Some of us in the early '70s wore Birkenstocks for comfort not fashion; grew our own food organically; baked bread and made our own granola. Back then, consumers like us accepted the fact that there was limited healthy options in stores, so we made do on our own. Health food stores and co-ops were just beginning to pop up and many of the altruistic proprietors had no clue how to keep moths out of the bulk grain or how to keep their veggies from dehydrating. It was generally assumed that humans needed meat three times a day and information on alternative lifestyles was limited to the Whole Earth Catalog, which seemed more of a cult than a trend. Forty years later, who of us would have imagined the massive shift of consumer values toward wholeness and sustainability that has occurred? Is the same transition happening in the way we invest?
Gradually, with the dawn of personal computers in the 80s and the Internet in the 90s, consciousness shifted and now the "conscious consumer" of the Lifestyles of Health and Sustainability (LOHAS) market has joined the mainstream; reading labels and demanding organic, safe, and healthy products is the norm. Today, there are very few educated people who simply don't care how a product is made or what its impact is on them, on their family, or on the whole earth.
If this seemingly impossible transition could occur with little or no help from the powers that be, why is it not imaginable that financial markets are on a similar trajectory? The premise of my forthcoming book is that the kinds of values that drive the LOHAS market will inevitably drive the stock market more and more over time. Investors are the consumers of the financial marketplace, and they are beginning to read labels. But we have a long way to go and we need to make noise, rally our troupes and command center stage. This is what Bill McKibben of 350.org is doing in D.C. and on campuses across the country, initially to stop the oil sands pipeline, but ultimately to devalue the stock of oil companies by getting institutions to divest from fossil fuels. But the investors need reassurance.
A powerful myth of the '70s was that "you have to eat meat to get enough protein!" and one of today's myths is that "if you dump oil stocks your portfolio will suffer!" Good nutrition, people now know, is no longer about meat and potatoes. So, too, investors need to learn that they can do without fossil fuels quite happily if they stop following the crowd. In fact, some of the best returns in recent years were gained by shorting oil at the right moments. Like nutrition which may need to vary from person to person, managing portfolios is a complex affair and managers vary greatly in knowledge and skill. There is too much standardization in the industry and plain vanilla portfolios reign. What we need to see happen for McKibben and his cohorts to succeed is a move toward more customization of portfolios based on real human values. And we know this is an uphill battle.
Here's how Joe Nocera argues against McKibben's approach in his recent op-ed piece in The New York Times:
'Can environmental groups expect to win a series of fights for decades to come, when the economic forces are aligned very strongly against them in each round?' The answer is obvious: no. The emphasis should be on demand, not supply. If the U.S. stopped consuming so much of the world's oil, the economic need for the tar sands would evaporate.
Fortunately, Mr. Nocera's own reasoning sets himself up to lose this debate: First his assumption that economic forces will continue to be "aligned very strongly" against environmental considerations is unfounded except that it has been true thus far. One more Katrina or Sandy may change this dynamic, not to mention the impact of divestment; and the second assumption follows the first: "demand and consumption of oil in the U.S. will not diminish." It already is diminishing!
Here is an analyst's comment agreeing with the International Energy Agency's world energy outlook: "My conclusion is that if the price of oil remains at its current value, an ongoing decline in U.S. oil consumption over the next decade is a plausible baseline scenario even without the currently planned CAFE standards. If the price rises modestly from its current value (as the IEA analysis assumes), given the increased commitment to conservation already embodied in current standards, a reduction in consumption by 2020 of the size assumed in the IEA report looks reasonable."
Endowments that divest from oil now may find themselves sitting pretty in the years ahead while the dinosaurs who did not read the signposts missed the moment. Stocks themselves can become the signposts that reflect human values. Oil is just one of many problems looking for solutions. Currently the fossil-free movement seems to parallel the natural consumers' movement of the past. It took that movement time, but the difference is delicious. If investors awaken they will learn to love what they own.