Newsletters: Socially Responsible Investing Climate Change and Racial Equity Top List of Shareholder Resolutions Mitigating climate change and curbing racial injustice top the list of shareholder resolutions being filed this year by advocates of Sustainable, Responsible and Impact Investing. [i] Of the 436 resolutions filed by the Interfaith Center for Corporate Responsibility and its members, 103 address climate change and 101 diversity and racial justice. Other resolutions ask corporations to change their policies regarding corporate governance, human rights, lobbying and political contributions, other environmental issues and health. One key change is increased support of shareholder resolutions by such major financial services firms as BlackRock, Vanguard and State Street. BlackRock backed nearly one third of ICCR initiated resolutions in 2021 compared to five percent in 2020. [ii] The tally is not complete for 2022.The number of resolutions also has increased sharply, from 244 by this time in 2021 to 436 this month.[iii] This is despite rule changes imposed during the Trump Administration intended to make it more difficult for shareholders to file such resolutions, which often are opposed by corporate management.The number of climate related offerings has grown by 88 percent year-to-year, with much of the increase from calls for financial firms to reduce their funding and underwriting of fossil fuel infrastructure projects.Eight separate resolutions have been filed regarding the oil giant Exxon-Mobil. One asks Exxon-Mobil to adhere to its stated support for a carbon tax to reduce green house gas emissions on grounds that such measures were not likely to garner adequate political support. After issuing the statement in favor of a carbon tax, Exxon-Mobil lobbyists were video-taped opposing it, forcing the corporation to condemn the efforts of its own lobbyists. [iv] This came after Exxon-Mobil told its shareholders that its lobbying efforts were aligned strictly with its public statements on all issues, including climate change, and were made available to review by the U.S. Congress. “The Company follows a strict internal review and oversight process to ensure its public policy positions are aligned with lobbying activities,” the corporation said in a statement to shareholders, also available to the general public. [v] A resolution supporting transparency had passed with 64 percent of the vote, against opposition from the Exxon-Mobil management. The resolution stated that: “Corporate lobbying that is inconsistent with the goals of the Paris Agreement presents significant risks to investors, including systemic risks to our economies, as delays in implementation of the Paris Agreement increase the physical risks of climate change, threaten economic stability and introduce uncertainty and volatility into investment portfolios. We believe that Paris-aligned climate lobbying helps to mitigate these risks, and contributes positively to the long-term value of companies.[vi]” The resolution was filed by BNP Paribas Asset Management and Dana Investment Advisors.[i] https://www.iccr.org/iccrs-2022-proxy-resolutions-and-voting-guide, pg. 2;[ii] https://www.iccr.org/iccrs-2022-proxy-resolutions-and-voting-guide, pg. 4;[iii] https://www.iccr.org/iccrs-2022-proxy-resolutions-and-voting-guide, pg. 4;[iv] https://www.reuters.com/business/exxon-suspended-climate-advocacy-group-it-helped-form-2021-08-06/[v] https://corporate.exxonmobil.com/-/media/Global/Files/investor-relations/annual-meeting-materials/proxy-materials/2020-Proxy-Statement.pdf; Exxon-Mobil publishes its lobbying report at: https://corporate.exxonmobil.com/-/media/Global/Files/policy/lobbying/ExxonMobil_2020-Lobbying-Report.pdf[vi] https://www.iccr.org/iccrs-2022-proxy-resolutions-and-voting-guide p. 28. Financial Industry Endorses Net Zero Greenhouse Emissions A coalition of financial services companies from around the globe are backing the goal of net zero greenhouse gas emissions by or before 2050, with their numbers growing in the wake of the Glasgow Climate Summit. [i] The alliance includes 220 signatories who together manage $57 trillion in assets, a significant percentage of capital markets globally. The group includes such giants as BlackRock, Fidelity and Vanguard, as well as some of the pioneers of Sustainable Investing. Formation of the alliance underscored the emerging role of private companies and non-profit organizations in fighting climate change, as governments struggle for the political will to tackle the issue. [ii] “As big as the public sector effort is across all our countries, the $100-trillion plus price tag to address climate change globally is far bigger. The gap between what governments have and what the world needs is large, and the private sector needs to play a bigger role,” U.S. Treasury Secretary Janet Yellen said. [iii]Financial managers who specialize in “green investing” noted that mainstream companies have conflicts in their stated goal of slowing the effects of climate change. The larger companies often have stakes in the fossil fuel industries that dwarf their sustainable investments.“While it is important that all asset managers cut the carbon footprint of their investments, we do have some concerns about net zero commitments at this time,’ said Leslie Samuelrich, president of the mutual fund company Green Century, which has no fossil fuel companies in its portfolios. [iv]“First, large asset managers generally hold significant investments in the fossil fuel industry and if they carve them up to isolate the high-carbon ones to address them at a later date, that is highly problematic. Instead, they should press companies to start on a path to reductions or to phase out fossil fuel operations as quickly as possible,” Samuelrich said in a statement.“Second, since without the detail to determine paths to full de-carbonization, some may not be genuine in their intent and may be using this as a greenwashing opportunity until more disclosure and transparency is feasible or required,” she said.The analytical company Morningstar noted that most of the signatories to the agreement “have not fleshed out exactly how they will reach the goal.”[v]The mainstream financial managers underlined their commitment to using their leverage to achieve slash carbon emissions.“We are excited to make the commitment to the Net Zero Asset Managers Initiative alongside the growing community of signatories,” said Jenny Johnson, CEO and President of Franklin Templeton. [vi] “We approach our journey with the clear acknowledgement that we must commit to finding the data and solutions to help us achieve global net zero emissions by 2050.” Morningstar analyst Jackie Cook wrote that asset managers are embarking on an uncharted path, with significant concerns about inconsistency in corporate disclosures and the quality of company-level carbon emissions data. [vii]Breaking down the commitment, Morningstar found that the asset managers were forming a plan that:Sets interim net zero carbon emissions targets for 2030;Accounts for direct and secondary emissions in their portfolios;Prioritizes real-economy emissions reductions rather than relying on carbon offsets; Creates investments products aligned with net zero and facilitates increased investments in climate solutions;Provides clients with net zero and climate risk/opportunity analytics;Implements a stewardship and engagement strategy with a clear escalation and voting policy;Engages with other key actors in the investment system;Ensures direct and indirect policy advocacy is supportive of net zero carbon emissions goals; andPublishes appropriate disclosures that demonstrate actions being taken are in line with commitments.[viii][i] https://www.netzeroassetmanagers.org/[ii] https://www.ceres.org/news-center/press-releases/net-zero-asset-managers-initiative-announces-41-new-signatories-sector?gclid=Cj0KCQiAnaeNBhCUARIsABEee8XADtvsQvzK2-NhhPZWf46Nnv7RkUpn8WGdEvGARiErR07HOlaYV2IaAvPnEALw_wcB[iii] https://www.morningstar.com/articles/1066190/the-esg-advisor-asset-managers-are-making-net-zero-carbon-commitments [iv] Email from Erin Grey, vice president of Green Century.[v] [v] https://www.morningstar.com/articles/1066190/the-esg-advisor-asset-managers-are-making-net-zero-carbon-commitments [vi] https://investors.franklinresources.com/news-center/press-releases/press-release-details/2021/Franklin-Templeton-ClearBridge-Investments-Brandywine-Global-and-Martin-Currie-Join-Industry-Leading-Net-Zero-Asset-Managers-Initiative/default.aspx; for a more complete discussion see also the site of the non-profit Ceres: https://www.ceres.org/news-center/press-releases/net-zero-asset-managers-initiative-announces-41-new-signatories-sector?gclid=Cj0KCQiAnaeNBhCUARIsABEee8XADtvsQvzK2-NhhPZWf46Nnv7RkUpn8WGdEvGARiErR07HOlaYV2IaAvPnEALw_wcB; [vii] https://www.morningstar.com/articles/1066190/the-esg-advisor-asset-managers-are-making-net-zero-carbon-commitments[viii] https://www.morningstar.com/articles/1066190/the-esg-advisor-asset-managers-are-making-net-zero-carbon-commitments Money is flowing into Sustainable, Responsible and Impact (SRI) Investing at a record pace Sustainable, Responsible and Impact InvestingIntroduction: Money is flowing into Sustainable, Responsible and Impact (SRI) Investing at a record pace, growing 43 percent from 2018 to 2020, as investors find that companies perform better financially when they are mindful of the environment, their employees and their communities. [i] The impact goes beyond investment selection. Many SRI managers engage corporations through dialogue and shareholder resolutions, changing company policies on the environment, hiring diversity, gender equality, executive pay, corporate and political transparency and other issues. Over the decade 2010-20, investments using SRI screens rose more than 29-fold, from $569 billion to $16.62 trillion. Climate change and other environmental concerns were key drivers. [ii] The number of SRI investment vehicles jumped, with mainstream financial companies introducing mutual and exchange traded funds, many excluding fossil fuel companies. [iii] SRI pioneers worry about “green washing” or “diluting” the sector [iv]Strengthening the “Impact” in SRI Investors considering green investments weigh the “Four P’s”: Performance, Price, Purity and Participation. Performance is measured relative to an index, such as the S&P 500. Price is the cost of buying a fund plus annual maintenance fees. Purity is determined by the strictness of the screens, for example, excluding companies holding fossil fuel assets. Participation covers the degree of engagement with corporations on such issues as gender equity, workplace diversity, executive pay or the environment. Participation, or shareholder advocacy, often demarks pioneering SRI firms and recent entrants. SRI veterans say mainstream firms new in the field do not challenge corporations on SRI policies. [v] For instance, the global climate justice organization 350.org has campaigned against BlackRock, the largest money manager, because its suite of SRI funds are dwarfed by fossil fuel holdings in its other investments. [vi]Figure 1 Sustainable Investing in the United States 1995 to 2020, as detailed in the biennial USSIF Trends Report (https://www.ussif.org/trends)History of Socially Responsible Investing For centuries, religious investors shunned financial vehicles that violated their core beliefs. In colonial America, Quakers and Methodists avoided investments that benefitted slavery. In the early 20th Century, some mutual funds excluded such “sin stocks” as tobacco, alcohol and gambling. The social and cultural upheavals of the 1960’s focused investors on civil rights, environmental, feminist and other rights issues. Investors sought to pressure corporations from doing business with apartheid South Africa. SRI Investing turned greener in the 1980’s after environmental disasters in Bhopal, India, and the Exxon-Valdez oil spill. Faith-based organizations coordinated through the Interfaith Center on Corporate Responsibility [vii], Ceres, [viii] and As You Sow,[ix] non-profits embracing financial companies, corporations, and public bodies. The myth of underperformance The rush of money into SRI and the expansion of the field has been accompanied by rising performance. SRI investments performed better than the broader markets during turbulent 2020, the independent financial analytical firm Morningstar found in a detailed report. “For most of the year, the kinds of stocks that sustainable equity funds prefer --those of companies with better ESG profiles and that are aligned with the transition to a low-carbon economy — outperformed,” Morningstar concluded. [x] This was consistent with academic studies that covered longer periods. For years, when SRI managers concentrated on excluding companies to which their investors objected, returns lagged. As the managers gained expertise, and sought out companies that exhibited greater responsibility or were best in their class, SRI portfolio performance came into line with and often exceeded more conventional investments. [xi] Definition Sustainable investing has borne many names. The industry group US-SIF, or U.S. Social Investment Forum, notes that “the terms sustainable, responsible and impact investing, sustainable investing, responsible investing, impact investing and SRI are (used) interchangeably to describe these investment practices.” Other commonly used terms are value-based investing, or simply “green investing.” SRI investors use screens based on Environmental, Societal and Governance (ESG) criteria. [xii]Recent Issues in Sustainable, Responsible and Impact Investing SRI investors debate whether to divest from fossil fuel companies, especially the 200 coal, oil and natural gas companies that have the largest reserves in the ground. The trend since 2018 has been sharply toward divestment, evidenced by the introduction of fossil-fuel free and low-carbon funds by such giants as BlackRock and Vanguard. Some of the influx came in reaction to Trump Administration’s withdrawal from the 2015 Paris Accord and other international agreements aimed curbing the use of fossil fuels. From 2018 to 2020, sustainable investments rose, despite impediments from the Trump Administration. [xiii] Trump appointees at the Securities and Exchange Commission and the Department of Labor adopted policies to discourage sustainable investing. The US-SIF report said the two bodies “issued rulemakings that would limit the rights of shareholders and create confusion about whether fiduciaries for ERISA-governed pension plans may utilize ESG criteria or vote proxies.” [xiv] Fossil fuel companies contribute to climate change and other environmental degradation. [xv] The Biden-Harris administration is expected to reverse Trump era restrictions and reinstate earlier rules more favorable to investors seeking companies that honor environmental, racial and gender justice. The incoming administration also has indicated it may require transparency on climate risk, as requested in a 2018 petition signed by a long list of figures from state governments, financial institutions and non-profits. [xvi] How to make your investments socially responsible Investors seeking socially responsible portfolios are advised to engage financial advisers with SRI expertise. Such advisers have a fiduciary responsibility to put their clients’ interests first, and have the education and background to help investors develop and work toward their financial goals while minimizing risks.The author: Bryan Brumley is a Certified Financial Planner ® who has specialized in Sustainable, Responsible and Impact investing since 2008. He is with Progressive Asset Management (PAM) and First Affirmative Financial Network, leaders in SRI since 1987, and Securities America. He has an MBA from the London Business School, and worked for The Associated Press as a reporter and editor based in Moscow, Tehran, Warsaw, Tokyo, London, Washington, New York and Portland, Oregon. He can be reached at (503) 954-2590 or bbrumley@ProgressiveAssetManagement.com.Visit www.ProgressiveAssetManagementPDX.comNone of the securities or providers mentioned in this presentation are to be taken as current recommendations but only examples of the investment categories discussed. Representative of and securities offered through Securities America, Member FINRA/SIPC. PAM, Arbor Point Advisors and Securities America are separate entities. Office of Supervisory Jurisdiction: 1814 Franklin St. #503, Oakland, CA 94612. 510 567-0800. Securities offered through Securities America, Inc., Member FINRA/SIPC, and Advisory Services offered through Securities America Advisors, Inc., and Arbor Point Advisors. Managed Accounts available in all 50 states. Licensed to sell commission based securities in the following states: OR, WA, MD.ENDNOTES: [i] See Report on US Sustainable, Responsible and Impact Investing Trends, issued biennially by US SIF (the Social Investment Forum). http://www.ussif.org/trends; see also https://www.morningstar.com/articles/1017056/sustainable-equity-funds-outperform-traditional-peers-in-2020[ii] USSIF Trends Report, page 18[iii] “Why and How Investors Use ESG Information: evidence from a Global Survey,” Amir Amel-Zadeh and George Serafeim, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2925310. See also https://www.msci.com/esg-sustainable-impact-metrics. And http://news.morningstar.com/articlenet/article.aspx?id=745467.[iv] Interviews with Anthony Eames, senior vice president of Calvert Investments, Carsten Henningsen, founder of Portfolio 21 and current director of Progressive Investment, Steven Schueth, president of First Affirmative Financial Network (FAFN), FAFN chief operating officer Rebecca Jackson, and Erin Gray of Green Century Funds.[v] Lively discussions on this topic arose at the November 2016 SRI Summit sponsored by First Affirmative Financial Network. In particular, Timothy Smith, current head of shareholder advocacy for Walden Asset Management and for 24 years Executive Director of the Interfaith Center on Corporate Responsibility, engaged representatives of mainstream investment firms, including Blackrock.[vi] Website of 350.org. https://350.org/blackrocks-announcement/[vii] http://www.iccr.org/about-iccr;[viii] https://www.ceres.org/about-us/coalition[ix] https://www.asyousow.org/[x] https://www.morningstar.com/articles/1017056/sustainable-equity-funds-outperform-traditional-peers-in-2020.[xi] The case regarding corporate bonds is well established. See for example a report by PCA (the Pension Consulting Alliance), dated Sept. 17, 2015 to John Skjervem, chief investment officer for the investment division for the Oregon State Treasury. The report found that divesting state investments of bonds from the Carbon tracker 200 would not pose extra risk or diminish expected returns. The report stemmed from a conversation between the author of this paper and then State Treasurer Ted Wheeler. Other reports have reached the same conclusion. In the words of Jes Staley, Chief Executive Officer of Barclays Bank (U.K.): “As ESG considerations play out over a long horizon, and as they increasingly become a priority for company managers, they may help alleviate the pressure for short-termism and encourage a focus on long-term value creation – to the mutual benefit of the firm, its investors and the world at large.” A comprehensive Barclays report found: “Our research into the impact of ESG on the performance of US investment-grade corporate bonds in the past seven years has shown that portfolios that maximise ESG scores while controlling for other risk factors have outperformed the index, and that ESG-minimized portfolios underperformed. The effect was most pronounced for the Governance tilt and least pronounced for the Social tilt. Favouring issuers with strong Environmental or Social rating has not been detrimental to bond returns. These conclusions hold using ESG ratings data from two different ratings providers, despite significant differences between the two ratings methodologies,” page 34. https://www.investmentbank.barclays.com/content/dam/barclaysmicrosites/ibpublic/documents/our-insights/esg/barclays-sustainable-investing-and-bond-returns-3.6mb.pdfData on equities also is solid. A review of more than 2,000 academic studies on the subject reported: “The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG–CFP relation. More importantly, the large majority of studies report positive findings. ESG and financial performance: aggregated evidence from more than 2000 empirical studies.” Gunnar Friede, Timo Busch & Alexander Bassen. Journal of Sustainable Finance & Investment, 5:4, 210-233, DOI: 10.1080/20430795.2015.1118917. To link to this article: http://dx.doi.org/10.1080/20430795.2015.1118917. Moreover, the impact of sustainable investors on corporations has been significant and positive, according to a 2015 report from Oxford University. From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Performance, by Gordon Clark; Andreas Feiner; Michael Viehs; University of Oxford and Arabesque Partners; 2015.http://www.arabesque.com/index.php?tt_down=51e2de00a30f88872897824d3e211b11.The report, which drew on more than 200 sources, found that: “We now live in a world where sustainability has entered mainstream. That much is evident from the fact that over 72% of S&P 500 companies are reporting on sustainability, demonstrating a growing recognition of the strong interest expressed by investors. “In this enhanced meta-study we categorize more than 200 different sources. Within it, we find a remarkable correlation between diligent sustainability business practices and economic performance. The first part of the report explores this thesis from a strategic management perspective, with remarkable results: 88% of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into cash flows. The second part of the report builds on this, where 80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.”[xii] http://www.ussif.org/trends, pg. 12).[xiii] US SIF Trends Report. https://www.ussif.org/trends, US SIF is based in Washington, D.C., and represents the SRI industry.[xiv] https://www.ussif.org/trends[xv] https://www.morningstar.com/articles/1011098/biden-administration-will-improve-regulatory-climate-for-sustainable-investing.