Beware the bunny huggers

I HAVE taken quite a lot of flak for a cover feature I wrote for Finweek magazine entitled Tree Hugging - Not an Investment Strategy and seeing as I have stirred the pot, I will take it from there.

In a nutshell, the feature argued that investing on the premise that you were "doing good" or the company you were investing in was "doing good" was not a suitable long-term strategy.
 
This seems to have evoked some quite strong opinions, including that it was sensationalist and that my cover set back responsible investing by reinforcing the message that this was a so-called soft and fluffy science.
 
My first comment is that I am really glad I set the cat among the pigeons and made some of these people a little hot under the collar. By their own admission they have been really poor at developing socially responsible investing (SRI) products for retail investors, so maybe it will sting them in to gear.
 
However, I digress and want to focus on the reason why I took a potentially contrarian stance to their traditional thinking.
 
A definition of investing is "the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value".

Slobbering over potential profits
 
Now, let's assume that three representatives from Nedbank, Investec and Absa* come to me with investment products.

Nedbank says by investing in its product I will be able to help the environment. Investec says by investing in its product I will be investing in infrastructure for the poor. Absa says if I invest with it, I'll beat the pants off the other two from an investment return perspective, ie the money that will be in my bank account.
 
This is an important issue to debate because SRI investing is fast becoming a big buzzword in the financial services industry, with many asset managers licking their chops trying to find a way to package something that will appeal to the good in people or communities.

They will argue that SRI or "sustainable" investment products takes time to deliver results - you won't see the benefits now, but you will see them down the line.
 
Sounds fantastic, but considering that big portions of our South African adult population have negative savings rates, how appropriate is it to be packaging products to retail investors that appeal to doing good to the wider population when the investor himself is digging a deeper hole?
 
Through the institutional market it gets even better. We could have money from retail investors channelled through one of the investment banks but wait, those funds are being put into projects in India, China and even Kenya because there are no decent projects or regulatory frameworks available in South Africa to facilitate this investment.

Doing good - but for whose pocket?

Brilliant; let's build a power station in Kenya or provide funding for a dam in India - but have rolling blackouts around South Africa or contaminated water supply in our front yard.
 
On top of this, I am not going to get any richer than if I had invested in companies which don't necessarily position themselves as "green" or "responsible" businesses, but spend hundreds of thousands of rands each year trying to make sure that their businesses will still be around in 10 years' time.
 
I lump all the do-gooders into the category of tree-huggers and it is said a bit tongue-in-cheek. I do get what they are arguing for; I'm just worried that when the marketing machines start cranking up the investment philosophy of doing good, some investors are invariably going to be taken for a ride.
 
Perhaps an apt quote to wrap up with is this one from GCX's Kevin James in his response to the Finweek editor, as a proposed alternative conclusion to the artice:
 
"If you want to do something good with your money, please do give some to charity but also make sure you evaluate your current investments, not only on the merits of their short-term returns but also on criteria that demonstrate a commitment to innovation and efficiency to ensure that these companies are well positioned and remain competitive as markets respond to changing corporate governance requirements and consumer and employee preferences."
  
 - Fin24.com

*I am not knocking any of these institutions; they are just used for illustrative purposes.