The government has announced that it’s going to inject $100 million of taxpayers’ money into a new ‘green’ fund. The idea is that this money will be used to stimulate growth in organisations focused on reducing greenhouse gas emissions here in New Zealand.

That’s a lot of our money…

And it begs the question — is this whole ‘green’ thing a bunch of hogwash?

For decades, people have understood the relationship between human activity and the worsening issue of climate change. It’s more or less an accepted fact in society these days…

But the hard question now is…what we should do about it?

And the trend seems to be that the government ought to fix it. New legislation. Regulations. And now, ‘green’ taxpayer-funded investments.

But, in the past, it’s been on the consumer to make a difference.

Don’t like all the plastic in the ocean? Don’t buy plastic stuff.

Don’t like burning fossil fuels? Get a Tesla.

Think deforestation is bad? Plant a tree.

It’s on you to be the difference you want to see in the world, right?

Now, I’m in no place to offer up suggestions on how to fix this whole thing. The science side of things isn’t my cup of tea.

But I do see some intriguing questions worth exploring the investing side of the issue.

And as I see it, there are three questions worth asking:

  1. Should companies be eco-friendly?
  2. Should investors put their wealth into eco-friendly companies?
  3. Should the state force investors to invest in eco-friendly companies?

Here’s my view on the first question — should companies be eco-friendly?

Historically, the #1 goal of any company is to maximise shareholder value through maximising future cash flow.

In other words, maximise profits and share price over the long term.

If they do things that don’t contribute to that goal, they’re betraying the interest of their shareholder…and therefore the purpose of their business.

So if a business does something to be ‘eco-friendly’, like install solar panels or use recyclable straws, it’s responsible as long as that action results in higher profits. The solar panels might save on electricity costs in the office, improving the bottom line. Or recyclable straws might attract more customers, increasing sales.

But if the company does something just for the heck of doing something ‘eco-friendly’, it’s a betrayal of their shareholders’ trust.

For example, if recyclable straws cost more per unit than plastic ones…and don’t attract more customers…then the company has acted against shareholder interest by diminishing the company’s bottom-line profits.

So to answer the question — should companies be eco-friendly?

Only if it improves their long-term profitability. Otherwise it’s a betrayal of a company’s shareholders.

 

Should investors put their wealth into eco-friendly companies?

In contrast with a company’s responsibility to its shareholders, investors are free to invest how they choose, for whatever reason they choose.

If you value ‘green’ initiatives…and support those who actively work towards a greener future, then by all means invest your heart out.

If you live in Siberia and would appreciate a little global warming, then feel free to invest in the highest-polluting company you can find.

Maybe you think it’s funny how the sun reflects off the building next door into the face of your annoying colleague. You could invest in the company next door for that reason alone if you wanted…

That’s the beauty of it. It’s fully your decision.

(If you do choose to invest in companies to support a cause, that’s called ‘impact investing’…and it’s certainly a popular approach. According to CNN, even the Pope is a big fan of this strategy.)

But the authenticity of supporting certain causes through impact investing is thrown out the window when you’re forced to do so…which leads to the last question… [openx slug=inpost]

 

Should the state force investors to invest in eco-friendly companies?

Make no mistake, the Treasury’s new $100 million green fund is a forced investment in eco-friendly companies.

The state is taking your hard-earned cash and redirecting it into companies that the state likes…instead of letting you keep those dollars and investing it yourself…

And who keeps the returns? The state.

Personally, labelling the fund as a ‘green’ initiative doesn’t change anything for me. It’s still the state taking my money and using the cash to generate profits for itself.

My only solace is the likely possibility that these investments will not generate a profit.

At least, that’s what history tells us might happen. Former President Obama put over US$105 BILLION into a similar campaign with zero results. Electric cars remain a tiny niche market. High-speed rails were never built. Renewable energy didn’t budge — from 11% in 1983 to 11% in 2017.

But it sure was a nice talking point around election season…

Climate Change Minister James Shaw says that the tax dollars in this new $100 million fund will go towards ‘electric vehicles, manufacturing processes, energy efficient commercial buildings and low-emissions farming practices.’

That sounds good. And it could be good, as long as it improves profitability, production, revenue, etc.

But I have a feeling that the state won’t be too concerned with those goals. They’re more interested in being able to say that they’re making a ‘difference’ in the war on climate change.

And that’s the heart of the issue, isn’t it?

It’s not really about making a difference, it’s about the publicity.

Billionaire Richard Branson is a great example. He’s an outspoken proponent of so-called ‘sustainable’ practices and legislation…even recently diving into the Great Blue Hole in Belize to raise awareness of climate change.

But the man got rich off his carbon-burning fleet of Virgin Airline planes…and is pouring money into the wildly-pollutive spacecraft company Virgin Galactic…and he took a pristine 70-acre island in the Caribbean and bulldozed it into a commercial resort called Necker Island.

It’s about publicity.

And that’s why the state is launching this taxpayer-fuelled ‘green’ fund.

Not because it’ll necessarily make a difference.

Or a profit.

But because of the positive publicity it brings…

What do you think? Is that a good use of your money?

Let me know at [email protected]

Or, if you think I’m totally off-base here…send me an email and tell me why.

Best,

Taylor Kee
Editor, Money Morning New Zealand