The Paradoxical Risk of ‘Ethical’ Investment

Some notable, major brand names have joined the “green” bandwagon in the lead up to the U.N. climate negotiations at Copenhagen in December. Suddenly, palm oil is “bad,” so Whole Foods retailers in the U.S., Lush cosmetics in Britain and Cadbury chocolate in New Zealand have made a show pulling this maligned commodity from their products. Even government is in on the act, with the E.U. recently placing restrictions on imports.

Yet just what is the business aim? Doing good, riding the marketing buzz or protecting the value of the brand? Whatever the reason, companies are heading into murky territory. Shareholders ultimately rate companies by the business they do, not the causes they support.

Environmental activists like Greenpeace and Friends of the Earth now blame the crop for everything from spreading deforestation to increasing greenhouse gases and, as such, are pressuring business and government to go along. Yet, there’s reason to suspect that being “ethical” to satisfy activists will have a very unethical impact–namely increasing poverty.

A newly released analysis by the NGO World Growth shows that this is just the risk these companies run.

Palm oil is vital in two respects. First, it is a basic food product for the poor in the developing world. The main consumers of palm oil are not wealthy shoppers at Whole Foods ( WFMInews people ) or lovers of Lush or Cadbury ( CBYnews people ); they are the hundreds of millions in Asia and Africa who use it as food staple.

Second, palm oil is something of a miracle food. Like “miracle rice”–which lifted millions out of poverty in the ’60s and ’70s–this vegetable oil uses less land to produce more energy at a lower price than competing oil seeds in Europe or the Americas. That’s one of the reasons why the World Bank described oil palm in Indonesia as a most successful tool to reduce poverty. (Heck, it’s even trans fat free.) Having already raised living standards in Southeast Asia, it can do the same thing in Africa and the equatorial Americas.

The green movement doesn’t see it that way. These groups charge oil palm with destruction of habitat of native animals. Yes, forest is being reduced in the developing world, but a much more powerful force than growing agriculture industries is at work here.

Deforestation is a primordial drive by poor, hungry people to gather wood for building shelter and to clear land for growing food. Researchers at the Food and Agricultural Organization report regularly that deforestation in developing countries is result of the search for firewood and land to house and feed people. When Nobel Peace Prize winner Mangari Maathai from Kenya was asked recently by CNN what the key to stopping deforestation was, she replied “end poverty.”

This was how Europe and North America developed, and it is how the Third World is growing too. The Malaysian government promoted palm oil, making it the world’s largest producer for several years as a deliberate and successful strategy to provide prosperity and economic security to previously landless workers.

Palm oil is also very greenhouse friendly. Properly managed, plantations absorb more carbon dioxide than natural forest, though Western consumers hear none of this. “Wash your hands of palm oil,” is the kind of message driven by “green” groups. Their game–in the name of tackling climate change–is to lock measures that halt commercial forestry into the new convention.

They claim this is essential to protect biodiversity; it isn’t. Five years ago the U.N. concluded that the biodiversity target of preserving 10% of the world’s forests had been reached. There is more forest preserved in the developing world now than in Europe.

This is now merely a campaign to satisfy a Western urge to see pleasant landscapes.

Whole Foods, Lush, The Body Shop, Cadbury and other Western-based corporations might feel they have protected their brands by gathering under the banner of “corporate social responsibility.” Greenpeace and Friends of the Earth approve. But what is the ethical position they are in?

They have business strategies that satisfy Western-based NGOs but reduce the capacity of poor countries to raise living standards, which produces future consumers for their products in emerging markets.

Denying opportunities for growth is clearly unethical. And shareholders will note something else: It’s bad business in the long run.

Alan Oxley serves as chairman of the NGO World Growth, which just released a report, “Palm Oil–The Sustainable Oil,” at the U.N. Bangkok Climate Change negotiations as part of an effort to restore balance to the larger debate.

Source : Forbes by Alan Oxley

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