The Sustainable Investing Paradox

How can we find investments that are going to last, make money and do good things for the planet? When I started learning about investing in mutual funds holding a diversified collection of stocks it became apparent that many funds held companies I did not like including makers of tobacco or guns. These mutual funds made good returns. However, when I looked for mutual funds that advertised being socially conscious many performed below market expectations.

I make no claims of providing advice beyond sharing my personal experience. One of the first sustainability mutual funds that I heard about was Pax World. Their website states:

“Established in 1971, Pax World is a recognized leader in sustainable investing. The Pax World sustainable investing approach fully integrates analysis of macroeconomic and market trends, fundamental security-specific financial data, environmental, social and governance (ESG) factors, and disciplined portfolio strategies.”

There is a trend for many corporations to consider sustainability but there is a paradox. Cambridge Dictionary defines a paradox as, “a situation or statement that seems impossible or is difficult to understand because it contains two opposite facts or characteristics.” Will investing in ESG funds make good returns and be an incentive for the non-ESG companies to go out of business? In 2018, I wrote a blog on ESG investing when BlackRock endorsed the trend to be more competitive.

As consumers and investors we can vote with our money to choose companies that do more good than harm. Most importantly, we need transparency and experience to be informed in what we are buying. I like to checkout each stock’s fundamentals held in the mutual fund or ETF with information available on the internet such as in Yahoo Finance.

Checking out the top 10 holdings for several mutual funds listed as being “sustainable” they include many of the same S&P 500 tech companies, home builders, and banks. So sustainability is focused on the company’s behavior more than saying it is immune to bubbles and crashes.

Embedded in my DNA is a fear of another stock market crash like my parents lived through in 1929. I wonder how many people have this phobia as well? Fear, consumer confidence, and Fed intervention have a big influence on stock and bond markets.

What caused the crash? According to Economics.help:

“The 1929 stock market crash was a result of an unsustainable boom in share prices in the preceding years. The boom in share prices was caused by the irrational exuberance of investors, buying shares on the margin, and over-confidence in the sustainability of economic growth. Some economists argue the boom was also facilitated by ‘loose money’ with US interest rates kept low in the mid-1920s.”

The current U.S. stock market boom over the past decade is being compared to the 1920’s and 1960’s by many experts. Will ESG green investments survive a market meltdown? Probably not. According to a former Blackrock executive in charge of sustainable investments as interviewed in The Guardian, corporations are focused on maximizing shareholder value. Unless there are economic incentives such as a carbon tax imposed by the government, it is unlikely ESG funds will be successful. So consider carefully the “green-washing” of ESG and sustainable investing to realize there is a lot of slick marketing, maybe even smoke and mirrors, with the mutual fund industry. Please comment below to share your opinion.

GOVEROSITY! Say What?

Government Generosity. GOVEROSITY! Doesn’t this violate Say’s Law? Before I get into classical economic theory that has split government parties for decades, let me discuss my “coining” this new word and the import for the world: GOVEROSITY!

With the passage of the $1.9 trillion American Rescue Plan, the Democrats (except 1 and 0 Republicans) are helping the hardest hit, most impoverished Americans, recover from the health and economic impacts after one year of the Covid-19 pandemic. Recall the Trump Administration gave about $1.9 trillion mostly to the wealthy people and companies in tax cuts. As we prepare our IRS taxes, check out the changes in tax rates contained in the Tax Cuts and Jobs Act of 2017 according to the Tax Policy Center.

After Covid hit the United States, Congress and the Trump Administration provided about $2 trillion to help families, airlines, hotels, and other businesses through the Paycheck Protection Plan as reported by CNBC. In December 2020, the government gave out $900 Billion for Covid relief.

When I was a Guilford College stud (uh, student), one of my favorite classes was MacroEconomics, Econ 221. I loved this class mostly because of the brilliance and enthusiasm of Professor Robert Williams, fresh out of Stanford University. Here is his bio from Fernwood Publishing:

“Robert graduated Valedictorian from Shades Valley High School in Birmingham, Alabama in 1968. He received a B.A. in Economics from Princeton University in 1971 and a Ph.D. in Economics from Stanford University in 1978. His work experience includes research economist for the Brookings Institution (1973-75), Guilford College Economics Department (1978-present), and Voehringer Professor of Economics (1993-present).”

Checkout his book: The Money Changers: A Guided Tour Through Currency Markets

Professor Williams contrasted supply side economics known as Say’s Law where supply creates demand (like Field of Dreams: Built It and They Will Come) versus from Keynes’ law, that demand creates its own supply (e.g. Necessity is the Mother of Invention). To compare these ideas, see this article in Lumen. As a result of the 1970’s stagnant American economy with high unemployment and double-digit inflation, the rise of the Reaganomics “trickle down” experiment began in 1980.

My first job in the oil fields and then in the federal government as an environmental scientist were during the Reagan administration. Many loved the tax and regulatory cuts and anti-union fights. Recall the 11,000+ air traffic controllers (fired, i.e. History) who lost government jobs next time you fly anywhere and especially to Reagan National Airport). There should be a memorial!

Here is a great article about these changing political economic forces by E.J. Dionne, Jr. in the Washington Post where Reagan (and his predecessors) made “big” government the problem and Biden is showing that government can be the solution.

Increasingly, I’ve been impressed by the generosity by current billionaires including Buffett, Gates, Bezos and others who can afford millions and even billions towards important health and environmental causes. Maybe we need GOVEROSITY to become contagious, even in the corporate sector to have some CORPORSITY. This would be a radical departure from the selfish approach some ultra-rich people have taken, especially recently. Advertising could be done with reality TV (not just on YouTube) actually helping others!

So for all the people who are receiving free government handouts who do not really need to increase their wealth, please consider following Say’s Law and share with others in need. We needn’t look very far to help needy causes around the world! On this website I have pointed to a few environmental charities and here would like to encourage us all do more to give back or pay it forward.

To quote Mother Teresa from Goodreads:

“Let no one ever come to you without leaving better and happier. Be the living expression of God's kindness: kindness in your face, kindness in your eyes, kindness in your smile.”

Update March 19, 2021

Thanks for several comments that I received by email. Professor Williams wrote:

“Bill Dam,
It's terrific to see a former student who is actively engaging the world using tools of analysis developed back in the day. I like how you've included not-for-profit & non-profit organizations in the solutions to our big problems. Government structures can't do it all. Nor can the for-profit sector. Good leadership that brings the three together-- for-profit, non-profit, & government (international organizations, federal, state & local)-- in positive synergies to find solutions may be our only hope.
Thanks for remembering my class.
Robert G. Williams, Economics, Guilford College”

It felt wonderful to reconnect with Professor Williams after 43 years and to receive his great feedback!

I also received a comment from my brother Bob:

“So Bill I have read your latest blog. All good until I get to the government "handout. " Yes people like us don't really need it and I get what you are saying about generosity. Promise ours will go into the economy. Do you feel its really a handout or maybe a hand up to the majority of Americans making less than $75 k? So many people work in the service industry for example. Hotels and restaurants shut down by the pandemic haven't worked in a year. Handout or needed help. My masseuse a true entrepreneur had just bought her little building up the street. I was going once a month, haven't gone in over a year she has seen her work fade. She is self employed not eligible for unemployment. What is a couple thousand dollars from the government. Looks cheap to me Trump gave a big handout to the rich. So many people need more stimulus they didn't choose this pandemic shut down. Sorry to go on but I think you know what I'm saying.”

I agree with him that the majority of people receiving benefits from the American Rescue Plan really need the help! This week President Biden said most of the $1.9 trillion law will help 60% of Americans while the benefits of the Trump tax cuts only helped a small percentage of already wealthy Americans.

So the goal of this Conserve-Prosper blog is to promote sustainability principles with an attitude of gratitude and exemplify how we can improve our world through awareness, education, and generosity. Thanks again to everyone making a positive difference in the world including the participants of this blog and other social media that are enriching our collective consciousness!

USA: Uncontrolled Spending Addiction and One Possible Remedy

As a citizen of the United States of America (USA), I’ve grown up in a society leading the world in consumerism resulting in uncontrolled spending addiction! Addiction is defined by MedicalNewsToday as a, “psychological and physical inability to stop consuming a chemical, drug, activity, or substance, even though it is causing psychological and physical harm.”

Addiction is not restricted to one country so the influences of uncontrolled spending addiction are observed everywhere. I’ve been victim to impulsive buying and spending too much money for things to feel gratification. An example of my own spending addiction occurred when I collected music CDs which became obsessive and needed correcting to turn debts into savings.

USA leads the world in debt with over $22.5 trillion! Checkout U.S. Presidential candidate Senator Michael Bennett from Colorado discussing unpaid wars and tax cuts in his speech on “Fiscal Responsibility.”

I posted a blog in December 2016 about similar issues. Our goal needs to be finding a balance and reducing overconsumption!

One remedy that I’ve discovered works for me is to take a photo of when I want to buy something to avoid impulsive buying. This really helps when I’m shopping, especially with children, to say we will think about a purchase. It is amazing how quickly the desire can be fulfilled to separate our needs from our wants.

Last week, I took my son shopping for his birthday to new sporting goods store in town, He identified about 20 “must have” items so after taking photos we determined the best few products to obtain a few days later and he was happy as well as we stayed within our budget.

Climate Commitments by BlackRock

Yesterday’s announcement by the Vatican on carbon pricing as a control on climate impacts included BlackRock, Inc., the largest asset management company in the world. They hold over 6.5 trillion dollars in assets for institutions and individual investors. They created iShares exchange-traded funds (ETFs) which holds stocks like an index mutual fund that are traded as stocks with low management fees. They also manage U.S. federal employee retirement pensions in the Thrift Saving Plan.

First for full disclosure, I own stock in BlackRock (NYSE:BLK) but it has not performed well in the past 52 weeks, down 15%. The yield of over 3% is attractive and has a low price to earnings ratio (P/E). They have 70 offices in 30 countries but recently needed layoffs to control costs.

According to the BlackRock history webpage, eight people created BlackRock in 1988 (including the current CEO Larry Fink) “to put clients’ needs and interests first.” They became a public company in 1999 and have tremendous influence on other companies and investors.

In September 2016, BlackRock issued a statement on climate change: “Investors can no longer ignore climate change. Some may question the science, but all are faced with a swelling tide of climate-related regulations and technological disruption. We show how to mitigate climate risks, exploit opportunities or have a positive impact.”

In January 2019 they announced the BlackRock Investment Stewardship’s approach to engagement on climate risk, “As part of its investment process on behalf of its clients, BlackRock assesses a range of factors that might affect the long-term financial sustainability of the companies in which we invest. We have determined that climate change presents significant investment risks and opportunities that have the potential to impact the long-term value of many companies.”

Therefore, BlackRock is taking a leadership role in the climate change debate by showing business sustainability must consider short and long-term risk factors. Climate change poses the greatest risk to humanity so businesses cannot afford to ignore science realities despite the noise and confusion coming from some sectors of government and industry.