Monday, January 10, 2011

It' Not Easy Being Green - SRI and Clean Tech Trade-Offs

It's an interesting conundrum - do you buy a clean tech stock, knowing the company is working hard to solve some of the world's most pressing environmental problems, even when the clean tech industry its self has significant environmental impacts?

I asked a similar question a number of years ago at a socially responsible investing industry conference I was attending - to what extent are social investors looking past the social and environmental impact of the clean tech industry (solar was the topic of the day), simply because the end product has environmental benefits?  The response to my question:  silence.

Source: Sesame Street

This week, I had to ask myself the question again.  A few months ago, I bought some shares of Neo Materials Technology (NEM).  It seemed like an attractive investment with a good growth rate and positive financial outlook.  Neo Materials is in the business of rare earth metals - used for green technologies such as catalytic converters and wind turbines.  The company was recently listed in the Corporate Knights Clean Tech 10, giving it some green credentials.  (Side note: As handy as they are, I am cautious of 'top 10' lists or indexes and their opaque methodologies - and in fact I'm co-authoring a book chapter on the subject, stay tuned.)   So I hit the 'buy' button and have been watching the stock ever since. 

This week, an article by Bloomberg caught my eye.  It described the environmental destruction that has been caused by the mining of rare earth metals in China, which produces the bulk of the metals worldwide.  I learned that rare earth mining produces toxic effluents an byproducts, including uranium, and that leakage and safe storage are major problems.  I can't say I was particularly surprised at this information.  Certainly the metals have to come from somewhere, and I am well aware of the social and environmental harms caused by many mining operations around the world.  Not to mention that China's record for protecting worker's rights is less than stellar.

So what is a responsible investor to do?  As is my nature (and my business), I decided to write the company to ask for more information about the environmental and social practices of its suppliers.  Here's what I wrote:

I am a new shareholder in Neo Materials and I also run a responsible investment consulting firm.  Today I came upon this article from Bloomberg, detailing concerns about the environmental damage of the rare earth metals industry.

I am committed to owning companies in my portfolio that contribute to a more socially responsible and sustainable future.  It is therefore important that the companies I own implement high environmental and social standards for their own facilities, while also ensuring they source their products from equally responsible suppliers.  I would appreciate if you could take the time to answer some of my questions:

1)  Where and how do you source your rare earth materials?

2)  What standards do you have in place to ensure your suppliers are meeting high environmental and social (i.e. labour and community impact) standards?  For example, do you screen potential suppliers to ensure they meet minimum requirements and if so, which standards or criteria do you use?  Do you audit and/or inspect your suppliers' mines and facilities to ensure they meet these standards?

3)  Do you have staff members and board members dedicated to monitoring and improving the environmental and social performance of your company, including monitoring the social and environmental performance of your suppliers?  If so, please indicate who is responsible for this file.

Thanks in advance for your detailed response.

Ashley Hamilton.

I am still waiting for a response, although I'm not terribly hopeful that the company has implemented a robust supplier monitoring and mine inspection system.  Not because it's a bad company, but largely because it is small and it has likely (and quite rightly) spent most of its resources on R&D.  The question is, do I hold Neo Materials to a different standard than companies that have a similar environmental impacts but produce less environmentally friendly products?

In the past, I think there has been a tendency for many responsible investors to be lenient on clean tech companies, however I'm happy to report that this is beginning to change.  Henderson Global Investors in the UK sponsored a benchmarking study (pdf) highlighting the environmental and social performance of the world's leading solar energy companies.  Henderson is now working with investor colleagues PGGM, Aviva Investors, Boston Common Asset Management and Bank Sarasin to proactively discuss social and environmental issues with solar companies, with the goal of improving both awareness and company performance.  Presumably this shareholder engagement will begin to spill over into other clean tech industries as well.

It's not easy being green.  Companies developing cutting edge technologies to reduce our carbon footprint deserve a pat on the back.  But we need to ensure that robust social and environmental practices are not simply the purview of the Fortune 500's.  Clean tech companies need to to walk the walk, and clean tech investors need to be equally diligent to ensure that even the greenest products and technologies have a net positive impact on the planet.

This blog post was cross posted on