US SIF: The Forum for Sustainable and Responsible Investment is part of a global network advancing sustainable, responsible, and impact investing across all asset classes through a combination of collaboration, education and public policy work. The US-based organization held their annual conference in Chicago in May, 2017. This year’s theme was “A New Climate for Investing in Impact”, which offered a platform to raise concerns and responses to the radical shift on the political landscape.
The three day event covered the basics of sustainable investing, tried to tease out the varying definitions linked to the industry, and detailed many of the nuances of this incredibly broad list of investment strategies. As will be discussed below, the industry is built on a forest of overlapping terms, which can be opaque even to the initiated. For the purposes of clarity this post will defer to social responsible investing (SRI) as a comprehensive term that covers sustainable, responsible and impact investing across all asset classes, and environmental, social and governance (ESG) metrics as an investment criteria used to screen corporations.
The name of the 45th US President appeared like a specter throughout the conference, namely his administration’s buckshot approach to derailing more than 40 years of environmental and scientific advances, but many attendees maintained a pragmatic optimism. His administration may disempower the environmental regulations entered into force under Nixon in 1972, continue removing scientific data from government-owned websites, and re-crown the fossil fuel industry as the kings of energy, but the general feeling in the room of over 400 SRI/ESG advisors and specialists was that “the train has left the station” with regard to environmental issues, renewable energy, and cleantech. Consumers are better informed and vote with their dollars. If fact, having a common enemy in the current administration has unified this loose collection of investors, advisors, scientists and concerned individuals into a stronger opposition; passionate people who are armed with the truth and facts.
The conference focused on the market forces already at work, in which SRI/ESG investment strategies have gained momentum beyond a niche investment space. Climate change is no longer a theory, it is happening in real time with extreme weather events, melting polar ice and disappearing islands. Consumers, particularly Millennials, are investing their money with companies that align with their environmental concerns. Several speakers shared data about how the coal industry is tapering off due to the availability of cheap natural gas more than environmental concerns, and it was only a matter of time before the fossil fuel industry followed (albeit more slowly). Representatives from the Union of Concerned Scientists are on the front lines protecting data sets, and Kathy Mulvey’s report was shared on how the oil and gas industry is recently promoting an environmental message but continuing business as usual. We are collectively pushing forward despite the current administration’s haphazard push in the opposite direction.
However, one alarm raised during the conference was the Business Roundtable’s proposal to modify Rule 14a-8 of the Securities Exchange Act, which governs shareholder proposals. Currently owners of at least $2,000 worth of a company stock, which has been held for more than 1 year, can submit a proposal to be voted on by shareholders. This proposal must win an escalating percentage of votes over years before it will be officially considered. To modernize the process the Roundtable has proposed that only shareholders with 1% of company stock held over 3 years should be allowed to make proposals; this translates into billions of dollars in shares for large-cap companies. This rule would also disallow asset managers who hold stock on behalf of their clients from the process, not that they actively make proposals to date. This minor change would effectively eliminate everyone from the process. This is a concern because shareholder proposals have been used over decades as a way to gather support for social and environmental initiatives, such as equal pay across genders, LGTBQ rights, and better resource management. Without this tool, the majority of stockholders will be voiceless in the boardroom.
Additional opportunities were raised throughout the conference to help take this investment strategy to the next level.
- Despite a growing body of evidence that companies with strong ESG metrics are more innovative and more resilient than their lower-scoring ESG peers, there is still a misperception that investing in social good requires a tradeoff in yield. To quote US SIF Director of Research, Meg Voorhes, “Values translates in value.”
- Advisors who are on the front lines with clients are often unfamiliar or unaware of the advantages for SRI/ESG investment strategies, even when their clients are asking for them. Lily Trager from Morgan Stanley outlined plans to educate their 16,000 advisors.
- SRI/ESG investing has a significant marking problem; members within this community have difficulty parsing the terminology. To paraphrase the CEO of US SIF, Lisa Woll, the community took the most complex language of the financial sector and appended it with terminology that only makes sense to themselves. They cannot engage investors until investment advisors can speak in clear terms.
- In the coming decades, there will be a wealth transfer from Baby Boomers to Millennials estimated to be $30 trillion. This generation is more interested in putting their money to work while earning a profit, or “yield plus”. This enormous opportunity is driving the conversation around SRI/ESG investing.
Lastly, the keynote speaker, Bryan Stevenson, raised social justice issues not covered elsewhere during the conference. He has been a public advocate for those who have been victimized by the American criminal justice system, reminding us that the system “treats you better if you’re rich and guilty than if you’re poor and innocent.” His impassioned speech was the highlight of the event, and his real-life experience was documented in his book Just Mercy: A Story of Justice and Redemption.