by: Richard A. Anderson
Earlier this month I had the opportunity to attend the 29th annual SRI Conference in Colorado Springs, Colorado. The SRI Conference is the premier annual gathering of sustainable, responsible, and impact investment professionals working to direct the flow of investment capital toward a truly sustainable future.
As a first-time attendee, I was pleasantly surprised by the sense of community among the more than 600 attendees who are seeking to generate positive financial returns while directing capital to the most pressing social, environmental, and cultural challenges. Notable speakers at the 2018 SRI Conference included:
Jeremy Grantham, Co-Founder and Chief Investment Strategist, GMO
Kurt Summers, Treasurer, City of Chicago
Chad Myers, Chief Meteorologist, CNN
Michelle Edkins, Global Head of Investment Stewardship Team, BlackRock
Robert Jackson, Commissioner, U.S. Securities and Exchange Commission
Dan Esty, Hillhouse Professor of Environmental Law and Policy, Yale Law School
I could write a novel detailing what I learned from The SRI Conference, with each of the speakers listed above having their own chapter. But for the sake of brevity, I will highlight a few of the overarching themes that permeated the responsible investing industry’s seminal event.
1. Private capital is more important amid government retreat. Corporations and individuals are no longer waiting for the federal government to deliver environmental progress. In recent years, the White House and Congress have made clear, through deregulation, that the burden of environmental sustainability has fallen on the shoulders of states, municipalities, and corporations. And some states, municipalities, and corporations have engaged in actions that seek to reward companies for pursuing positive actions, such as clean energy solutions. This is a dramatic change from when the federal government would seek to stop companies from engaging in certain negative activities, such as carbon taxes to reduce air pollution.
2. Environmental, social, and governance (ESG) issues can no longer be overlooked. We have seen in recent years the effect poor environmental, social, and governance policies and practices can have on a company’s stock price. Equifax’s poor policies in regard to data protection was a reflection of poor governance. Google’s gender pay inequality and sexual harassment policy have come under scrutiny in recent weeks, reflecting poor social and governance practices. The court ruling against Monsanto over the charges they knew pesticides in their weed killer Roundup could have potential negative health effects, including cancer, have called into question the company’s environmental and governance policies. Environmental, social, and governance issues, which have long been ignored by the majority of investors, are fundamental factors because they have the potential to affect future cash flows.
3. In order to understand impact, you have to know what impact you seek. Measuring the impact of responsible investing is not an easy task. On the environmental pillar, it’s easiest. This is why so many investments have an environmental focus. But that doesn’t mean we should forget about the social and governance pillars. This is why many governments, companies, and asset managers are tying their impact back to the United Nations’ Sustainable Development Goals (SDGs). The SDGs provide an outline of the global challenges we face and roadmap for how we can achieve each goal.
4. Exclusion and/or divesting is not the solution. In the past, not investing in or selling shares of companies that engage in certain negative business practices was the backbone of responsible investing. The problem with this approach is that if you divest, you can’t engage a company’s management to improve its policies and practices. Exclusion or divesting can drive down a company’s value, but this may just make it easier for the company’s management to take the company private. Once a company is private, investors no longer have a say in how the company is run. This is why large institutional asset managers, like BlackRock and Vanguard, have the potential to make the biggest change.
5. Shareholder activism and stewardship are the solution. ESG integration without activism and stewardship limits the ability to make a positive impact on the environment or society. Responsible investing has become more focused on incorporating ESG data into the decision-making process, which is a step in the right direction. But in many cases, this is an exercise of checking boxes. Activism and stewardship are engagement processes that allow shareholders to engage in conversation with management that can result in meaningful change.
6. One person can’t do everything, but everyone can do something. The accessibility of responsible investments has made it easier for even the smallest investors to align their values with their investments. It may seem like a small step, but it can have a serious impact.
7. The time to act is now. We have wasted 40-50 years since we first learned of the damage of man-made environmental degradation. We have known of gender inequality and racial discrimination in the workforce for decades. There is no way to reverse the damage that has already been done. But we can help promote a more sustainable environment and diverse workforce going forward. We can build a more sustainable future by encouraging companies to use clean energy sources in order to reduce environmentally unfriendly fossil fuel energy consumption. We can build a more diverse workforce by encouraging companies to improve their diversity policies as it relates to hiring and promoting.
Attending events like The SRI Conference earlier this month or the 2018 Sustainable Investing Conference at the United Nations in September of this year demonstrate our commitment to continue our education and monitoring of the rapidly evolving responsible investing industry. I look forward to sharing updates and thoughts on responsible investing topics in the future.
If you would like to learn more about our commitment to responsible investing, please download a copy of our white paper “Responsible Investing: Aligning Personal Values with Investing Dollars” or contact a member of the HIGHLAND team.