Mark Brandon is the Managing Partner of First Sustainable (, a registered investment advisory catering to socially responsible investors. In addition to Socially Responsible Investing (SRI), he may opine on social venturing, microfinance, community investing, clean technology commercialization, sustainability public policy, green products, and, on occasion, University of Texas Longhorn sports.

Wednesday, August 30, 2006

Are Green Consumers Gullible?

As an advocate for all things green and sustainable, I am often peeved by the firms that feel it is their God given right to charge a massive premium for sustainable products. All of us in the business have read the LOHAS and Cultural Creative Market Research. Sure, it shows that the green consumer is often willing to pay a 20 percent premium for a product to know that its creation conforms with certain social values. However, charging a Whole Foods-like premium for everyday commodities will always keep the movement relegated to the elite types who can afford it. The typical Wal-Mart shopper, who, by the way, outnumbers the LOHAS crowd by a significant margin, will rarely buy "fair trade" coffee at $9/lb when you can get Folger's for $2. And, until the everyday shopper embraces sustainable values, our impact will be minimal.

The window for making an impact with a new sustainable product or business model is getting smaller and smaller. Although this is probably so in any industry, once a market is demonstrated, the marketers among us stink it up with off-base, fraudulent, or misleading claims. Fair Trade coffee is one of those. What started out as a noble idea -- committing to give rural farmers better than market prices so that they can afford subsistence -- has now been taken over by brands that expect to charge 200% more by slapping the words "fair trade" on the label along with some bucolic scenes of Latin American peasants. Coffee is already a global commodity, and even moderately priced bags of beans carry a magnificent margin. The same can be said for organic milk now. Paying a 100 percent premium for a gallon of milk is now more than likely to by you a fancy label with pictures of dancing cows and nothing more (see a post a few weeks ago concerning Dean Foods and Horizon Organic). When there is no official definition, loose regulation, no oversight of the use of terms such as "organic", "fair trade", "all natural", "herbal", "sustainably harvested", etc., we invite abuse.

In the investment field, I have to look in the direction of the Domini family of funds, though it pains me to do so. This week, they approved a move of their KLD Social Index fund to active management. Index funds are a commodity, and the primary measure of their worth is the expense ratio. Where Vanguard charges 20 basis points for their socially screened fund, Domini tried to get away with 80 basis points. Management will tell you that this was because of their size, relative to behemoths at Vanguard, but I see that as a bunch of bunk. An index fund is on auto-pilot. Trading costs would be minimal, even at a firm of Domini's size. There are no research costs. The only thing they have to pay is for annual prospecti, statements, confirms, regulatory registrations, and presumably a license fee to KLD. So, after several years of sub-par performance , they have decided to now call their fund "actively managed", which means they will trade the markets in an attempt to beat it. By definition, an index will underperform its benchmark by the sum of its expenses, so either Domini set themselves up for failure, or they must have believed in gouging green consumers.

This move is unconscionable for shareholders. First, re-balancing a portfolio will create immense capital gains taxes, which have to be distributed to shareholders. Management says they will be "strategic" about this, which to me, means they will pretty much stay with their index and only move to active management slowly. Only now, their expense ratio is in line with other actively managed funds. Second, actively managed funds are usually a bad bet for investors for the same reason expensive index funds are bad: their expenses are too high. Frightfully few actively managed funds exceed their benchmarks over a three year period. On average, actively managed funds underperform their benchmarks by the average expense ratio, which is 1.57 percent (almost 8x the aforementioned Vanguard index fund).

If you believe in indexing, it is time to reduce or get rid of your holdings in the Domini index fund. The Vanguard-Calvert index fund is a much better choice.

Wednesday, August 23, 2006

Plug-In Hybrid Electric Vehicles -- Get Your Municipality on Board

My local utility, Austin Energy, which happens to be one of the most forward thinking utilities in the country, along with municipal governments, non-profits, and even individuals have launched Plug-In Partners. The organization seeks to spur the manufacture of PHEV's by generating advanced demand for the vehicle. They do this by gathering advance purchase orders from fleet buyers. The video attached will show you the benefits of this program.

With due respect to the pro-hydrogen crowd, PHEV's offer a much more sensible solution to curbing automobile emissions. Our H2 friends should focus on stationary applications of energy production. The technology and infrastructure exists now for PHEV's, plus the problems of transportation and storage of hydrogen are non-existent.

The electric cars of the 1990's, recently eulogized in "Who Killed the Electric Car" had an enormous flaw. They could not be counted on for long trips. PHEV's solve this problem. While the 35-40 mile range on one charge of the PHEV's will take care of the average commute, long commuters and weekenders do not want to wait 8 hours for the battery to re-charge if they are travelling beyond range. PHEV's solve that by including a regular internal combustion engine for those times that it is required. The pundits are predicting that a PHEV could get 100 mpg, while at least one designer, AFS Trinity, have signed a Memo of Understanding with Austin Energy to supply their so-called "Extreme Hybrid Drive Train" which they claim will get 250 mpg. An equivalent "gallon" of electrical charge (the juice it would take to travel the same miles as the nationwide fuel efficiency standard) averages about 75 cents. This dollar savings is real money to the average car owner. Add in the environmental and national security benefits and this solution becomes the most compelling case for alternative fuels. This even beats ethanol, which as I've explained in previous posts, creates competition between fuel and food.

Sign the petition, and if possible, call your city council members and urge them to become a Plug-In Partner. Most mid-sized to large municipalities have sizable fleets, and their demand could help make the technology affordable for us all.

Wednesday, August 16, 2006

Is That $6 Gallon Of Organic Milk Really Organic?

The Cornucopia Institute, an aggressive watchdog of the organic industry has sued Dean Foods (NYSE: DF), the makers of Horizon Organic Milk, claiming that the world's largest dairy concern does not conform to the USDA's National Organic Standards. The Institute alleges that Dean's grazing and pasturing amount to a "dog and pony" show, which if true, means that all of those $6 gallons of milk were not truly organic. Considering that, in my town of Austin, TX, the non-organic brands go for less than $4, the 50 percent premium also amounts to outright theft. In my household, we have been buying organic milk for years, so this story hits close to home. However, if Cornucopia Institute is being too aggressive, it could scare off other large corporate players from entering organic agriculture.

According to the USDA's guidelines, organic milk must come from cows that are grazed in pasture. Additionally, there are guidelines about where, and how long cattle can be kept in confinement. Graze Magazine uncovered numerous ex-employees who say that proper grazing and pasturing techniques were used when VIP visitors, such as Whole Foods' (NASDAQ: WFMI) John Mackey, were touring the facilities. If true as alleged, then the milk should not have carried the organic label. The Cornucopia lawsuit is not the only black eye for Dean Foods. The Organic Consumers Association issued a boycott of Horizon products last year.

Such conflict in organic agriculture makes one apprehensive. Of course, we would hope that corporations would live by the honor system and not cross the line. On the other hand, one of the primary drivers for going organic is the ability to charge a premium and get a little positive PR value out of being Green (aside from the intrinsic, non-economic reward of doing the right thing). If going organic also carries the prospect of unrelenting scrutiny by activists, then large corporate concerns might decide that the venture would not be worth it. Up until now, Horizon has been THE most successful organic brand, with margins that the rest of the dairy business can only dream about. Clearly, the best hope to ensure organic quality is for the large organic grocers (think Whole Foods) to make it clear that crossing the line means losing shelf space. This, too, would be a difficult move for those companies, since they, too share in the fantastic margins. After all, John Mackey is the CEO of a publicly traded corporation. Clever marketing by his company has sort of made him the standard bearer, like it or not.

In any event, let's hope the allegations are not true. If they are true, I hope class action lawyers are paying attention.

Tuesday, August 15, 2006

Headlines from Austin Bloggers

As you can tell from the right-hand column, I strongly believe that the best way to reach a blogosphere is to contribute to it. Our latest feed tool is for Austin Bloggers. The meta-feed is created from the wonderful resource at Austin Bloggers. If you're a blogger, you should follow the link below, and copy the code snippet. Place the code snippet into your blog's template. Doing so helps traffic cross-pollinate amongst Austin Bloggers. The Progressive and Green Blogosphere tools on the right column cumulatively receive about 150,000 page views per week with thousands of clicks being referred between like minded bloggers. It may take some time to get to that point, but we can do it. I hope you're on board. Just follow the link below.

Click Here To Copy The Code Snippet

Wednesday, August 09, 2006

Pensions Strengthened by Congress

Congress took the unusual step of accomplishing something meaningful in the field of pension reform, and the effects could be felt broadly, whether or not you yourself are covered by a defined benefit plan. To simplify the action, the law enacted last week accomplished three important things:

1) It required a timeline for underfunded pensions to become fully funded. Nationwide, it is estimated that US Corporate pensions are only 85 percent funded, with the most profligate underachievers in the 55-60 percent funding range. The worst performers are clustered in the troubled auto and airlines businesses. United Airlines (NYSE: UAL) and US Air (NYSE:LCC) have already foisted their pension liabilities onto taxpayers because management could not find the discipline to either make reasonable promises to their employees or shore up their plans during good times.

2) It mitigated liability on the part of the employer when recommending or providing investment advisory services, especially for defined contribution (401k and 403b) plans. On the surface, you might think this means a whole lot more to people in my profession, but consider that a frightfully low percentage of potential participants participate in their plan, and even smaller percentage are actively managing those funds in a way that will be sufficient to meet their long term retirement needs.

3) The plan also enables employers to make compulsory deductions from employees' paychecks into the company-sponsored retirement plan. Although this may sound frightening from a personal property-rights standpoint, just consider that the default is being changed to participation, whereas before, the default was non-participation. This action may be the kind of "kick in the tail" that the public needs to start planning their financial futures.

Although making these much-needed changes provides a glimmer of hope, it is somewhat disheartening that Congress lacks the will to address three even more important aspects of the nation's retirement plans:

1) The Pension Benefit Guaranty Corporation (PBGC) which insures private pension obligations (think FDIC for pension benefits) operates in a way that only a government bureaucrat could love. Unlike traditional insurance, premiums for coverage bear absolutely no resemblance to the amount of risk that taxpayers assume. Clearly, firms such as General Motors (NYSE: GM), whose pension obligations promised to current and future retirees exceed shareholder equity by ten times, should be required to pay a higher premium per employee than other, more frugal companies. The PBGC's premium structure encourages employers to over-promise and under-deliver.

2) As awful as the current private pension underfunding seems, it is a mere shadow of the sickly pension plans for public employees nationwide. As is typical of institutions with no profit motive, public employees are being promised ever more generous retirement benefits. The politicians who accede to these unreasonable demands are clearly lacking leadership, instead opting to trade political favors now for IOU's to be paid long after they leave office.

3) All of this pales in comparison to the morass we face if Social Security funding is not put on a sustainable path. The Bush Administration learned a hard lesson about the so-called "third rail" of politics in 2005, paying a steep political price for floating some trial balloons. The fualt for this lies with both parties, and the consequences are that social security reform will most likely be left for future administrations. This is a shame, since the pain will be greater every year that action is deferred. Of course, this is a subject worthy of many posts.

Monday, August 07, 2006

Slick GOP PR-Firm outed as Inconvenient Truth Spoofer

ABC News has uncovered the identity of one of the most popular You-Tube spoofs, which mocks Al Gore's arguments in An Inconvenient Truth. It turns out that the supposedly amateur video originated with a PR firm that has Exxon Mobil (NYSE: XOM) as a client. I'll let you watch it for yourself.

Sunday, August 06, 2006

Ad-Sense and Overture Criminal Empire

This is a little off of my typical fare, but I have to get this off my chest. I am firmly convinced that Google and Yahoo are knowingly perpetuating criminal activity in their content networks.

As some of you know, I have a business promoting feed tools such as the ones in the right column. These tools aggregate the content of a blog community and containerize them. Other bloggers are displaying these tools, because they get to cross-promote their content throughout the community. The sponsors of the tool benefit by gaining pretty massive link popularity, which in turn, helps them gain on the search rankings. Info on this business is at

Anyway, I've been running PPC campaigns on Google, Yahoo, and MSN. None of them deliver anything of value. Here's how I know.

I had a one-pixel image load with my home page, so I could know how long visitors were staying on the site. After noticing that scant few of the PPC visitors were staying, I had this pixel load 1 second after the home page loaded. This way, if the visitor did not load the pixel, then it would be clear to me that the visitor was not a real, human eyeball.

As it turned out, a full 86 percent of the visitors from both Yahoo and Google failed to load that pixel. It is apparent to me that the vast majority of the ad spending, accounting for several hundred dollars was fraudulent. There is no possible way that 86 percent of thsoe visitors don't stay longer than 1 second.

Noticing again that much of the traffic was originating in India, Moldova, and Hungary, I changed my settings for U.S. visitors only, and only natural search results. My click-throughs then plummeted to basically

I did not have the same results for MSN, but it's not because they do things honestly. I put up a campaign with the new MSN Search in its first week. Despite projecting 3,000 clicks per month, they have only been able to deliver 2-3 per week. I complained to MSN. They told me that those projections are only "meant to be a guide". However, they had no response when I pointed out that even their projection for the number of searches was off by 97 percent. I mean, I understand that click-throughs are imprecise. Search queries are a known factor. Three months later, even though I know for a fact they have hard data on the number of searches for the almost 500 terms I picked, they still advertise the much larger amount. Obviously, this is a ploy to get users to sign up for the first time.

The Search Engines have been scrambling to have the courts frame click fraud as "clicks originating from the same IP", but in fact, the clever fraudsters move past this technique a long time ago. Who can blame them for perpetuating this criminal enterprise? They have built billions of market valuation out of this model, even though it defrauds their customers. Just a hint that over half of their traffic was bogus would send their stock prices into freefall.

I, for one, will never engage in another PPC campaign. Natural search is the way to go. And, by the way, since I am in a position to shamelessly plug, the Viralinks system goes a long way to achieving this.

Wednesday, August 02, 2006

Movie Review: Who Killed the Electric Car?

A strange thing has occurred in my movie-going habits lately. Usually a consumer of the usual summer fare (minus the inanities of super-hero sequels), the last 3 films I have paid full price to see are documentaries, including Al Gore's An Inconvenient Truth and United 93. Ok, so I realize that the latter is not necessarily a documentary, but it was so true to the story that it felt like one. On Friday, I saw Who Killed The Electric Car, which chronicles the birth and demise of the Zero Emissions Vehicle.

In 1990, the state of California mandated a certain percentage of cars sold in the state to have zero emissions by a certain date. The auto manufacturers scrambled to come up with a ZEV. The most ambitious, most popular, and best seller was the General Motors EV1. These cars were plugged in and had a range of approximately 125 miles, more than enough for the average commuter to make it through the day on one charge. Enthusiasts loved it because of its pick-up, quiet operation, and (since this is Hollywood, after all) its cool factor. After a few years, despite robust waiting lists, the auto companies claimed there was little demand, and over the next several years, the car died a slow death. Because all EV1's were leased and not sold, GM repossessed every single EV1 and had them crushed.

Without their beloved cars, conspiracy theories were developed assigning blame on the car companies, the oil companies, federal politicians, state politicians at the California Air Resources Board, consumers, and even backers of hydrogen technologies. Who gets the MOST blame is, of course, the point of the movie.

Narrated by Martin Sheen, the movie is riveting in the way a Matlock episode is riveting. That is, you already know all the reasons and motivations for the crime at the beginning, but you still have to watch it. However, at the end, you have to hand it to the filmmaker for making the topic interesting.

I have one criticism. The film devotes the first quarter of the film to people singing the praises of the EV1, but since I lived in California at the time this is all taking place, they never mentioned the one serious technological drawback of the cars. It is true that, as actor Ed Begley Jr. says in the film, that the Ev1 will "meet the needs of 90 percent of the people", his statement should be amended to "it meets the needs of the 90 percent of the people 90 percent of the time". On most days, the average driver can make it on 1 charge. It is those few days where they can't make it on one charge that is the problem. If you need to drive from LA to San Diego one day, you would need to stop for eight hours somewhere in Orange County to re-charge. Of course, finding a suitable re-charging station was a challenge in and of itself.

Many of the rental car companies used EV1's. As it turned out, at LAX on the high demand days, the EV1's would be the last to go. Out of town travelers, with no idea how to plan for re-charging, would find themselves stranded in the middle of nowhere with no power outlet in site. Towing was the only option. As is the case with Priuses today, the charges would also not last 125 miles as stated in the marketing brochures. It was the old "up to" rule, where in the optimal conditions, it can make it that far, but in reality, it's never that far.

The more virtuous among us (namely, my wife) would say that these are the times when you should plan for mass transportation or renting a car. However, I see the everyday driver looking at the possibility and just deciding to chuck the idea of the electric car.

Gladly, new technologies are on the horizon to address these issues. A plug-in hybrid should have all the benefits of the EV1, while being able to fall back on gasoline in those rare cases where longer range is required. While leaving the cinema, we were greeted with people handing out fliers for plug-in organizations. The literature stated that recharging a plug-in hybrid would be equivalent to gasoline at 77 cents per gallon. We'll see.

I give the film 3 stars out of 4.