Conflict of Interest at the U.S. Fish and Wildlife Service? A Deal Some Couldn’t Refuse
By Richard McCorkle, Guest Author
As a fish and wildlife biologist with the U.S. Fish and Wildlife Service, I’ve been concerned about global warming and climate change for more than a quarter century. In the late 1990s, when I finally had the means to do so, I began privately investing in socially and environmentally screened mutual funds. I felt it was the right thing to do; I was putting my money where my mouth was.
With so many other people focusing on those high-return blue chip holdings, I guess I shouldn’t have been surprised when one fund after the other was sold and/or underwent major changes in portfolio. In one such instance, I noticed a prominent coal corporation had been added to one of my funds! Trying to stay true to my principles, I bailed in each case, cashing in my remaining chips but not giving up on the idea.
I also opened a dialog with some colleagues about investment strategies more congruent with conservation. Some of them replied, “Well, where do you get your electricity from and how do you get from point A to point B?” I’d thought about it too, and by the time 2010 rolled around, I was driving a Prius and had a solar array on my roof. My home was a net electricity generator.
Today, the energy I do purchase is 100% renewable through Green Mountain Energy. I ride my bike or drive the Prius for my four-mile round-trip office commute. I also contribute to Carbonfund.org to offset any flights I take.
But the challenge of being able to divest more completely from fossil fuels turned out to be vexing. I wanted to walk the walk and live up to the ideals of one of the schools where I had earned a degree, Unity College, the first college in the United States to divest its endowment of fossil fuel interests. I eventually discovered Green Century Funds and have been investing in their fossil-free funds for several years now.
If only the federal government’s Thrift Savings Plan (TSP) funds—or at least a few of their funds—were also free of fossil fuel investments! As an employee of the U.S. Fish & Wildlife Service, it seems like a clear case of hypocrisy that employees whose mission it is to “work with others to conserve, protect and enhance fish, wildlife and plants and their habitats for the continuing benefit of the American People” wittingly or unwittingly invest in TSP funds that include stocks from the likes of Chevron, BP, Exxon Mobil, Peabody Coal, ConocoPhillips, Sunoco, Royal Dutch Shell and many other coal, oil and gas corporations, along with various drilling and pipeline-building companies.
At a time when Bill McKibben was doing his “Do the Math Tour,” and various higher-learning institutions and even some cities were divesting, the managers of the TSP stock fund assets (Black Rock Institutional Trust Company), the Federal Thrift Investment Board, and the Employee Thrift Advisory Council showed no interest in divesting government employees’ retirement investment funds from fossil fuels. I know, because I spoke with them.
I started a petition which I personally delivered to the Federal Thrift Investment Board. I brought the issue to higher levels within my agency. I encouraged fellow employees to join me in ending investment contributions to the various stock funds and instead diverting all contributions to the F and G funds (government securities and bonds). Every time someone signed my petition, a corresponding message was automatically sent to Black Rock.
Everything I tried was a dead end. Granted, I don’t happen to have much spare time to devote to this cause. I did learn that Congress amended the Thrift Savings Plan Enhancement Act of 2009 and authorized the TSP to open a “window” during which government employees can invest a portion of their TSP contributions in outside, private funds. However, I was also informed that the powers that be had reservations about implementation of this mutual fund window.
As Fish and Wildlife Service employees, we’re supposed to be protecting and enhancing fish and wildlife and their habitats. Therefore, we provide consultation on gas and oil pipeline projects, and try to get some short-term wins for threatened and endangered species. Yet many of us are investing in the very companies whose pipeline projects we’re reviewing. In other words, we are investing in the long-term demise of the species we’re entrusted by the public to protect!
Isn’t this a conflict of interest? It certainly is hypocritical.
We’re all plagued with the same problem. We are unable to participate as capitalists without contributing to the problem – and being culpable for the same crimes against life that the totalitarians are.
With the imperative for growth that’s intrinsic to the capitalism we know, it makes me wonder about the conclusions drawn in Why Nations Fail (WNF) by Daron Acemoglu and James Robinson. In it, the growth imperative is reinforced by their perspective that “inclusive” institutions foster growth and prosperity; and conversely, “extractive” institutions lead to stagnation and socio-economic “failure.” Their arguments are compelling, but their definitions of extraction and inclusion are vague – and their conclusion that growth is characteristic of inclusive institutions is obviously wrong.
In that context, I’d love to see a response to WNF by ecological economics: one that applies the imperatives of our discipline to the development of a theory for the extraction of institutions. My intuition is that growth, rather than being a pre-requisite for social and economic justice, is actually a consequence of extractive forms of property rights. Following Jeremy Waldron’s model that there are two types of property rights – those based on historical entitlement and those based on the important of property to freedom – I think that the growth imperative arises as a requirement for the security of historical entitlement, and serves in opposition of the property rights important for freedom.
That’s a tangent from non-complicit investment options, but the investments are just an example of the compulsory extraction that’s embedded in property rights based on historical entitlement.
Absolutely a conflict of interest. If this continues to be the norm, we can expect the conservation movement to remain, as E.O. Wilson recently described it, “a story of many victories in a losing war”.
I am thankful for this opportunity to share my research on pro-sustainable investing with Mr. McCorkle and anyone else who is equally sincere about doing the right thing. However, I can only be rather sketchy here. If you wish to have a detailed discussion, please look for my Facebook page. Or meet me in Vermont.
Mr. McCorkle basically asks whether it is hypocritical for pro-sustainable people to invest in anti-sustainable systems? My “short answer” is twofold.
1. An individual of modest means might have no significant ability to promote sustainability, aside from primarily cosmetic or “feel good” differences.
2. However, if you have a couple million to invest–or have close ties to several like-minded people whose assets total over a couple million–then by acting carefully, your investments certainly might make a difference. Largely because–with current technology–you can enable all those mentioned in No. 1 above to invest sustainability. Not only yourself.
I.e. If you buy a Prius, this makes no effective difference to the world, so long as most of your neighbors cannot afford a Prius. But–metaphorically speaking–in investing, it is possible for you to get something equivalent to a Prius, plus in the same action, enabling every car-buyer in the world to own a Prius.
I will first outline “how” this can be done. Then I will list a few reasons “why” any conventional method of so-called pro-sustainable investing is unlikely to create any significant difference.
A. How to enable sustainable investing.
1. For an appropriate risk vs. benefit ratio, it is necessary to have at least US$500,000 or preferably $2 million AUM (assets under management). This can be achieved by several unrelated people, each with their own individual accounts, but using the same internet-based management system. A custom system can probably be built and maintained for about US$2,000 annually. If AUM is $2 million, this adds only 0.1% overhead.
2. To efficiently control risk and galvanize popularity, it is essential to emphasize broad-based, US-based, narrow-spread, instantly-traded “SRI” (socially responsible) ETF mutual funds. These are essentially S&P 500 funds with the least ethical companies removed. The performance result is reliably as-good-as-identical to the S&P 500. The best is probably DSI. However, SRI funds are probably not liquid enough for pre-open autotrading. Therefore it is not appropriate to invest in SRI with more than 50% AUM. Or 25% AUM is more ideal financially and perhaps will achieve the same long term support for pro-sustainability. As partly explained below.
3. Also, a primary safety feature is what I call “2-way DCA.” This means gradually to reduce investments as the stock market trends down–and increase as the stock market trends up. When stock holdings are low, gold and US Treasury TIPS may be increased as a safety precaution. This can be done affordably at Interactive Brokers, where trading fees are often only $1.
4. Gains might be increased somewhat by limited use of short-selling of Puts and other derivatives. And with some investing in especially successful funds such as FXI and QQQ. And some value investing in individual stocks from the SRI list.
5. The goal is to equal the performance of the average investor while minimizing downturns. After the efficacy of this system is proven, it could become a nonprofit money management business (similar to Newman’s Own) with the proceeds donated to environmental organizations. In addition to paying small fees, clients could donate 1% or more of assets to the nonprofit foundation when hey die.
B. Why: the reasoning behind some of the preferences above.
• If the pro-sustainability autotrading is successful, it could become hugely popular, endorsed by celebrities, etc. If it is managed as a nonprofit business, the proceeds could be used to build a war chest with which environmental organizations could challenge corporate interests on an even footing.
• The most prominent SRI companies tend to be computer or internet related. Which is arguably a force in dehumanizing society and promoting uneducated mob rule. Also, technology-based companies are often not developing non-polluting alternatives so much as simply able to make large profits without connection to physical reality. And thereby qualify as ‘socially responsible.” Nonetheless, nothing is perfect.
• Alternative energy investments are dangerous roller coasters–even when diversified as mutual funds. You might get lucky, buy low and sell high. But unless you are rich, do not kid yourself that risking your life savings in this manner is going to help the planet. If you wish to support alternative energy, while consequently probably experiencing lower gains–but still be relatively safe against serious loss–I would suggest splitting your SRI allocation between DSI and HECO. HECO is a broad-based fund with added discretion favoring alternative energy. Its gains are below par but it does show consistent gains.
• For the average investor, the most meaningful metric for judging an ETF is to compare performance to the S&P 500, which is the safest equity investment on the planet. I.e. if you stray from the S&P 500, you are taking a chance of experiencing losses that might not be regained within your lifetime.
• Due to the unique situation of the USA, the USA-based stock market is an amazing opportunity for anyone who has access to it. But by the same token, is based on siphoning money out of regional communities. And on a global scale, is mathematically unsustainable and blocks sustainable initiatives. Regardless of how “socially responsible” the companies, stock markets basically addict the planet to unsustainable growth. And in the meantime, necessarily destabilizing half the planet in order to further the success of the other half. All of which must ultimately lead to a massive war or collapse or probably both.
• “E Pluribus Unum.” Contrary to popular culture–and contrary to most of the most intelligent pundits on this planet–no individual alone can make a significant difference except by becoming part of a larger movement.
• Also–we cannot have sustainability without social stability. I.e. one of the most important and most lacking investment products would be a fund which keeps up with the S&P 500 but would not lose significantly if the S&P 500 should collapse. If and only if millions of people invest in such a manner–and also perhaps invest 25% in “socially responsible” ETFs–then we might have consistent progress toward sustainability. This is mathematically possible and could become extremely popular.
• Bonds are inherently more ethical than stocks. However, the current overemphasis on stocks makes bonds unsafe. I.e., if there were no large stock market and consequent large financial crashes, corporate bonds would be much safer. Meanwhile–it is economically feasible to sell stocks as markets trend down, but not so with bonds. The ups-and-downs of bonds are not sufficient to generate a net gain from systematic trend-trading. Meanwhile, if the markets rebound as usual, you have more gain from stocks. And if the markets do not rebound, the bond investor could lose everything. As happened in 1930 and almost happened in 2008. The same for CD’s, annuities and even FDIC-insured savings accounts. I call them “wooden fire escapes.”
• Unlike the previous century, the China stock markets are now less regulated but equally influential as the US and EU stock markets. They also operate on a 12-hour time difference. This is why it is important to be able to sell during pre-open hours during a sudden downturn. However, most investments have a wide spread during pre-open hours. Also consequently, conventional autotrading platforms generally do not operate during pre-open hours. All of this can be overcome with a custom platform and by emphasizing the most popular investments which have low spread during pre-open hours.
• Gold is not a sure-fire investment. Nonetheless, gold is inherently more safe than cash. Its value is likely to increase greatly as the mines are expected to run out in the next few decades. The value of gold could also increase if there were a stock market crash. Short-term TIPS ETFs are another safe haven. Short-term TIPS rarely gain or lose much value, and therefore are in some ways safer than gold. Also, unlike FDIC savings accounts, the federal government is directly required to pay for TIPS.
• Meanwhile however, either SRI investing or “safe” investing is difficult for the average small investor. All things considered, investing 25% in DSI is probably the best compromise between safety, liquidity, meaningful gain vs. risk and social responsibility.
• See here for a list of socially responsible funds including the important standards of high liquidity (=high AUM) and low spread.
• See here for a current discussion of socially responsible funds.
• See here for my article series, “Do Stock Markets Make Sustainability Impossible”?