Saturday, September 20, 2008

Ethical Investments, Sustainable Banking and Optimism

On Saturday September 20th, instead of going to the British FantasyCon (which I did want to attend, but after the credit card bills of my Summer trips came in, and the airfare from Amsterdam to East Midlands went above 350 euros and didn't come down, I had to skip it), I went to the customer's day of the Triodos Bank.

Triodos are one of the pioneers in ethical investments, and it's the place where I'm investing my surplus money (with current trends in pension funding in The Netherlands, I'll probably be expected to keep working until my 67th, or -- who knows -- my 70th birthday. I'm putting away money to at least make it possible for me to afford to do 3-day work weeks after my 60th birthday, and I certainly don't like the fact that most big Dutch pension funds invest heavily in hedge funds). Now, while their return on investment may not the best in the business, they performed very well last year. Also, the current credit crisis doesn't affect them at all. As CEO Peter Blom says:

“By sticking firmly to our own approach, the crisis currently impacting on the banking industry is bypassing Triodos Bank. This crisis is the caused by losing touch with the real economy. Triodos Bank makes the conscious choice to remain close to the real economy. We do not get involved in speculative derivatives. Instead the bank invests its savings in concrete sustainable businesses and has direct contact with the entrepreneur. That too is a form of sustainability.”

On the day, there was a speech by their CEO, and -- strongly condensed and highly generalised -- it came down to this:

"The root cause of the current credit crisis is greed. Bank managers have been put under enormous pressure -- through CEOs and shareholders -- to make high profits: 'meet this (unrealistic) mortgage goal every month, and then get your bonus, or otherwise get fired. And that goal was raised every month. Under such tremendous pressure, people will only look at the short term, not at the long term consequences. The mortgage dealers made their goals, not quite checking if the people they sold the mortgages were actually solvent (and indeed people taking on unrealistic mortgages are to blame, as well: must we assume all people are not much more than morons, or assume they have some basic intelligence?). The debts were sold, through increasingly complex and untransparent constructions to other financial institutions: a pyramid scheme of truly unprecedented proportions. Basically, money is the lubrication of the economy: that is the means (by which the economy works). Things went wrong when it became the end in itself. The reason why Triodos Bank is not -- or very minimally -- suffering from the current credit crisis is because it invests in actual, sustainable projects with full transparancy for its customers".

(Note: not the actual words being said, but my recollection and summarisation of them.)

Greed, indeed, and -- check out Glen Greenwald at Salon -- the knowledge that the state would bail them out (another post with some superb observations, like why are Americans so afraid to socialise healthcare, but -- apart from a few shouters in the desert -- seem to think that nationalising failing mortgage and financial institutions is OK?)

Sorry, but I can't help to reproduce this price quote:

Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services? Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by many magnitudes.

It's appalling (and that's a huge understatement) that taxpayers -- the population at large -- must cough up for corporate greed. Yes, I know it's a complicated problem, and that part of the blame goes to hugely overspending citizens, as well. But this way also the actually fiscal conservative Americans (and I don't mean Republicans, or Democrats, or people from whatever party, but people who really took care not to spend more than they earned) get to pay the bill for this recklessness. Not to mention those *outside* the USA: for example, the pension premiums I pay through my day job go into a huge pension fund. The managers of that pension fund (unlike Americans -- and do correct me if I'm wrong here! -- who can decide where their 401 funds go, I as a Dutchman have no influence in to where my pension premiums are invested) have invested heavily in hedge funds, the same ones that are now also suffering heavily under the current credit crisis. As they bloody well should, being the sharks they are, but it just pains me that some of *my* money -- without my consent, through my pension funds -- has gone their way.

It's the reason why I have a savings account outside of the centrally regulated way -- actually the bog Dutch pension funds have had some harsh critiques for investing heavily in weapons industries, indeed investing in land mine manufacturing companies, out of which they retracted only after massive public outcries (they were *lucrative* investments, thanks in no small part to the Iraq and Afghanistan wars).

To put this in my personal perspective: what little hope I had that governments would try to set right all the wrongs in this world has just completely evaporated. I increasingly believe it comes down to actions that bypass governments, where small, forward-thinking (and thus almost by definition -- yeah, kill me now -- ethical and sustainable) initiatives and companies drive progress. Like Triodos bank.

Anyway, it turned out to be a very illuminating day: I ran into quite a few interesting projects I wasn't fully aware about, and which I do gladly support. To wit:

For example, one of the presentations I attended was about microcredit financing. It began by reminding me how well-off we are in the western world:

  1. 80% of the world's wealth belongs to 20% of its people;
  2. Two billion people make less than 1 euro per day;
  3. One billion people live in slums.

To them 'credit crisis' is business as usual.

So what can microcredit financing help this situation?

The way it was explained was like this: the money from my -- and other Triodos Bank customers -- savings account is (partly: obviously they have lots of other projects going on, some of which I will mention) going via Hivos to MFIs (local 'Microfinance Institutions', the Dutch abbreviation is MFI) who then give loans to local entrepreneurs.

As a very important aside: where do the most of these microcredit loans go to (this was actually asked, and answered correctly by almost all attendees), men or women? The utmost majority goes to women (Grameen Bank of Bangladesh reports 97%, Mibanco of Peru reports 86%), because they are much more responsible, reliable and motivated to not only make the project work, and pay that loan back with the -- admittedly very high -- interest. It almost makes me feel ashamed to be a man (because they -- generally, not the good exceptions! -- tend to use the money to buy something relatively useless like a TV, or just get drunk on it).

The point is, though, that these MFIs tend to keep a very close look on the people they invest in. Of course, they have their failures, but the successes more than make up for those. And, on average, they do bring a return on investment, even if this is only some 3 to 4%. More importantly, they raise the local wealth in a sustainable way: people *borrow* money, and know that they must pay it back. Then, when they realise they can do this successfully, they expand their business -- even if it's a microbusiness by western standards -- bringing increased wealth (OK: less poverty is probably the better term) to their immediate surrounds (family and local people).

(As another aside, the interest rates the third world entrepeneurs are paying are something like 30 to 40%. This initially shocked several people -- me included -- until it was told that commercial banks in the third world ask for much higher interest rates, typically well over 100%. I don't know enough about this to give any meaningful comment on these rates, but I do appreciate the openness, the transparancy of both Hivos and Triodos Bank on this: they practice what they preach.)

To keep things in perspective, Hivos handles about a 150 million euros to MFIs in the Third World, and the Triodos Bank Noord-Zuid ('North-South') saving accounts have about the same amount of money. Luckily they're not the only players in this game, and I was given to understand that the largest player in the MFI game -- Grameen Bank -- has about 8 million customers in Bangladesh and India, and had expanded to Tanzania, where they acquired 64,000 customers in the first year. Also, the Mibanco MFI in Peru has acquired enough funds to have become a savings banks (with savings mainly from Peru, not from the western world) in its own right, and become a true player on Peru's financial market, having 94 branches throughout Peru.

These may be (relatively) small progresses, but they are *sustainable*, and -- I suspect -- might be more important in the long run than whatever 'get-rich-quick' or other pyramid scheme western capitalism gone haywire can dazzle investors with.

Other informations stands (among others):

  • Ode Magazine: a magazine for intelligent optimists. Well, the moment I fail to feel attracted by the label 'intelligent optimist' is the moment when I will stop drinking beer. I thought it was the Dutch version of an American magazine, only to find out that it's the other way around: the magazine originates from The Netherlands, but has expanded into the US (an office in San Francisco);
  • Biologica: a Dutch organisation for organic food;
  • Windunie: A Dutch organisation for wind energy production;
  • Humanitas: the biggest Dutch community work organisation;
  • Tuyu (can't get the English part of it to work just yet): a fair trade company specialising in business gifts;
  • Ko-Kalf: an organic, animal-friendly (until they go to the slaughterhouse, as one of my friends has said) meat provider, who sold 'bitterballen' (untranslatable Dutch snacks);
  • Wijngoed Reestlandhoeve: an organic Dutch winery, with wine tastings (I bought a bottle of the 'Reestlander Rood': a red wine with the sublabel barrique, which is the wooden barrel, originally from Bordeaux, in which the wine is aged);

More on some of those (also with a certain future project of mine in mind: yes, I am tickling your interest) later.

As a final aside, Triodos Bank also -- among a lot of other things, all either sustainable, ethical, humanitarian, or all of the above --invests in art & culture. Reasoning: innovative thinking generates new, profit-making projects; innovative thinking needs inspiration; art & culture can provide inspiration; thus some of the money from the innovative projects Triodos Bank finances -- and makes money from -- is invested in art & culture.

Another reason why I invest in this bank.

So this is one of the things I do to try to make a difference.