50 Shades of Green
As I’ve written before, “human economies are still so far from real sustainability that even a highly idealized portfolio of our most sustainable enterprises necessarily falls short. Ultimately, the best any portfolio can do is mirror the reality of the world, and today, still, even the best representatives of sustainability can be found wanting compared to what will be required if we would like to keep society thriving indefinitely.”
There’s no better example of the various conundrums swirling around sustainable economics than GMOs. As one institutional client, Timothy Yee of Green Retirement Plans, recently emailed to me, an “Issue that I am having is with Hain Celestial (ticker: HAIN) and its stand on GMO not labeling/mislabeling. Given this issue, I am in a bit of a quandary. What are your thoughts on the GMO front?”
This is a complex one, and it points out that there really are “50 shades of green,” especially in portfolio management, and that no shade is perfect far from it.
And yet, we think that our follow-the-science, empirical, evidence-based methodology keeps us as close to a pure realization of a sustainable-economy model as you can find, given the world as it is today, and particularly given the state and entrenchment of the investment management field today, where most clients and advisors remain stubbornly invested in the primary causes, fossil fuels in particular, of the key systemic risks with the power to cause turmoil in economies and societies.
So, where do we believe the empirical approach to observing the world leads with respect to GMOs? First, we know there are questions about where the science will lead us, but we don’t believe that GMOs are universally bad. We do not, as a firm, screen GMOs out, per se, although we do not currently own any GMO inventors or development labs, and our Sierra Club Green Alpha portfolio (SCGA) does screen out GMOs explicitly. We do believe that, as with any technology (AI comes to mind), misuses can be and are deleterious. For example, we object strongly to GMOs such as “Round-Up Resistant Corn,” which has been gene hacked to tolerate a huge quantity of toxins that then in turn of course end up in everything our food, water, oceans, and bodies. This type of application is not the path to indefinite sustainability and has to stop. Our portfolio construction theory of avoiding systemic risks and investing in solutions to those threats would never allow us to invest in GMOs of this type.
And yet, there are advantageous gene hacks that do give us a shot at mitigating some large systemic risks. Higher-yielding crops can alleviate hunger, drought-resistant crops can conserve water and keep agriculture going in the many places in the world that are drying out (California seems to be emerging as ground zero recently), and in other cases, plants have been modified to improve nutritional content. On the point of drought-resistant crops, Stanford’s Dr. Henry I. Miller has posted a particularly informative piece on GMOs and public policy in which he concludes, “As water scarcity increases, drought-stricken crops wither, and food prices rise, the need for resilient agriculture will become more obvious and more urgent. With more rational public policy, we can meet that need now. How much more preventable misery and death must occur before our policymakers see reason?”
Indiscriminate rejection of GMOs, in my opinion, only serves to obscure variation among applications. Therefore, as a position, it lacks depth.
We don’t think Hain Celestial (HAIN) is likely to be distributing many of the worst kinds of GMOs, since its focus on organics means it’s not getting a lot of raw materials (and resulting SKUs) from pesticide-using farms that might use pesticide-resistant seeds. That said, we do of course believe folks deserve to know what they consume, so transparent labeling whatever you think of GMOs should be required, and this is the kind of thing where we’d consider some shareholder activism to nudge HAIN to reconsider on this front. Activism, but (as long as we like the fundamentals!) not divestment. HAIN is the most diversified natural and organic product producer, and offers a ton of sustainable alternatives in food and personal care in numerous channels. Therefore, to us it represents a strong next-economy analogue to a legacy-economy rival such as, say, Unilever (ticker: UN).
Finally, in a larger sense, we can’t help but agree with astrophysicist Neil Tyson’s take on the issue: that “We have systematically genetically modified all the foods, the vegetables and animals that we have eaten ever since we cultivated them. It’s called ‘artificial selection.’ That’s how we genetically modify them.” Tyson’s no-hysteria approach gives us some context, and further, as Ezra Klein points out in the same article, one key cultural difference in addressing ideas that are at odds with the underlying science in conservative and progressive circles “is that conservatism’s mistrust of climate science has taken over the Republican Party even politicians like Mitt Romney and John McCain have gone wobbly on climate science while liberalism’s allergy to messing with nature hasn’t had much effect on the Democratic Party. And part of the reason is that the validators liberals look to on scientifically contested issues have refused to tell them what they want to hear.” On warming, validators like Ann Coulter will tell her base what they want to hear all day long. On GMOs, Tyson, as befits a scientist, defaults to the evidence and tells it like it is.
Disambiguation of the many and varying underlying issues is what this and many other issues within sustainability is really about. As Tyson later explained on Facebook:
“If your objection to GMOs is the morality of selling nonprerennial [sic] seed stocks, then focus on that. If your objection to GMOs is the monopolistic conduct of agribusiness, then focus on that. But to paint the entire concept of GMO with these particular issues is to blind yourself to the underlying truth of what humans have been doingand will continue to doto nature so that it best serves our survival. That’s what all organisms do when they can, or would do, if they could. Those that didn’t, have gone extinct.”
Recognizing blind spots that can lead to misinformation and, in the case of our field of investment management, therefore to inefficient markets, is a big part of what I try to do.
Is there today such a thing as an indefinitely sustainable economy? No. But we can see a way there, and that way is paved with innovations and increasing efficiencies, and we don’t think we can afford to avoid the most promising representatives. Folks like antivaccinators and blanket GMO opponents ignore scientific consensus to their (and our!) peril.
Disclosure: Green Alpha Advisors is long HAIN, and holds no positions in UN.
[Note: this is part of Green Alpha’s ongoing “50 Shades of Green” series, wherein we endeavor to disambiguate the sustainable and less sustainable aspects of sectors, industries, trends and companies. – GJ]
Garvin Jabusch is cofounder and chief investment officer of Green Alpha ® Advisors, and is co-manager of the Green Alpha ® Next Economy Index, or GANEX and the Sierra Club Green Alpha Portfolio. He also authors the blog “Green Alpha’s Next Economy.”