To an ethical investor, growth doesn't always lead to happiness

Everyone -- from presidents to the common investor - likes growth. But not all growth buys happiness, according to Adam Seitchik, chief investment strategist for Trillium Asset Management, and Karen Shapiro, shareholder advocacy associate with Domini Social Investments. Here are edited excerpts of their conversation with the Monitor's Laurent Belsie:

Is there such a thing as bad growth?

Mr. Seitchik: I think that there is. And the classic example is where the buyer and seller are not the only parties to a transaction, so the price doesn't capture all of the implications of the transaction. It might be something like buying a big SUV. The problem is that the buyer goes and says: "I do care about the environment, but I'm one of 300 million people in this country. And whether I buy this SUV or not is really not going to have an impact on the environment at all." But when everybody does that, all of a sudden we have an environmental problem.


Seitchik: The incentives are all wrong. We're not capturing in the price of the SUV the cost to the environment of the SUV purchase.

Karen, some fast-growing retailers are doing things you're not thrilled about.

Ms. Shapiro: That's quite true. As we see the growth of big-box stores -- the chains we all know of, such as Target, Costco, Wal-Mart -- we're finding that their growth by and large is occurring in the fastest-growing areas of the country where there's the least amount of land. So there have been instances where there has been taking of land -- so-called eminent domain -- and transferring the property to developers. That has outraged property owners. [Some] towns are starting to fight back by putting limits on the size of stores that can be put in an area.

Why should ethical investors worry about zoning battles?

Shapiro: As investors, we are concerned about the financial and reputational risk of the companies that we invest in. So if a big-box store is going to start encountering problems with placing their stores in an area ... this ends up being litigated, [or at least] slows their whole process down, at a great cost to the company and to its shareholders.

Are companies starting to change their growth strategies?

Shapiro: In [Target's] 2004 sustainability report, they state that they on average are adding 100 new stores a year. And they delineate their decision processes for placement of those stores. So I think more and more companies are becoming cognizant of the concerns from the investment side as well as the public side. [And] a bank in North Carolina -- BB&T -- has recently issued a statement that it will not provide funding of private development of land that was acquired through eminent domain. It's the first bank to do so.

Are there other examples?

Seitchik: One area that investors are getting very focused on right now is the area of global warming and the risks that are associated with the potential regulation of global warming. The CEO of Cinergy [a leading electric utility] has come out and said: "We know that greenhouse gases are a problem. We know they're going to be regulated in the future. And when we go to invest in a plant, it has a 30-year investment horizon. So there's a real risk to us - not only as managers of a company but also as investors -- if we don't take into account the potential regulatory and litigation risks that come with that." So we're starting to see a lot more research in the area of risk-management around environmental issues.

Is this really picking up steam?

Shapiro: It depends on which side of the Atlantic you're talking about. We see a lot more of it happening so far in Europe. But the caldron's bubbling here.

Some economists say it's tricky, even dangerous, to differentiate good growth from bad. If we had overdone conservation when energy was cheap, the argument goes, we might have missed big innovations, such as more powerful engines.

Seitchik: I think it's a bit one-sided. If you go back to the debates in the early '70s about the Clean Water Act or the Clean Air Act, a lot of these arguments were made. This was going to be impinging on growth. But in fact, we've had very good growth in the United States, particularly in the '80s and '90s subsequent to those acts.

Conventional growth measures don't work?

Shapiro: We certainly know that GDP [gross domestic product] isn't the end-all, be-all for measuring. There are the intangibles that are important and don't get considered.

Seitchik: The things that we don't measure, we really don't value: time with friends and family, time with your children, volunteer time. These are things don't get counted, and therefore don't get valued in the same way as some other things. [For example:] Buying a home-security system, which does get counted in GDP, because the crime rate has gone up. It's better to have lower crime and fewer security systems.

Do we need a gross happiness product?

Seitchik: I think we do need new measures. The problem is it's very controversial and it gets into the political sphere.... There's a group that [has] the Genuine Progress Indicator or GPI. They actually have statistics where they take GDP and add things and subtract things. Since 1950, on a per person basis, they see on their measure an increase of about 60 percent. So they would say that people are better off now than in 1950 on a per person basis. [But] on a GDP basis, it's 300 percent. So it's not like they're saying there's no progress. But the way they measure things, there's been a lot less [than economists' traditional measure].

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