INN spoke with Rick Rule, Mickey Fulp, Lobo Tiggre and Jayant Bhandari about investing with an agenda to change the world.
A new way of thinking has been taking hold in the investing world, with investors choosing to invest their money in ways that seek to make returns and also change the world for the better.
This trend can be called many things, though each descriptor covers different priorities. Terms used include green investing, ESG (environmental, social, governance) investing, conscientious investing, responsible investing and the increasingly recognized “impact investing” — which is defined as the intentional deployment of capital in ways that bring about changes that can be measured.
The Investing News Network (INN) spoke to some familiar figures in the resource industry to ask their thoughts on whether this approach is worthy, worth the time and capable of delivering value for money when it comes to the resource space.
The general consensus between four experts in the space was that having positive social or environmental goals is a good thing; however, it makes making money so much harder that all of them questioned whether it can actually be called “investing.”
“Investing on any basis other than maximizing profit is inviting failure,” said Independent Speculator Lobo Tiggre. “Investing is either about the key result — making money — or it’s not investing.
“It could still be something worth doing with money, like philanthropy, or politics, but it’s not investing, which is defined by the deployment of capital for expected financial return.”
When asked for his initial thoughts on green investing, Mercenary Geologist Mickey Fulp said, “I would go back to the definition of investing, which is the outlay of money for income or profit,” and therefore having an agenda other than that was something else.
However, he added that if investors with an agenda could carry out their goals and make a profit, “then more power to them.”
Financial analyst Jayant Bhandari said that, while it’s commendable to be socially conscious, “investing based on green policies of companies is often feel good, abdication of care and consciousness and a product of not having thought through the consequences. … Such an approach is rather shallow, and often results in the exact opposite of what is intended.”
When questioned about his thoughts on investing this way, Sprott US Holdings Chairman Rick Rule posed his own question.
“I think on balance it’s a good idea, but I think that investors need to visit their perceptions and paradigms in terms of what ethical investing is. In other words, is it ethical to keep people poor through a lack of development?”
“I think that many people’s precepts around ethical investing are, while well intentioned, very wrong.”
Rule said that communities often welcome the benefits that can be brought to isolated communities, even if traditional ways of living may be disrupted.
Increase in numbers?
While each expert expressed misgivings about this sort of investment approach, each of them agreed wholeheartedly that more investors are thinking this way.
Tiggre said it is “no question” that more investors are making decisions based on environmentalist ideologies. “It’s driven by younger people coming of age in the investment world, bringing non-financial priorities with them,” he explained.
He said more investors thinking this way means there is a space for financial products that cater to them.
“There is a way to dabble in the multi-value approach to ‘investing’ that actually is investing — if you’re cynical enough to fleece the sheep while telling them you’re one of them.”
Bhandari was more biting in his criticism of the rise of investors making “so-called environmentally focused decisions,” accusing them of abdicating their responsibility for their own money by expecting businesses to make them wealthy and look good at the same time.
Rule said that there has been an increase in people who are adopting what he called “smart investing” approaches, like focusing on being less wasteful environmentally and on inclusionary development — which includes the involvement of indigenous communities, the diversification of workforces and the like. He described these approaches as good business rather than “righting historical wrongs.”
However, he added, “I also think that there is an increase in what I would call low-IQ, politically correct investing.”
“(There are) people who don’t understand that the most destructive pipeline in British Columbia may be the one that dumps untreated sewage — ironically — from Victoria into the Juan de Fuca Strait.”
Is it smart investing?
From the answers so far, it’s fair to assume the pundits INN approached don’t think too highly of investing with an agenda — and you’d be correct.
“Investors should focus on profitability,” said Bhandari, who called capitalism humanity’s highest achievement. “We as individuals must feel socially conscious about what is right and what is wrong — money cannot incentivize us to do this except make us hypocritical.”
He said that it is the role of society — and not investors moving money around — “to make sure that companies and irresponsible people do not externalize their costs.”
Tiggre feels that going in to invest with multiple goals means you are less likely to achieve any of your goals. “It’s hard enough to invest successfully with one goal.”
He said that the best way to go about changing the world is to make money first — then turn your attention elsewhere.
“If one really cares about something other than money, the most efficient way to do something is to focus one’s money-making efforts purely on making money, and then focus one’s philanthropic, political or other efforts on those goals.”
He gave two examples of people who have tried to change the world: Bill Gates, who became one of the richest people on the planet and then started to try to change the world, and Elon Musk, who is trying to change the world with Tesla (NASDAQ:TSLA) while getting rich.
Fulp went back to the definition of investing, saying that muddying intentions isn’t valuable in setting out to make money.
Rule said that green investing or altruistic investing is only worth the trouble depending on the nature of the asset you’re investing in.
“I certainly consider what I think of as ethics when I invest — environmental, social investment and social ethics — because I think about the risk of doing real harm. But I consider a business case when I do that.
“Remember that people’s interpretation of harm varies according to their paradigm.”
Impacts of impact investing
It’s a common thread in the resource industry that more companies are shifting their approach to be more environmentally friendly, more green focused and more socially responsible.
More businesses are divesting from sectors regarded as damaging, like coal — Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO) is fully divested, while BHP (ASX:BHP,LSE:BHP,NYSE:BHP) has announced intentions to move away from thermal coal.
Whether these companies are shifting because of investor, social or government pressure is up for debate — so it’s fair to ask whether environmentally minded investors who invest depending on green credentials can claim credit for an industry on the mend.
According to Rule, for the most part the resource industry has been cleaning up its house for many decades already.
In modern times, Rule said that for the most part, those working in the mining business have been partly motivated to do so because of their love of the outdoors.
“I think an awareness of what was happening in terms of in particular habitat preservation was more apparent to people in the mining business because those of us who are in the mining business spend more of our time outdoors and in frontier and remote locations than the general population.”
But it hasn’t been just a self-driven change — Rule also paid tribute to shifting social expectations.
“Society and some of the large pools of investment capital have been useful in focusing us on the fact that improper behavior raises our cost of capital.”
Tiggre also said that the industry was out in front of environmental and social issues before the rise of investors with an agenda.
“It’s not just millennials who don’t want to see the world polluted. I know plenty of geologists and executives with silver in their hair who sincerely want to provide mankind with the raw materials it needs with minimal harm to the planet.”
He also noted that activist investors are playing a part, but added, “It would be historically inaccurate for them to take credit for decades of real development.”
Fulp also pointed back to the 1970s as the turning point in the resource industry and its relationship with the environment.
“Mining companies are capitalist organizations and their goal — their only goal — is to reward their shareholders, and therefore they will try to mitigate anything that could negatively affect their bottom line, and certainly a bad environmental record would affect their bottom line.”
The greening of mining
Each expert described more careful operations for environmental reasons as part of the world that the resource industry operates in today and into the future, though in many cases they again emphasized that “green” technology is just good business.
Rule said that, despite improvements to the environmental record of the resource industry, “we need to continue to invest literally billions of dollars in extractive industries in technologies that will allow us to do what we do more efficiently, including more efficiently from the point of view of waste.”
Bhandari said that mining companies should just focus on making money: “A financially more efficient project is by definition more environmentally conscious.”
Tiggre also said the industry is shifting to more environmentally friendly processes, “but not because it’s popular with a younger crowd of investors — it would make existing permitting easier, and permitting gets tougher every year.”
Fulp also noted that it is good business when companies invest in green technology when appropriate.
“Any process that reduces an environmental footprint is to be commended, but only if it can be implemented without significant higher costs of capital and operating expenses. The foremost responsibility of any public corporation it to return a profit to its shareholders, either via an increase in share price or via dividends.”
Read more about impact investing in INN’s interview with KPMG Canada’s Tania Carnegie, who is the leader and chief catalyst of the impact venture practice at KPMG.
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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.