Paul Hawken is out to turn socially responsible investing (SRI) into something he can actually get behind.
In part one of this interview with Institutional Investor's Katie Gilbert, he explained the system that Highwater Global Fund uses to generate returns without suffering from 'criteria creep.'
In part two, Hawken points out that sustainable investment research could help encourage a rethinking of how corporations should operate – if only that research were more transparent. And he lays out a framework for how this could work, and explains why it would strengthen the credibility and influence of SRI.
Institutional Investor: Based on the other projects you’ve started and been involved in, like Natural Capital Institute and Wiser Earth, it seems that you’d be a proponent of making the type of sustainability research you’re gathering free, transparent and public. Is that true?
Paul Hawken: I am a huge proponent of having something like the Consumers’ Union. What they do is they review products: cars, appliances, TVs. They buy them on their nickel and then they test them. Then they rate them and they publish their findings. Two groups pay attention to what they do: customers and the companies themselves – you don’t want a low rating.
What we need is a Consumers Union. We need a non-profit that is very vigorous and has a very complete set of criteria. This non-profit would have a very detailed and transparent process of evaluation and rankings so you can say, “Okay, this is how they evaluated water policy, this is the data they used, this is what they did, and this is how they scored it.” I do think you have to give it a numerator. And then it accumulates into a score for the company.
The reason that transparency is so important is that we have to get rid of the black box stuff, which is making a mockery, to me, of SRI. You get these crazy portfolios that say they’re socially responsible, and then you deconstruct those things and it’s just crazy. That mockery comes from this murkiness where the research people and the buy/sell people say what they’re all about, and they have this beautiful ad in Utne Reader and Mother Jones, but what does it mean? The ad has nothing to do with what’s going on underneath. If we’re going to this, we have to be as transparent as we’re asking the corporations we’re researching to be. And we’re not! We all think we’ve got a better way. But the only better way is the public, transparent, non-profit way.
If we had something like this, it would be the first time you could start to track portfolios against these comprehensive ratings. The whole purpose of SRI was to change behavior. The way to change behavior is through feedback, and the way you have feedback is to close the loop. You can’t close the loop when the evaluation of a portfolio is only monetary. You have Yale with billions under management, or a pension fund or a union or foundation, and then you have the performance over X years. But then you say, how does this correlate to companies that have high standards in terms of their people, their customers, their place, their environment? With more transparency, you could say, “Wow, you have poor performance, but you chose a lot of the bottom-feeders too.” You really can’t solve that argument until you have these comprehensive, transparent analytics.
II: Would you ever consider being this type of research outfit – public and transparent?
PH: We started that way, actually. We started as a non-profit. We’d go back in a flash if we had funding to do the research. We’d do it in two seconds. The criteria we had were given to B Corp. The criteria we developed are being used by other people, which we’re very proud of, but that’s not far enough.
