A hearty welcome to Riverwater Partners

As you likely know, last year, SGI added 5 new members, and we are grateful for the efforts of our members, in particular Mark Peters (an SGI board member, chair of our development committee, and director of Justice, Peace and Reconciliation for the Priests of the Sacred Heart), to encourage more organizations to join SGI and to make us genuinely an interfaith organization. We’d like to introduce our newest member, Riverwater Partners, to the broader SGI family.

Our members may have learned a bit about Riverwater Partners from a recent article from the Milwaukee Journal-Sentinel:
Wisconsin’s B Corporations want to be a force for good, not just profit.

Additionally, they describe their work in the following way:

Riverwater Partners, an employee-owned registered investment advisor, believes it is in the best interest of our clients, our firm, our communities, and our world to consider the Environmental, Social, and Governance (ESG) policies and practices of the firms in which we invest our clients’ assets, as we do at Riverwater Partners. Therefore, we evaluate potential investment candidates on the basis of their ESG efforts, alongside their more traditional investment characteristics of Superior Business, Exceptional Management, and Reasonable Valuation.

Riverwater Partners uses a Three Pillar Approach to evaluate the ESG efforts of companies being considered for inclusion in client portfolios:

Research

Riverwater Partners analysts and portfolio managers research the ESG efforts of companies, gathering information provided in sustainability reports, financial statements, corporate disclosures, and press releases. In addition, we inquire about ESG efforts when we speak with management directly.

Engagement

Riverwater Partners engages company Executives and Boards regarding their ESG efforts, or lack thereof, in order to assist them in understanding the benefits of, and in initiating and/or improving their ESG efforts. It is our goal to promote greater impact over time with respect to improved corporate governance, fair treatment of all stakeholders, enhanced environmental impact, and ultimately, superior financial outcomes and real economy benefits.

Collaboration

Riverwater Partners collaborates with organizations that promote ESG efforts to inform our practice. Riverwater is a member of US SIF, CDP Worldwide, Seventh Generation Interfaith Coalition for Responsible Investment, and is a signatory of United Nations PRI. In addition, Riverwater is a Certified B Corp. Membership in these organizations provides us with thought leadership on best practices, current trends, impact, etc., which enables us to focus our ESG lens effectively.

Many believe one must sacrifice financial gain to achieve real economy gain; however, history has shown that companies that incorporate ESG policies and practices into running their business have generally outperformed companies that do not. The fact is that these practices often result in meaningful financial gain in the form of increased revenue (as customers want to support the efforts) and/or decreased expenses (as a result of lower energy consumption, for example) or potential liability. Our commitment to investing in companies that consider impact on all stakeholders will likely generate superior investment returns for our clients and will surely lead to a better world.

Again, we offer a hearty welcome to Riverwater Partners and look forward to their collaboration with us in the work of building a more just and sustainable world.

“Change is inevitable, growth is optional”

By Frank Sherman

December is a time of hope……a time to reflect on the past and dream of the future.

As I look back on 2018, I think of Nobel Peace Prize winners Nadia Murad, 25, who became the voice and face of women who survived sexual violence by the Islamic State, and Dr. Denis Mukwege, 63, the Congolese gynecological surgeon has treated thousands of women in a country once called the rape capital of the world. I think of Time magazine Persons of the Year, “The Guardians” – a group of journalists who have been targeted for their work. I think of CNN’s Hero of the Year, Dr. Ricardo Pun-Chong, a physician who provides rooms for poor families who bring their children from the countryside for life saving surgery in Lima, Peru. These are ordinary people doing extraordinary things. 

What about our members of Seventh Generation Interfaith? Are they making a difference?

This year SGI members worked with Midwestern electric utility companies to develop long term climate change scenarios and set ambitious greenhouse gas emission reduction targets. We promoted transparency in corporate political spending and lobbying. We challenged pharmaceutical companies to base their executive remuneration policies on innovation and patient outcomes rather than predatory pricing. We helped companies eliminate deforestation and reduce water pollution in their supply chain. We asked food brands and restaurants to improve their nutritional profile and follow marketing-to-children guidelines to fight obesity. We advocated for human rights policies and ethical recruitment to support workers and communities impacted by global corporate supply chains. 

Our message is growing. Over the past year, SGI added 5 new members and are developing many more prospects to diversify our faith traditions. Our quarterly webinars, semimonthly blog articles and weekly newsletters kept our members informed on our issues and trained on our tactics.

So what do we have to look forward to in 2019? Our Corporate Engagement Plan is bigger than ever including 53 companies in active dialogue with over half of our members. SGI members have filed or cofiled 28 resolutions to amplify our voice to the broader shareholder base. SGI staff and members are active in ICCR leadership and program workgroups. 

Fr. Dan Crosby said it best in his keynote speech at our 45th anniversary when he spoke of his bother Fr. Mike’s conviction to live the Gospel. He reminding us that “change is inevitable, growth is optional”. He ended saying that “…four virtues are essential to SGI’s work: collaboration, solidarity, courage, …….and hope”.

A very blessed holiday season to you and your family, and a hopeful New Year!

Battle for Shareholder Rights Shifts to the SEC

By Frank Sherman

Within the toolkit of a shareholder, the right to propose resolutions for consideration by fellow shareholders is one of the most critical to influence corporate behavior (see SGI blog article posted last year). Further, other tools may be less effective without a robust right to propose resolutions. Many companies find a dialogue preferable to a resolution. Without the risk of a resolution, more companies may choose to forgo dialogues with shareholders. Thus, efforts to restrict shareholder rights are alarming, and those rights are under attack on a number of fronts.

Last year, the House of Representatives threatened this right with passage, along party lines, of the Financial Choice Act (H.R. 10) . The bill would have replaced large parts of the 2010 Dodd–Frank Act and increase the ownership threshold for filing resolutions from $2,000 to 1% of common stock outstanding, and extend the stockholding duration requirement from one year to three years (Harvard Law School Forum). The 1% threshold means that an investor would need about $10 billion in shares to file a resolution with Apple or Amazon and would foreclose the resolution process to all but the largest shareholders. In the Senate, the companion bill (S. 2155) got out of Committee but, fortunately, never made it to the floor.

Another bill aimed to regulate proxy advisory firms like Institutional Shareholder Services and Glass Lewis. As well, the recently proposed bipartisan Senate bill S. 3614 – Corporate Governance Fairness Act (Reuters) is less onerous than H.R. 4015 – Corporate Governance Reform and Transparency Act which passed the House last year (CNBC).

Legislative gridlock means that the battle shifted to the Security and Exchange Commission, who held a Proxy Process Roundtable on Nov 15th. In addition to the shareholder proposal rules, the Roundtable had panels on the proxy voting mechanics and technology and proxy advisory firms.

Investors were well represented in the Roundtable panels by the NYC pension fund, Trillium, CalSTRS, AFL-CIO, and Blackrock. Although opposing views were voiced by the Business Roundtable and the U.S. Chamber of Commerce, investor advocates had a compelling argument. In answer to the Chamber’s argument that the shareholder proposal process was one of the factors driving companies away from IPOs, Brandon Rees (AFL-CIO) noted that “the average public company receives a shareholder proposal only once every 7.7 years, and so it was preposterous to suggest that shareholder proposals were a reason companies avoided going public.” Harvard Law School Forum reported that “most panelists for this topic seemed to view the shareholder proposal system as relatively smooth functioning and didn’t offer that much criticism.”

Given these threats, SGI and some of our members submitted letters to the SEC supporting the current proxy rules as being fair and efficient. 

The topic of proxy process and rules returned to Congress last week when the Senate Banking Committee held a hearing on December 6th. The Chamber again testified that companies and their shareholders have been targeted over social and political issues that are unrelated to and, sometimes, even “at odds with” a public company’s long-term performance. Committee Chair Sen. Michael Crapo (R-ID) seemed to agree, stating “it is time to re-examine the standards for inclusion of these proposals as well as the need for fiduciaries to vote all proxies on all issues in light of the proliferation of environmental, social or political proposals, and the rise of diversified passive funds.” On the other hand, Michael Garland (NYC pension funds) defended shareholder rights and the proxy advisory firms stating “Many of those who are the subject of the proxy analysis do not like to be criticized and receive negative vote recommendations...”

SEC Chairman Jay Clayton amplified these attacks on shareholder rights in a speech at Columbia University on the same day. He indicated that review of the ownership and re-submission thresholds for shareholder proposals will be a priority item for the Commission in 2019.

While some will work to erode the rights of shareholders, we will continue to work with the investor community to protect the voice of shareholders.

Translating Values into Policy

By Frank Sherman

As members of Seventh Generation Interfaith (SGI), we profess to “view the management of [our] investments as a powerful catalyst for social change,” but how well do we do this? Many SGI members are reviewing their overall approach to faith or mission-based investing, beyond corporate engagements.

Robert Wotypka, OFM-Cap, reported on his efforts to answer this question for his Capuchin Province during our spring member meeting. He has asked his investment committee and their financial consultant on how they are integrating ESG criteria across their entire portfolio.

The Sisters of St. Francis in Dubuque, IA recently had a workshop facilitated by Chris Cox of SGI to reflect on this question. They feel they are doing an adequate job of taking active ownership by voting their proxies, participating in corporate engagements and filing resolutions; however,they want to better incorporate their values into their investment policy and practices. Anita Green, Director, Sustainable Investment Strategies for Wespath Investment Management shared how the United Methodist Church approaches this topic. Anita described Wespath’s three strategies of Avoid (ethical exclusions), Engage(proxy voting, corporate engagements, political advocacy) and Invest (external manager benchmarking, Positive Social Purpose Lending Program, and low-carbon solutions). They take a holistic approach across all asset classes encompassing their entire portfolio.

A growing strategy of socially responsible investing is community or impact investing. Pope Francis has encouraged Catholic institutions to engage in impact investing with the Vatican hosting their third impact investing conference on this topic last summer. Wharton Business School recently interviewed John O’Shaughnessy, CEO and CFO of the Franciscan Sisters of Mercy, a Roman Catholic group based in St. Louis, MO, on this topic.  “We have carved out 15% of our overall portfolio – about $10 million – and directed that towards impact investing,”said O’Shaughnessy. He described 17 impact investments that the Sisters have made from clean energy to low-income populations worldwide including sustainable timber operations, conservation forestry and detoxing of the environment. “This can be systemic change,” he said of the potential of impact investing. “This is capitalism at its best.”

We added a new section on our “Resources” page, entitled “Incorporating ESG/ SRI Strategies” with some tools that you may find helpful. We will host a webinar next spring on SRI strategies and how our members can better manage their financial assets more holistically. I hope you will be able to join us.

Faith-based Investors and the Oil and Gas Sector

By Frank Sherman

The Intergovernmental Panel on Climate Change (IPCC) recently issued a special report on the impacts of global warming of 1.5 °C above pre-industrial levels and related global greenhouse gas (GHG) emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty (see FAQ). This was done in anticipation of the UN Climate Change Conference in Katowice, Poland (COP24) in December.

Under the 2015 Paris Agreement, countries agreed to cut GHG emissions with a view to ‘holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels’. Human-induced warming has already reached about 1°C above pre-industrial levels and the impacts have already been felt. If the current warming rate continues, the world would reach human-induced global warming of 1.5°C around 2040.

Limiting warming to 1.5°C rather than 2°C can help reduce the risks of severe climate disruption. While some cities, regions, countries, businesses and communities are transitioning towards lower GHG emissions, few are consistent with limiting warming to 1.5°C. Meeting this challenge would require a rapid escalation in the current scale and pace of change. This report brings a new urgency and increased demands in our corporate engagements.

Another report (2020: A Clear Vision For Paris Compliant Shareholder Engagement) was also issued by our partners at As You Sow. Given that the global oil and gas companies contribute 50% of GHG emissions, they must become part of the solution if we have any chance of effectively addressing climate change. After decades of engagement, none of the U.S. oil & gas companies has adopted a plan or a target to limit the GHG emissions associated with their products. This report, written before the IPCC 1.5 degree report was issued, concludes that ‘shareholder engagement must focus on one last, fit for purpose demand, seeking 2-degree assessments from companies in year one and 2-degree action plans by 2020….or investors must divest’.

Given the call for urgent action by the IPCC, we no longer have the luxury of time.

Externalities vs. Solidarity

By Brother Robert Wotypka, O.F.M. Cap., Corporate Responsibility agent for the Capuchin Province of St. Joseph

Writing from the twice-year meeting of the Interfaith Center for Corporate Responsibility in New York, I apologize to any of our readers who have MBAs. My MBA sisters and brothers likely could discuss this topic more thoroughly and competently, and of course your comments are welcome.

But a term and its meaning arose yesterday at a panel convened by ICCR, “When No One is Watching: Corporate Responsibility in an Age of Deregulation.” The term is “externalize.” A for-profit enterprise seeks to “externalize” to the fullest extent possible the costs of operating its business. For example, if a manufacturing or mining process produces an undesired aftereffect or element – airborne mercury from burning coal, or PCBs from industrial output – an enterprise, in the absence of regulation, will simply dump these residuals untreated into the air, into the water, into the ground. And this externality will become a matter of concern for residents local, national, global. And governments and elected officials will or will not respond to the harms caused by these externalities, these unregulated outputs, as history reveals.

Externalizing also occurs in a service economy. An enterprise can pay wages so low that its employees are eligible for SNAP (Supplemental Nutrition Assistance Program), which means the state in part pays for the care of feeding of the employees, and not the enterprise. Or an enterprise can so limit the hours its employees are allowed to work that they are not eligible for or cannot afford health care, which rules out preventative care, which means the employees end up using emergency rooms. And these costs have to be subsided by fundraising in the case of non-profit hospitals, or subsidies in the case of for-profit health care entities. Either way, the enterprise increases its profits by lowering its costs.

Externalizing costs is analogous to “othering,” the mindset that says that some of our brothers and sisters are unequal or lesser and can be discharged, can be discriminated against. Where is God in this? Today’s Gospel acclamation is taken from Philippians, “I consider all things so much rubbish that I may gain Christ and be found in him” (Phil 3: 8-9). Talk about externalities! But Paul is not wrong, rather, this understanding is redemptively inverted. Reverence for creation requires that all be gathered together, all be invited, all be saved. We take this from Paul, too, who teaches elsewhere, “When everything is subjected to him, then the Son himself will [also] be subjected to the one who subjected everything to him, so that God may be all in all” (1 Cor 15: 28). So, again – where is God in this? Only in all.

The Christian vision and the Franciscan movement aims toward no externalities: no one and nothing goes without notice, and compassionate care is brought to those locked in material suffering and disenfranchisement. And the suffering that comes to some of our brothers and sisters from externalities belongs to and is the responsibility of all. Faith-based shareholder activism brings this vision to the corporate world. Please join in this work wherever you can.

Why you should be concerned about the 2018 Farm Bill

by Frank Sherman

Why should people of faith and socially responsible investors pay attention to this year’s Farm Bill? What may appear to be an innocent funding bill turns out to have a major impact on things we care about.

The Farm Bill is renewed every five years. It was initially conceived during the Great Depression to provide fair prices for both consumers and farmers, as well as access to quality food and protection for natural resources. In 1965, funding for the Supplemental Nutrition Assistance Program (SNAP or food stamps) was combined with the support for commodity prices into a single omnibus bill because neither bill was able to pass on its own. Food stamps now make up almost 80% of the Farm Bills’ funding helping over 45 million Americans.

In a recent article in The New Republic  (The Farm Bill Is Everything That’s Wrong With Congress), Alex Shephard argues that the 2018 Farm Bill has little to do with farms or farmers. Most of the debate revolves instead around a host of other issues, like the deep cuts and “work requirements” for the food stamp program and draconian immigration reforms. The House version of the 2018 Farm Bill, which passed by a narrow margin in June, includes harmful and unnecessary barriers to access, like burdensome work requirements. On the other hand, the U.S. Senate version protects SNAP and includes pilot programs to connect SNAP recipients to work through effective employment and training programs. It is now up to a Conference Committee to work out the differences.

In 1965, funding for the Supplemental Nutrition Assistance Program (SNAP or food stamps) was combined with the support for commodity prices into a single omnibus bill because neither bill was able to pass on its own. With food stamps now helping over 45 million Americans, making up almost 80% of the Farm Bill’s funding, this situation has grown only more dire under this polarized Congress. The House version of the 2018 Farm Bill, which passed by a narrow margin in June, includes harmful and unnecessary barriers to access, like burdensome work requirements. On the other hand, the U.S. Senate version protects SNAP and includes pilot programs to connect SNAP recipients to work through effective employment and training programs. It is now up to a Conference Committee to work out the differences.

The premise of the additional work requirements (there are already work requirements in the current SNAP program) in the House Bill — that somehow people who use SNAP are lazy — is fundamentally wrong. Most adults on SNAP work and nearly 70% of SNAP participants are in families with children. According to the Center on Budget and Policy Priorities, SNAP provides a nutritionally adequate diet to 1 in 3 children (here)! Research shows children who benefit from SNAP are likelier to have better health and educational outcomes as adults. Johns Hopkins Bloomberg School of Public Health’s Center report that a majority of registered voters oppose recent efforts to scale back SNAP food benefits and believe the government should be doing more to meet the needs of people facing food insecurity. However, pressure from the White House to pass the House version and the midterm elections to will make it difficult for GOP Senators to preserve their bipartisan bill.

Okay, so the Farm Bill is critical to the working poor. But what does it have to do with corporations that are not directly involved in food industry? Because SNAP supports millions of low wage workers working for Walmart, McDonald’s, Amazon and many others. 30% of Americans are working in jobs that barely lift a family above the poverty line, even if they were working full-time, year-round. SNAP also supports children who are their future employees! Research shows children who benefit from SNAP are likelier to have better health and educational outcomes as adults.

So what can you do about this? There has been a lot of support of the SNAP program from faith based groups (see Food Research & Action Center overview here). ICCR had a recent webinar where several faith groups and NGO’s described this urgent issue (recording here). The National Sustainable Agriculture Coalition website (here) provides a wealth of information on the farm bill process and actions you can take.

This may be crowded out of the headlines, but it is vitally important to us.