough info or not relevant. It must have been tough research, for almost half of the 250 companies had more than one or two “N’s” in their scorecard.

The 24 best scores were put on CEP’s Honor Roll - In alphabetical order:

**Adolph Coors Co ----- Avon Products ----- BankAmerica Corp ----- BankBoston Corp
*Baxter International - Ben & Jerry’s ------ *Bristol-Myers Squibb -- Brooklyn Union
*Chevron Corp --------- Citicorp ------------- **Coca-Cola Co -------- Colgate-Palmolive
*Dole Food Co --------- *General Electric -- Hewlett-Packard ------- IBM
*Johnson & Johnson -- *Kellogg Co --------- **Merck & Co ----------- *Pepsico Inc
**Pfizer Inc ------------- Polaroid Corp ------ Sun Co ------------------ *Xerox Corp

I don’t feel this is 24 of our most socially responsible companies. It contains a beer company, two soft drink companies, and three drug companies- whose consumables are not exactly sustainable products. Worse, Coco-Cola(98,01,04), Coors(90), Chevron(92,98), Dole Foods(94), General Electric(88,91,92,94), Johnson & Johnson(95), Kelloggs(91), Merck(04), Pepsico(94), and Pfizer(88,95,98,06), have all been on the “10 worst corporations of the year” list. Also, Baxter is an 81% Red (see last Blog) company. Bristol Myers Squibb is a red company found in 2001 to have forced wholesale vendors to accept excess inventory. Over half of this list is tainted.

How could this report be so bad? Perhaps the misbehavior was not given enough weight. A better question: Who is the "Council on Economic Priorities"? From a website: “Founded in 1969, the Council on Economic Priorities (CEP), is a public service research organization, dedicated to the accurate and impartial analysis of the social and environmental records of corporations”. Not one name was credited in the 260 page book and only one name was found on the CEP website: Tom Knowlton. Tom apparently created the organization and hired summer interns to do most of the research [internships are featured on the main website I found]. No current activities are reported. By searching the web I found him as an officer in a large consulting firm, tcc group, serving non-profit, philanthropic, and corporate clients, so apparently he has gone on to greater things.

Obviously this report is a little outdated anyway. [Ben & Jerry’s, BankBoston and Brooklyn Union have been swallowed up, and Polaroid is bankrupt.].

Unfortunately, some of the current lists of SRI companies are not much better, but at least their creators don’t appear to be non-profit organizations. Bottom Line: Rely on sources you trust & do your homework.

I picked up an SRI book at the library called The Blue Way: How to Profit by Investing in a Better World [c2007] by Daniel de Faro Adamson and Joe Andrew. My first thought was: why blue instead of green? By page 6 it was clear "blue" stood for the Democratic Party [The Green Party I understand, but why are Republicans red & Democrats blue?] Since one of the authors, Joe Andrew, is a former national chairman of the Democratic National Committee, this is a political book.

What does this have to do with investing? Its not a short answer. The concept behind the book is based on two fields of research. First are criteria for social responsibility: ***Environmental Sustainability ***Responsible corporate governance ***Respect for human rights ***Diversity in the workforce and in leadership ***Fair treatment of all employees ***Avoidance of products that cause great social harm. Somehow this adds up to 9 fundamental social responsibility benchmarks/screens. This research is done by KLD (Peter Kinder, Steven Lydenburg, and Amy Domini) Research & Analytics, Inc, the largest, most experienced, and most prestigious research firm in the Socially Responsible Investment field, so it is reliable.

The second field of research, defining Blue or Red Companies, is determined by contributions. “In gauging whether a company gives blue, we measure all the donations from a company’s political action committee (PAC) and political contributions from its top three executives over the current and previous four election cycles.” Just 76 of the Fortune 500 (15%) companies and only 371 (19%) of the Russell 2000 Index of small-cap companies are “blue.”

So here’s the point. Research has shown that "Blue" companies are more socially responsible, more progressive, less likely to have PAC’s, and outperform red ones in the stock market. Investing in blue companies is best, serving the triple bottom line: planet, people, and profit. The book gives lots of examples and cites an independent research firm, Competition Policy Associates, as a double-check to validate these findings.

Now they have created a mutual fund, the Blue Fund [where you can find an extensive listing of blue companies] a Buy Blue campaign, and a whole "Blue Sector" consciousness. Naturally you can find futher info & discussion on the web, especially close to national elections. One “red” site is asking followers to boycott blue companies.

A few 100% Blue companies: Barnes & Noble, Black & Decker, Google, Levi Strauss & Starbucks,
A few 100% Red companies: Dominos Pizza, Lowes , Kohls, PetSmart, & Nordstrom

While I found this book useful - it fits my perceptions of politics and SRI corporations - I hope this new concept does not prove to be divisive. I don't want to think of most companies as blue/Democratic or red/Republican, especially those companies whose contributions are less than 2/3 blue or red, and there is no reason to think that all "blue" companies are “green” and all "red" companies are not.

As I wrote in my first blog, Pax World was the first Socially Responsible Investment [SRI] Mutual Fund - and the first financial venture to introduce this new concept to the world of investing. Dr. Luther Tyson and the late Dr. Elliott “Jack” Corbett of the United Methodist Church in Washington DC founded the fund in 1971 and named it “Pax” World to show that it would not invest in war-related industries.

The Pax World Balanced Fund, as its now called, also introduced the first social screens against tobacco, alcohol, and gambling. In October of 2006 Pax was compelled to change its stance a bit, and move away from a “zero tolerance “ position when two of their holdings [Starbucks, who agreed to introduce a coffee liqueur with Jim Beam and Yahoo! who was found to allow a bit of online gambling] no longer fit their SRI screens. Pax had to sell its holdings in each of these stocks, but since these activities amounted to a very small fraction of the business of each of these companies, Pax amended its own rules.

I have owned some Pax World stock for over 15 years and found it to be rather conservative, but solid in a down market. It is a No-Load fund [no sales charge] and will accept just $250 as a minimum investment, so it would be a bargain for the conservative part of your portfolio. Although its been around for a while, only four more funds have been added to the Pax World Mutual Fund family: the Growth Fund-1997, the High Yield Fund-1999, the new Value Fund-2007, and the Women’s Equity Fund [created in 1993 to advance the social and economic status of women in the workplace through the collective power of individual and institutional investors.] just acquired by Pax in October 2007. Pax Funds is the second largest SRI fund family.

Morningstar rates these funds: Balanced****, High Yield***, Womens Equity***, Growth**, Value NR [Top =5 stars, lowest = 1 star]. In comparision to other SRI funds, Pax funds rate above average for their respective mutual fund categories.

In looking at the top ten holdings for each portfolio, no red flags present themselves. Some of the largest holdings are: Cisco Systems Inc, CVS Caremark Corp, Thermo Fisher Scientific Inc, BP, Whiting Petroleum Corp, and Nokia. Its a peaceful fund group.

Pure Play: “A company devoted to one line of business, or a company whose stock price is highly correlated with the fortunes of a specific investing theme or strategy.” (Investopedia)

Finding a good green pure play is not necessarily easy. While a company may produce a wholesome product, it might not pay its employees well, be a safe place to work, or be an asset to its community. Nevertheless, a pure play in a green industry can still be an investment in a better world

There are a few industries which offer pure plays for green Investors to consider: Alternative/Renewable Energy, “Natural” Products, Recycling, Microloans, and Natural Foods, and all of these sectors will be discussed here in the future.

Organic/Natural food/beverage-producing companies used to be a pretty good pure play. I used to own stock in Odwalla and Ben & Jerrys. Nowadays you have to do your homework, because top food conglomerates are buying the original companies out. Here’s my homework - featuring brands I am familiar with:

Heinz owns Hain Celestial which owns Westbrae, Bearito, Health Valley, Arrowhead Mills, Linda McCartney Veggie foods,
Walnut Acres & many more.
Cadbury Schweppes owns Nantucket Nectars & Hanson
Coca-Cola owns Odwalla
Colgate-Palmolive owns Tom’s of Maine
Danone owns Stonyfield Farm
Dean owns Horizon & White Wave (Silk)
General Mills owns Cascadian Farm & Muir Glen
J M Smucker owns Knudsen
Kelloggs owns Kashi & Morningstar Farms
Kraft (Philip Morris/-Altria) owns Boca Foods & Back to Nature
M&M Mars owns Seeds of Change
Nestle owns Poland Spring Water
Pepsico owns Tostidos
Solera Capital owns Annie’s
Unilever owns Ben & Jerry’s
Weetabix owns Barbara’s

Groupe Danone, a French “fresh dairy products, biscuits and beverages” conglomerate, is probably the only one of the above buyers with any claim to being green.

For a dramatic & colorful image of this situation, check out Phil Howard’s Organic Industry Structure (8/06)
http://www.cornucopia.org/images/WhoOwnsOrganicChartAug06.pdf
or surf for some of his other diagrams. About 3/5 of the top 25 food conglomerates own some organic food brand.

Actually I don’t know of any pure plays left in this [former?] pure play sector. It appears they are gone. If you know of any, let us know!

Nucor is UNIQUE. Back in 2000 I discovered a cassette tape about Nucor [as told by past president Ken Iverson] at the local library. Knowing it had long been listed among Socially Responsible companies, I did not hesitate to listen. I was impressed and ready to buy some Nucor stock, but the price had fallen recently so I called the company to find out why. In no time I was connected to the CEO, or CFO - someone in charge. [From what I had learned, this was not unusual] He simply stated that as a whole, the steel industry was depressed, but that Nucor was doing just fine. That was in 2000 and its been a solid investment.

What’s Nucor like? First of all they recycle. “Nucor alone recycles one ton of steel every two seconds, making it the largest recycler of any material in America -- more than the nation's entire aluminum can industry.” And they are committed to a clean environment: “Today, Nucor has ingrained into its culture the understanding that environmental stewardship is equal with all other businesses critical functions, and that environmental protection is the individual obligation of every Nucor employee.” [all quotes are from their website]

Then there is the company structure. They operate in about 35 rural locations across the country, with the greatest concentration in the south. “By selecting non-urban locations, Nucor has been able to establish strong ties to its local communities and its work force.” What seems most progressive about Nucor is its decentralization. Each mini-mill has a great deal of independence. Paperwork is kept to a minimum. There are only 5 levels of upper management. "President & CEO, Executive VP, General Manager, Dept Manager & Supervisory/Professional."

Workers are very happy. They are well paid. They can earn bonuses. They can talk to anyone including the President anytime. “Nucor takes an egalitarian approach in providing benefits to its employees. Senior executives do not enjoy traditional perquisites such as company cars, executive dining rooms, or executive parking places ... All employees have the same holidays, vacation schedules, and insurance programs.” Safety is sacred: “Our attitude toward safety couldn't be clearer: Safety is the TOP priority for every Nucor employee. Period.” “Nucor has not laid off a single worker due to lack of work.” Employees do not belong to a union .... Why would they?

Innovation. Nucor can’t be compared with other steel mills. They are leaner. Their processes are unique - State of the Art. Everyone is encouraged to try new things.

One last observation. I have the 2006 Annual Report here at my desk and the front and back covers contain 8 pages full of the names of all [c.17,000] employees in Nucor.

Very Green.

Lets be honest. Its much easier to invest in companies which are NOT very Green or Socially Responsible. Some of our investments may have to be a compromise.

[There will be plenty of discussion along these lines: A corporation is doing something green, but look at what else they are doing ..... Nevertheless, I will emphasize the positive in most future posts.]

If you are close to the news & you have even a little experience with the business world, you know many of the bad guys. Indeed almost everyone in certain industries is bad - like Fast Food. And some industries are all bad - Tobacco, Weapons, & Nuclear Power, for example. [I am hopeful some company will come along & find a beneficial and profitable use for tobacco. Hey, it could happen :-). Nukes: A technology to neutralize radiation: seems impossible ]

Bad Corporations: Since 1988 a man named Russell Mokhiber has taken on the gloomy job of listing the “10 worst corporations of the year.” in his newsletter Multinational Monitor.

For the previous millennium, you can check out his master list of the “Top 100 Corporate Criminals of the Decade - 1990s,” ranked by the amount of their fines. See http://www.corporatepredators.org/top100.html

For 2006, Mokhiber listed in alphabetical order: Abbott Labs, Altria [Philip Morris], BAE Systems [military contractor], Boeing, First Energy Corp [nuclear power], Kroger, Massey Energy [coal], Pfizer, Smithfield Foods, & Wal-Mart.

Here’s the list of the worst offenders: those who have made the annual lists more than a couple of times since the first list in 88:

6 Times: Altria [Philip Morris]
5 Times: Exxon/Mobil
4 Times: DuPont Chemicals, General Electric, General Motors, Pfizer [Warner-Lambert] & Wal-Mart
3 Times: Abbott Labs, Caterpillar Tractors, Coca-Cola, GlaxoSmithKline, Monsanto, & Shell Oil.
2 Times: 24 Companies
1 TIme : 88 Companies

Of course, this is HIS list with HIS criteria. To be fair, it would be nice to feel that a company, like a person, can improve with time. McDonalds & Aetna made the first list in '88' only. Are they better? Did they just avoid getting caught? Did they avoid heavy fines and bad publicity?

McDonalds? Nope. Thanks to negotiations with NRDC (Natural Resources Defense Council), they have made a few minor changes for the better, but over the years they have become more automated and impersonal than ever.

So, I doubt corporations change much. Since these institutions often generate more income than lots of countries, most of them are just plain too large to change much without some kind of public disaster, management takeover, or new philosophy. If you think of an exception, let me know.

Bottom Line: Of course you would not be likely to invest in corporations like these. But what about your pension or mutual fund?

It’s been said that corporations have no soul. Typical corporate behavior proves this point. I may write a bit on the nature of corps later, but for now I’d like to point out that there are some exceptions, starting here with Interface Inc, established in 1973 by Ray Anderson.

Atlanta-based international corporation Interface Carpet is at the top of my list of sustainable companies. Founder Ray Anderson read Paul Hawken’s The Ecology of Commerce [1994] and was inspired to make 100% sustainability as Interfaces’ mission. Since 1995 the entire company has been focused on integrating this policy into every phase of its operations. In 1999 Ray Anderson wrote about his new passion: Mid-Course Correction: Toward a Sustainable Enterprise: The Interface Model (Paperback 1999)

Interface wants to “be the first company that, by its deeds, shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits by 2020” ... “ Ray believes that if Interface, a petro-intensive company, can get it right, it will never have to take another drop of oil from the earth.” This goal of “ becoming the world's first environmentally restorative company by 2020” is called” Mission Zero.” Details including annual reports can be found at http://interfaceinc.com.

Interface Inc, the stock [IFSIA: NASDAQ] currently sells for around $18 a share, has almost 5000 employees, an annual revenue of over a billion dollars, and a dividend of 0.44%. The share price has increased from $8 in 1990, and has risen steadily from a low of under $3 in 2003. I have owned Interface shares since ‘98, but I will not recommend their purchase, for each of us should make our own investment decisions, based on market timing, our own income, investment goals, common sense, and instincts, so I will NOT endorse ANY investment. But I sure hope to share some great suggestions!

Mutual Funds would be an excellent way for those of us with very little time to do our research, pick investments, make timely trades, diversify, and keep track of our investments........however:

Over a decade ago when I was young and innocent, I was paging through the portfolio of my new Dreyfus Third Century Fund looking over the list of “socially responsible companies.” I was stunned to find a well known Las Vegas gambling casino corporation listed. I sold the fund immediately (& didn’t see this fund listed with the best known SRI funds anymore - either).

Three years ago this month, Paul Hawken did an exhaustive job researching the over $2 trillion worldwide SRI industry including over 600 funds & discovered that SRI Funds as a whole did NOT invest in portfolios much different than conventional ones. [Socially Responsible Investing: How the SRI industry has failed to respond to people who want to invest with conscience and what can be done to change it.] Its a sad tale.

For example, he listed the 30 top equity holdings by American SRI funds with the 30 companies in the Dow Jones Industrial Average. The 19 companies on both lists included General Electric, Pepsico, Pfizer (Viagra, etc.), Coca-Cola, Wal-Mart, and Exxon-Mobil. This is certainly not a list of SRI heroes.

Also, Coca-Cola was held by 56 SRI funds studied, Halliburton by 23, McDonald’s by 41, Raytheon (weaponry) by 12, and Monsanto by 19.

Hawken also cites examples of how Pax World, the very first SRI mutual fund, held stocks in corporations whose deeds are in direct contradiction of 12 vaunted SRI principles.

While Hawken condemned practically everyone, I assume some of these funds do read their own criteria & follow them (New Alternatives Fund for example). The Natural Capital Institute , which Paul is associated with, lists both the above report AND useful information about a choice group of SRI funds, so we can assume he must now consider some SR funds as acceptable investments. [see http://www.responsibleinvesting.org/]

The good news is that most of these funds have their current holdings listed on their websites, so we can see for ourselves who they invest our money in. As long as we don’t expect to like every listing, it is a decent alternative to conventional funds.

Note: Mutual funds have ticker symbols just like stocks and can be looked up on many financial sites/sections on the web.

What is a "Permaculture" credit union?

Simple definition: Permaculture = the design form of sustainable living.
[see www.permaculture.net or www.permacultureactivist.net for more]

Back in the late 90’s a group of Pc activists got together to form a credit union - based in New Mexico - and what resulted is a most unique financial institution! Not only are funds invested in the local community, but investments avoid unsustainable practices (see an earlier blog on negative screens) but reward sustainable activities (yep - see earlier blog)

Imagine getting a BETTER loan because your house is OFF-THE-GRID!!!

“Permaculture Credit Union Mission Statement:
The Permaculture Credit Union pools the financial resources of people who believe in the ethics of Permaculture - care of the earth, care of people, and reinvestment of surplus for the betterment of both. We apply those resources to earth-friendly and socially responsible loans and investments.” (http://pcuonline.org/index.html)

Now over 1000 members, $3 million in savings, & $2 million in loans. Minimum deposit $50. PCU sends out a very refreshing newsletter too (One issue has a picture of Greg Peterson & his new Smart Car).

Interest and savings rates are comparable with similar institutions. PCU Visa card available.

The bottom line: An excellent choice for an affordable & green loan and an excellent investment in a more sustainable society.