HOW GREEN INVESTING CAN MAKE A DIFFERENCE
Have you ever heard the saying “vote with your wallet”? The idea behind the phrase if that if you don’t like the way a company is doing business you have the power to do something about it by taking your business, and your dollars elsewhere. The same would be true if you think a company is doing great things which you support. You can support them by patronizing them and “voting with your wallet”. While doing this on an individual level may seem insignificant, the overall impact can be absolutely enormous. We live in what is very much a supply and demand economy, and consumers (like us) have total power. If enough of us demand products that are sustainably sourced, business will be forced to offer them. If we collectively stop buying goods and services from companies we don’t agree with, they will have two choices, adapt, or die.
Socially responsible investing, and green investing can take that concept even further. The average CEO in the United States is paid in two ways. Salary, and performance based pay. Performance based pay can be tied to many different metrics. Revenue, profit margin, sales growth, expense reduction just to name a few. But no metric is more important than the all powerful share price. Because many CEOs and other top level executives get a sizable chunk of their pay in the form of stock and stock options, they have an extremely vested interested in keeping the price of their companies stock high.
For this case let’s use the stock of the imaginary company Envirokiller INC. Now let’s say Envirokiller just recently announced a new project to start drilling for oil in Yosemite National Park. I think most of us would agree that this would be a bad thing (shout out to John Muir). We would have some choices for what we wanted to do about it. We could decide to go and protest at Envirokiller’s headquarter. Not a bad idea. Might get some media attention. May get a few politicians sympathetic to the cause. We could also attempt a sit in at the park. Again probably some good media attention.
Not to cheapen the first two choices because both are noble causes, but I would point out that there is a third option, and it may be more effective. It goes back to that old phrase “vote with your wallet”. What do you suppose would happen to the stock price of Envirokiller if droves of investors decided that this project in Yosemite was the last straw, and they decided to vote. In this case they would vote by deciding to sell their shares of the company.
If you have ever taken an economics class this will remind you of the first lesson; supply and demand. If there is suddenly a massive supply of a good (shares of Envirokiller) and at the same time the demand (people wanting to buy Envirokiller) has declined what happens to the price of that good? As expected the price of the stock would likely fall, and if enough people “voted” it would fall significantly.
If the CEO of Envirokiller is like most CEO’s he probably watched the price of the stock falling and realized two things; he just took a big pay cut, and he may not have a job for much longer. Faced with that start reality, the poor CEO is faced with a choice we mentioned previously, adapt or die. If that CEO enjoys his handsome pay package, and the corporate jet, there is a good chance that project to tear up Yosemite might get scrapped.
Now, this example was an extremely simple, and extremely dramatic scenario. In real like it won’t be this cut and dry. But the concept still hold. Sustainable investing, and socially responsible investing give you, and every investor the opportunity to vote with your wallet. While our individual efforts may not result in much, or any change, together we have the power to effect real progress, and green investing is a great place to start..