Corporate philanthropy as ethical indicator
Hurricane Katrina not only swept through the Gulf Coast, it exposed new questions for social investors: What does the size of a company's postdisaster donations say about its ethical performance? Do high gas prices mean a boom for alternative energy? The Monitor's Laurent Belsie invited two Boston-based experts to examine these questions: Robert Zevin, a pioneer of socially responsible investing and head of his own investment advisory firm, and Matthew Patsky, portfolio manager of the Winslow Green Growth Fund, which as of Aug. 31 had the best one-year, three-year, and 10-year record of any domestic equity fund tracked by SocialFunds.com. Here are edited excerpts:
Q: How are the markets reacting to the hurricane?
Mr. Patsky: It has a severe impact on specific companies and, obviously, individuals. But in the long run, the economic impact will be minimal.
Q: So higher gas prices are temporary?
Patsky: The spike we've seen is certainly temporary. [But] the direction is still up ... because of overall global demand.
Q: Katrina is also spurring giving. What's the link between a company's philanthropy and its character?
Mr. Zevin: There's a strong correlation between companies that are more generous and their treatment of their employees. [But] corporate giving is only one of at least a dozen things that all social investors look at. There are examples of corporations that have used giving as a tool to achieve some less-than-noble purpose, like Philip Morris giving to many, many civil rights and nondiscrimination and free-speech organizations in an effort to win friends.
Patsky: What you have to be careful of is companies that are using this as a PR opportunity.... I had a call from a multinational [company]. They were debating internally: Do they have to do this because everyone else is doing it? And how would Wall Street react?
Q: It gets that specific?
Patsky: It gets that specific. What they were trying to do was get some comment from somebody on Wall Street that Wall Street would not react negatively to the company donating money. I said Wall Street will consider this a one-time event and will not penalize a company for being generous at a time of tragedy in the United States. I was amazed that they had to go through that much to convince senior management.
Q: What if a company makes no donations? Can it be ethical?
Zevin: It could be OK. There's an argument to be made that companies have no business giving money away anyway, because it's not their money and companies are not people. Companies are social institutions. One argument is that they should give it back to their workers, their community, their customers, or their shareholders.
Patsky: One model that I like is the company match. So they're looking to the employees for what charities matter to them, [then] matching [their contributions].
Q: Is there new interest in alternative energy as a result of the spike in gas prices?
Patsky: There has been renewed interest. [But] it's always been a very difficult sector to play, because there's been an awful lot of money lost ... in various types of renewable energy efforts over the last 20 years.
Q: You've done exceptionally well investing in this sector. What's your secret?
Patsky: We've had too many company-specific experiences [of failures to invest in individual companies]. We're now very intrigued by the idea of doing an index, where it reduces our risk to specific issues of a specific management team or particular sector.
Q: This is arguably our third energy crisis. What haven't we learned from the past?
Zevin: The "we" that doesn't seem to learn its lesson is mostly the United States government. Most other countries of the world and many states in the United States have learned the lesson and have made very strong efforts to improve fuel economy [and] to level the playing field for green energy. It's primarily the United States government that's the outlier, in its rejection of the Kyoto treaty, in its abandonment of fuel standards for the auto fleet.
Q: Will the lessons from Katrina have a more permanent effect?
Zevin: I don't think I'd hang it on Katrina. Katrina has accentuated something that is happening anyway. We are at the point where conventional petroleum reserves are going to be declining. We're going to be using them up faster than we can add to them. The reason oil companies aren't spending that much money looking for them is they don't think they're there. They're spending the money trying to extract petroleum-like liquids from natural gas, from coal, and from oil sands, all of which are much more expensive and much more energy inefficient than oil. So the cost will continue to rise, Katrina or no Katrina. As a result of that cost increase, many countries are already committed especially to wind power and are subsidizing it as a way of leveling the playing field. Even ExxonMobil's forecast has green energy with a significantly larger share of total world consumption 10 or 15 years from now.
Q: Can alternative energy companies survive without subsidies?
Patsky: While there was some money provided for renewable energy [in the new energy bill], most of the money was provided as subsidies for oil and gas interests to do more drilling [to provide] more supplies domestically. I think there is going to be a need for a shift in subsidies [toward renewables] in order to try to get development in the US.
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