The phrase “ecosystem” was first coined in the 1930s, and provides impact investors an apt metaphor to apply the ideas of interconnectedness and mutual dependence to investment decisions. In the century since, we have learned a lot about specific ways in which large-scale human activities and decisions are impacting our environment. Over the most recent half-century, intensive efforts have been made to better understand how global economic systems affect global ecosystems.
The financial world has always been involved in environmental issues, making judgments about the relative profitability of resource use, processing, and waste disposal. Together with consumer demand and policy changes, investors have the ability to influence efforts to protect the environment through financial allocation. Better understanding of the global ecosystem allows for better economic and financial decision making.
Catastrophe Catalyzes Change
In January 1969, there was a massive 3-million-gallon oil spill from the blow-out of an oil drilling platform in the Santa Barbara Channel. Besides polluting a major shipping channel into Los Angeles, the spill was a visual reference for the deadly impact of leaked oil on dolphins, sea lions, fish, and seabirds. That spill led to rallies across the country on April 22, 1970, of more than 20 million people; that first Earth Day demonstration remains the largest single-day protest in human history.
Understanding of the severity and the scope of the problem spread quickly. Activists researched legislators’ voting records to find those who were opposed to change on environmental issues. Campaigns against the “Dirty Dozen” legislators in Congress led to the arrival of more progressive legislators, supporting efforts in late 1970 to establish the Environmental Protection Agency (EPA). Over the next several years, Congress passed a string of pro-environment bills including the Clean Air Act (1970), the Clean Water Act (1972), and the Endangered Species Act (1973).
In the midst of sweeping legislative changes, the Pax Fund was launched in 1971 as the first mutual fund to take social and environmental issues into consideration. In the subsequent decades, investor appetite led to many additional funds entering the landscape; they used evolving scientific data to identify issues and develop new metrics to steer capital in ways that influence corporate change and generate positive returns. New regulations, a better understanding of our interconnected world, and shifting consumer preferences have slowly changed the calculus of profitability.
Investor Efforts: An Example of Progress
Green Century, a mutual fund manager in some of our client portfolios, has been part of these efforts for decades. In the 1980s, destruction of rainforests for agriculture and grazing became a focus for environmentalists and investors. Rainforests are complete three-dimensional ecosystems, with extraordinary biodiversity and delicately balanced levels of interdependence among species. They live up to their name by helping regulate climate, including the weather systems that circulate moisture around the globe. They also absorb massive amounts of carbon from the atmosphere, although that capacity has been compromised following systematic habitat destruction and habitat fragmentation.1
Working with a network of organizations with similar interests, Green Century has focused on protecting tropical forests, and reducing clear-cutting as part of harvesting palm nuts for palm oil. Their strategy was similar to the push for new legislation decades earlier. Working first with the consumer end of the supply chain, they talked with major consumer brand companies such as Kellogg’s and Smucker’s about ending their use of palm oil sourced from clear-cut forests. A next step was to approach the small group of large global commodity traders (ADM, Bunge, Cargill) who form the bridge between thousands of producers worldwide and thousands of industrial palm oil users. These efforts started to reframe consumer demand and shifted agreement about the economic option of clear-cutting as part of profitable palm oil production.
Supported by growing consumer awareness that had been developed over the years, Green Century filed shareholder resolutions in 2022 with both Bunge and ADM; those votes led both companies to adopt deforestation agreements. They eventually worked directly with Wilmar, the world’s largest palm oil producer based in Singapore, to adopt an anti-deforestation agreement. In turn, Wilmar is now finding ways to reuse already cleared land to avoid new clear-cutting. Today, 84% of palm oil refineries are covered by zero-deforestation agreements, and deforestation in Southeast Asia has been reduced four years in a row. These efforts have led to the discovery of new methods that wouldn’t have been tried if not for the scientific conviction of problematic environmental impact, and investor desire to avoid environmental destruction in search of profitability.
The Ecosystems in Our Financial Lives
Forests learn from periods of drought, from exposure to sunlight from thinning, and from messages about pests gradually passed from tree to tree via root networks. We learn from a mistake made, the satisfaction of our accomplishments, and from the hardships and missed opportunities of earlier generations.
Just as there is no fixed answer in managing rainforests, there is often no fixed answer about how to decide when it’s possible to retire from a lengthy career, or make any one of the many nuanced financial and life decisions we face along the way. We work with clients to develop a deeper understanding of their lives in order to provide the right context to make better decisions in each instance, and create resilience when things go awry.
1 Historic deciduous and conifer forests of Europe and North America make similar contributions to global climate and have a massive ability to sequester carbon. Peter Wohlleben, an advocate for sustainable forest management in Germany, is one of many researchers pushing forward our understand of how forests and the trees within them thrive through fungi networks and resource sharing. His just-published book The Power of Trees details how intact deciduous forests left to their own devices capably sequester carbon, attract ocean moisture over continents to minimize drought, and effectively cool the surrounding air and soil.
About Kate Campbell King, CFP®
Kate Campbell King is the Founding Partner and Chief Investment Officer at North Berkeley Wealth Management. Kate provides clients with a unique approach to their financial decision-making.
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.