ICCR Conference Highlights

By Ann Roberts, Dana Investment Advisors

As always, the ICCR March Conference was an energetic gathering of investors and allies, and attendance was record-breaking. One noticeable change from past conferences was a movement toward a more holistic approach to addressing shareholder concerns, echoing the overarching theme of Pope Francis’ Laudato Si’ that everything is connected. For instance, impact on human rights—the S in ESG–is threaded through all the issues we work on, and it is vital to consider this when advocating for specific changes in environmental and governance issues, as well as social.

Vonda Brunsting, Program Manager, The Just Transition Project, Harvard University

Some highlights include discussion of the Just Transition, which concerns the consequences of transitioning from fossil fuels on stakeholders (loss of jobs in the switch to renewables, loss of tax base for communities, etc.)—merging the E and the S. Worker-driven social responsibility (WSR) efforts such as the Fair Food Program and Milk with Dignity were also discussed. We are asking companies to switch from a mindset of company risk to worker risk. If something is bad for the worker, it is bad for the company. The final session on racial justice was particularly impactful as it reminded us that wealth is created by ownership of assets. Contrary to what politicians and others try to tell us, jobs are not the answer to closing the racial wealth divide. Our tax policies favor capital over labor, which disproportionately helps white people and penalizes minorities.

Most of all, this conference once again confirmed for us that there is strength in numbers. We are better together—and we are all connected.

“E Pluribus Unum”

By Bro. Robert Wotypka, OFM, Cap.

Nothing like a splash of Latin to capture the attention of many a Catholic. Has it worked? Good. This phrase is not from the Bible. As far as I can tell, Saint Jerome, who crafted the Vulgate Latin version of the Scriptures, and who was, by many accounts, not a lot of laughs, did not need or use it. Anyone know the Latin for “From one, three?” Now that would be elegant – and theologically correct.

“Out of many, one” was the motto of these United States of America (and a hearty “Hello!” to all our international readers) until 1957, when it was replaced by “In God We Trust.” Is either motto descriptive? Or aspirational? Or both? Or neither? The phrases come to mind in the context of today’s readings, for Wednesday of the Third Week of Lent (March 27, 2019), and in the context of my attending, as the province’s Corporate Responsibility agent, the twice-yearly conference of the Interfaith Center for Corporate Responsibility, which the Province of Saint Joseph participates in through its membership in the Seventh Generation Coalition for Responsible Investing.

The revelation of God to our ancestors in the Book of Deuteronomy, as proclaimed today, is this:

‘This great nation is truly a wise and intelligent people.’
For what great nation is there
that has gods so close to it as the LORD, our God, is to us
whenever we call upon him?
Or what great nation has statutes and decrees
that are as just as this whole law
which I am setting before you today? (Dt: 4: 6-8)

Jesus engages the law, too, in Matthew’s Gospel, underscoring that it will endure, that it is binding on all generations, even in the bright and wonderful light of the Incarnation. How so? Long story short: because the covenant is enduring, the law is likewise enduring.

Scripture is speaking of the Mosaic law. But it is not so with us, not so, with regard to our relationship with the state. We change laws, and we must. Or we take what was once custom or tradition and codify it. This was the case in the transition of the national motto, which was unofficially “E Pluribus Unum” from 1782 until the official law was passed in 1957 and “In God We Trust” was adopted.

Being a nation of ever-changing laws aligns with the wisdom of the Church, which speaks of itself in the Vatican II document Gaudium et spes as being ever in need of reform Franciscan spirituality begins from the necessity of being ever open to conversion, aka reform. And this aligns with my work as the Corporate Responsibility agent, which asks companies to be ever open to reform, to turn away from doing harm when harms are identified, and to embrace doing good: good for your customers, good for your employees, good for our common home, and good for your shareholders. And long will the company prosper that finds no contradiction in this.

May I then propose a reform? It comes from “the cry of the earth,” to use Pope Francis’ image from Laudato Sí. All but a fringe-y few acknowledge the need to mitigate the harms from catastrophic climate change that’s occurring as a result of the accumulation of greenhouse gases in the atmosphere since the dawn of the Industrial Age. Power generation accounts for about a third of greenhouse gas emissions. Moving away from energy generated from the burning of fossil fuels must therefore be among the first reforms wrought in the economy and the culture.

But it won’t be easy. Every utility has the ability to source its energy as it sees fit, that is, there are few obstacles preventing a power company from choosing a coal-fired power plant over, say, a wind farm or a solar array. Whatever is built will be regulated, but there are few laws specifying what is to be built, or none in many locales. Every utility is accountable to a public utility commission – and each PUC has its own laws, across all 50 states. Oh, and then there’s the rest of the world. Some nations have laws in place to oblige utilities to move toward renewable energy sources, and some do not.

Lord, give me the wisdom to ever trust you. I do. And I discern, and I invite and welcome your discernment, that it is now time as well for E pluribus unum, with regard to energy production. Out of the many companies and utilities and nations must emerge one set of laws, grounded in care for creation and love of our common home, that will reduce greenhouse gas emissions and increase the hope that future generations will not suffer needlessly as a result of our choices.

Pope Francis also wrote in Laudato Sí that realities are more important than ideas. Would you like to see what a just transition to sustainable energy looks like? Please, go here: https://www.powermag.com/indiana-utility-will-close-coal-units-transition-to-renewables/

And let us go in peace.

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.