A walk in the Argyllshire hills on a sparkling clear November day arouses gratitude for the untouched loveliness of this country. Yet, celebrated over centuries and envied by hundreds of millions trapped in prisons of Western materialism, Scotland’s endowment can no longer be taken for granted. Lochs are deadened, trees poisoned, the sea polluted, the countryside littered with imperishable waste, the quiet shattered by the shriek of radio and the shuddering roar of death-delivering aircraft. Remote as it is, our small corner of the globe is at risk, along with the rest of the planet, from pollution of the environment.

Some issues – a President’s assassination, a cabinet minister’s resignation – flash through the stockmarkets like a brilliant firework and for a passing moment blind onlookers to any other perception. Others shine less brightly but with a power and consistency that is eventually recognised and which illuminates the horizon for a discerning investor. Part of a fund manager’s job is to tell which are which. As we see it the environment issue will shine bright for years.

Environmental issues are certain to have a far reaching impact on political, social, cultural and economic life in every country in the world. Many symptoms of the problem are already identified – climatic change, deforestation, ground, air, sea and atmospheric pollution, land-use change, and urban congestion. But the implications for investors of treating them have been too lightly considered.

Pollution is in reality the result of billions of individual choices made daily all over the world. Being a problem of personal priorities it will not be resolved until personal attitudes are changed. So far as it stimulates consumer demand for destructive products and materials instead of developing environmentally benign alternatives, heavy industry does of course contribute to the problem. However it can only produce what customers require and the oil, auto and chemical companies can hardly be blamed for all the environmental hazards arising from the use of their products.

Nonetheless the big industrial companies are a visible and vulnerable target for political initiatives and since many industrial processes tend in themselves to be dirty and offensive, the companies involved can expect to bear the brunt of public indignation. Many of the same companies also develop products designed to deal with the various problems of dirty industrial processes – GEC for example makes satellite equipment for monitoring the environment, ICI makes industrial effluent cleansers, Siemens makes non-polluting protective resins. Unfortunately from an investment point of view the problem-solving parts are rarely big enough to transform the fortunes of the entire company.

Smaller manufacturers sometimes develop products or processes which in their early stages acquire a ‘wonder’ status on account of a perceived attribute of environmental friendliness. All too often the early hopes of investors in them have been shattered by failure in the practical application and commercial development stages. Many will remember the airships which never flew, the electric batteries which weighed about as much as the car, the tide-driven generators yet to be installed, and the foundering wrecks of all the other conceptual solutions floated before their time.

Service companies on the other hand are not tainted by public distaste in the same way as heavy industry and on the positive side there are a number of areas in which they can develop non-technical and relatively straightforward answers to highly visible problems. In particular, companies operating in waste management, land reclamation, landscaping, and even in the financial sector, are all making good money out of tidying up the environment in one way or another.

It would be unrealistic to suppose that today’s pollution generators can be avoided altogether in looking for investment opportunities. Some offenders, like the rain forest logging companies and the dirtiest parts of the European chemical industry, will or should simply disappear because their whole existence depends on activities unacceptable to enlightened society. Other companies, like the Japanese Honda which specialises in small engines, have made a virtue of necessity in adapting old but messy products to meet cleaner standards.

In between are a great mass of companies which will be suffered to survive, with the consumer in the end paying for the costs of environmental control. Some of these, like the tobacco companies, will continue to make large profits. At all events, energy-intensive industries and those whose operations have a high visual impact on their surroundings should be approached with a keen awareness of the clean-up costs associated with their activities. ‘Concept’ solutions to environmental problems should be rigorously avoided until their commercial logic has been established.

For choice, investors should look for companies which serve environmentally friendly purposes and which provide services at the least possible cost and with the greatest possible efficiency. Here in Scotland there are a number of highly successful companies operating in the service field and some of them, such as Shanks and McEwan, have been very profitable investments.

Investors have to reckon with the consequences of protecting the environment for particular companies, but they will also have to consider a wider issue.

The enterprise culture of the 1980s sprang from a strong libertarian revival. It became accepted that industry had to be left to compete unimpeded by Government if it was to prosper; individuals had to be left free to spend more of their incomes as they chose if they were to work productively. In the 1990s support for the ‘green’ agenda will mean the exact reverse.

It will mean accepting the need to constrain companies and to restrict individual choice. Just as the laissez-faire doctrine of the past decade reflected disenchantment with what preceded it, so will the decade to come reveal a similar reaction of which the ‘green’ revolution will be part. Dividends from investment in improving the environment will not be paid in cash but in kind, and Western voters appear to be not only ready for the exchange but insistent upon it. Perhaps the full costs have yet to be recognised. They will have to be met, and resources diverted by companies and consumers towards tackling the environment problem will obviously not be available for other purposes such as savings and investment.

A private investor who overlooks the implications of today’s changing priorities may lose money. Any government which does so is likely to lose office. Voters in Germany, Scandinavia and North America, revolted by the spreading stain of pollution, have already pressed the ‘green’ agenda to the front of political consciousness. Few of them may know the hills of Argyll, but many will share concern for man’s growing and ugly mark on what once was clear, clean and lovely. Across the Western nations hill walkers are a big constituency now.

November 1990