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Published: August 27, 2009

 
 

A Walled Garden for Capital

These new marketplaces are less regulated than the public markets. Investors are protected by the screening, the enhanced transparency, and the disclosure requirements that constitute the wall of the garden. The networks work because the people inside the gates can trust one another. Corporate books are kept open and collectively scrutinized, and the emphasis on socially responsible investing makes it more likely that these companies will do well. In his book Investing in a Sustainable World: Why Green Is the New Color of Money on Wall Street (AMACOM, 2008), Matthew J. Kiernan shows that multinational companies that fit the ESG screens outperform others, even on the financial front. It turns out that the practices that lead to greater responsibility also tend to produce better-run companies.

Companies, of course, also need their investors to be transparent. For pension funds in these new marketplaces, the U.N.’s Principles for Responsible Investment provides some credibility. Signatories promise to be active owners, to report openly on their own activities, and to seek disclosure about ESG practices by the companies in which they invest. Institutional investors who have agreed to abide by these principles represent about $17 trillion worth of assets under management. (My own company, Ethical Markets Media, is a supporting signer.) Venture capitalists are being held to higher standards by Web sites such as www.thefunded.com, which carries ratings and reviews by entrepreneurs. Trade associations including the Social Investment Forum in the U.S. and the U.K., firms like Tomorrow’s Company in the U.K., and networks such as the Investors’ Circle and Cleantech Forum have a similar ethic of transparency. I am one of 600 members of the Social Venture Network; we all fill out a form identifying our own standards for long-term, sustainable, value-conscious returns.

In an era in which Ponzi schemes manufacture false data to present the illusion of transparency, the collaborative nature of these networks is important. Members routinely share information about the financial, social, and ecological performance of their investments. Perhaps that’s why the socially responsible investor movement now accounts for $2.3 trillion in managed assets in the U.S. alone. That fact, in turn, will make these alternative exchanges increasingly attractive to larger companies. Often, large companies are too big and diverse to pass the screens we use; even the best of them tend to be out of compliance in several places. They have believed for too long that a company could externalize all its social and environmental costs and pass them on to future generations or conceal them.

But some large companies are changing their thinking and may well pass through the screens in the future. They are internalizing their textbook “externalities” (such as the costs of pollution and inefficiency) on company balance sheets and changing their practices accordingly. Meanwhile, even if the mainstream financial industry regains the trust of its constituents, alternative exchanges will survive, if only because investors and financiers are enthusiastically using them. These new financiers are invisible to Wall Street and government so far. But since the financiers are cherry-picking the trust and capability that are left in the system, and using it to grow the greener sustainable sectors that most need growth, they won’t remain invisible for long.

Author Profile:

  • Hazel Henderson is the president of Ethical Markets Media, an independent multimedia company that reports on sustainable, green, and ethical companies and investments. She is the co-creator of the Calvert-Henderson Quality of Life Indicators and the author of nine books, including Ethical Markets: Growing the Green Economy (Chelsea Green, 2006), and is a fellow of the U.K.’s Royal Society of Arts.
 
 
 
 
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