The long and winding road

by Pat Zerega

Senior Director Shareholder Advocacy, Mercy Investment Services

This weekend, we saw Rocketman, the story of Elton John. It brought back memories of so many songs we grew up with.  For some reason I kept thinking of the song the long and winding road as a parallel to the story (even though it was written by the Beatles, Elton John performed it on occasion). Part of the reason it came to mind is that the song reflects how I feel about the private prison work and GEO specifically. It might be helpful to review some of the history that got us to today.

Around 2003, John Celichowski, O.F.M., Cap. and Valerie Heinonen, O.S.U., began approaching the private prison companies. At that point, their stock was considered ‘penny stock’ with few members at ICCR owning GEO, CCA or Cornell. The first resolution oat GEO received 3.2% and a similar resolution brought CCA to the table without going to vote. Fr. John moved on to leadership in the community and passed the mantle to Fr. Mike Crosby.  A variety of approaches including lobbying and human rights policy development continued with GEO and CoreCivic (formerly Corrections Corporation of America) through 2011. Dialogues were often contentious (my participation was through the Lutherans), and at one point the CEO of GEO wondered why we didn’t just “sell the stock and leave them alone.” We continued to focus concern with the people in custody.

In 2011, a resolution calling for a human rights policy was filed. At the same time, the Jesuit Social Research Center had obtained a grant to work with private prisons around human rights and training, so the Jesuits began to lead both dialogues. This grant brought in prison experts to help lead the way and both companies developed polices and entered into dialogue.  

We all know writing a policy is not the be all and end all of work. We need to see that the policy doesn’t sit on the shelf but is implemented, training occurring and the culture changing. Shareholders expected to be able to find that out through dialogue and increased transparency in reporting on the prison companies’ websites.

Since that time, the dialogues have focused on several issues including medical care and segregation from the general population, but shareholders felt like we were not seeing the real impact hoped for with a human rights policy. Abuse allegations remained high, and news coverage of these events continued. In the spring of 2018, we began to see many reports concerning immigration detention conditions in private prisons. ICCR hosted letters to both private prison companies with more 50 signatures asking for the prisons not to become involved with government detention contracts.

CoreCivic answered the letter and continued to engage in a meaningful way, this spring presented its first ESG report. They are working on other ways to be transparent on human rights issues.

In the late summer of 2018, GEO, however, put a ‘pause’ on dialogue. This was new to me. I’ve had companies stall or not answer letters, but to actually write and say they didn’t want to talk was new ground.

Our group was frustrated and decided to file a resolution in the fall of 2018 asking for a report (that was indicated in GEO’s own policy) concerning how implementation of the human rights policy. Many shareholders joined the group of Jesuits and Mercy Investment Services addressing this issue, and in November the resolution was filed.

As expected, the resolution was challenged, but the SEC denied the no action thus, agreeing it had to be on the ballot. Shareholders filed a proxy memo indicating reasons why it should be left on, alerted proxy advisors of the resolution, and the week before the AGM learned that both proxy advisory firms were supporting the resolution. As that information became public, we also received an unexpected email from GEO, telling us they would no longer oppose the resolution and filed such a statement with the SEC. The company never quite supported the resolution, nor changed the proxy on their site, nor put the SEC statement on their site, nor did they reach out to talk with us. So, we prepared to present at the AGM (a virtual-only AGM, but that too is for another day), and garnered nearly 88% of the vote.

(Photo by Pat Zerega, Door County Wisconsin 2016)

The story of course does not end there. Shareholders have met since then to discuss next steps and have sent a letter requesting to return to the dialogue table with all interested parties and explain what we are looking for in the requested human rights report. Thus far, there is no answer to that request, but we know there is always another twist in the road ahead.

Climate Change is now a Climate Crisis

By Frank Sherman

Recently, we took time to reflect on another eventful engagement season and to chart the strategic direction for the coming year.

Looking back at the 2019 engagement season and more than one-hundred climate engagements by ICCR members, we observe:

  • In a notable exception, the electricity generation sector is at a decarbonization tipping point driven by cheaper renewable energy, growing industrial and public demand, and changing public opinion. Securitization laws, distributed energy resources (e.g. rooftop solar) and community solar projects are growing in popularity. The “electrification of everything” shows promise of demand growth, energy savings and environmental sustainability. A growing number of utility companies (nine, according to NRDC) have followed Xcel’s lead by committing to carbon-neutral electricity production by 2050 or sooner.
  • In the face of regulatory rollbacks, natural gas production and distribution companies are committing to voluntary methane leakage reduction targets to salvage the ‘bridge-fuel’ story. With 6000 mid- and small-scale producers, the majors are now advocating for a stronger regulatory regime! Investors have been successful in tying support for meaningful regulation to reputational risk.
  • As investors shifted from demanding scenario assessments to Paris-compliant business plans, U.S. oil & gas companies continued to defend their business-as-usual business model while their European counterparts broke rank. A BP supported climate resolution obtained a 99+% vote while Shell agreed to set GHG reduction targets for their products as well as their operations. In contrast, CA100+ investors at Exxon Mobil recommended voting against the Board after the company omitted their GHG reduction target proposal.
  • With noted exceptions (Wells Fargo and Goldman), large financial companies are starting to assess climate risk in their portfolios. Mid-cap companies were slower to respond to our letter campaign, largely it seems, due to limited capacity to conduct broad risk assessment. Investors will connect them with tools they can use to do a straightforward climate footprint analysis.
  • Political spending and lobbying resolution votes, several of which emphasized climate change, increased to 31%.
  • Engagements calling for science based (GHG reduction) targets made slow progress in contrast to the scientific community call for more urgent action.

Impacting the climate science and changing political landscape, 2018 was the wettest year on record while wildfires in California resulted in the first climate change bankruptcy of Pacific Gas and Electric. Global carbon emissions reached a record, and the U.S. power sector reversed its’ multi-year decline.  The IPCC special report warned that countries’ pledges to reduce their emissions are not in line with limiting global warming to 1.5°C. Some are responding to the crisis – 80 countries are planning to increase their climate pledges ahead of schedule. The UK is the first member of the G7 to legislate net zero emissions, joining Finland and Costa Rica.

The 4th U.S. National Climate Assessment Report starkly warns of risks to the U.S. economy while the Trump administration’s environmental rollbacks are poised to increase GHG emissions significantly. Public opinion is finally shifting with over 70% of Americans saying climate change is a reality, with most believing human activity is primarily responsible. Republican millennials support a carbon tax 7-to-1 with 85% stating that the Republican position on climate change is hurting the party. The Midterm elections flipped the House of Representatives and 7 state governorships to Democrats. Twenty-one states have now joined the U.S. Climate Alliance committed to the Paris Climate Agreement. Four states (CA, WA, HI, NM) and Puerto Rico have targeted 100% clean energy by 2050 or sooner, with nine additional states (IL, MA, MI, MN, MS, NC, NY, PA, WI) proposing similar legislation. The Green New Deal resolution changed the conversation on Capitol Hill and the Climate Action Now Act put the House on record as supporting the Paris Accord.    

Financial markets are not immune to this crisis. Munich Re predicts climate change will price regions out of insurance. The broad acceptance of the TCFD guidelines increases pressure on companies to improve disclosure.

Considering the broader investor landscape and NGO campaigns, the CA100+ global initiative focused on large emitters and led by large asset managers, pension funds, and sovereign funds. Some ICCR members participate in the CA100+ teams while others continue parallel engagements to reinforce the message. Still others are shifting focus to mid-cap companies. We believe that more coordination is needed to increase effectiveness.

Efforts to make methane emissions reduction targets the norm have been limited to the oil & gas majors and larger natural gas producers. The EPA’s proposed rollback of the New Source Performance Standards regulating oil and gas emissions will further erode the regulatory floor, especially as the EPA now proposes to deregulate methane. We look forward to publication of an EDF study on methane measurement and mitigation and Union of Concerned Scientists has formed a working group to study CCS.  

Efforts towards a Just Transition have born fruit as investors and companies have a growing awareness of the unintended, negative consequences that decarbonization has on people. We made a good start with last October’s investor statement, representing $3.7 trillion in assets, and the CA100+ framework, which includes just transition questions; however, most companies lack the policies and practices to address these issues. Addressing the needs of employees, customers and local communities will accelerate transition rather than deter it.

Recalling Fr. Mike Crosby’s prophetic statement, “We are at a Kairos moment,” we look forward to developing with our allies a new strategy statement regarding future engagement of the oil & gas sector to help investors differentiate between fossil fuel companies making progress and those protecting business-as-usual models. Rollout will be stepwise with more guidance forthcoming. Finally, alongside our allies, we have reviewed a draft climate change principles which reflect an increased urgency and stepped up action.

Finally, let us turn to our 2020 engagement strategy. Given our progress in recent years within the electric utility sector, we expect to expand engagements further into mid-cap companies and push for net-zero carbon targets. We will collaborate with NGO’s and other partners to engage the state utility commissions and give input on the Green New Deal. ICCR is planning a multi-stakeholder Roundtable in December to discuss the challenges of decarbonization and promote a just transition.

Investors engaging the financial sector are promoting a shift from simply assessing climate change risk to their own operations to assessing the climate-related risk they facilitate through their lending and underwriting. Coordinating with the Climate Safe Lending Initiative, they plan to engage the top five U.S. banks and some regional banks in 2020 on climate risk. Investors will ask banks to follow the TCFD recommendations, complete a climate impact assessment, pledge no new fossil fuel investments, and ultimately, decarbonize their portfolio (Banking on Climate Change: Fossil Fuel Finance Report Card 2019). Planned for early September, an investor brief and webinar will educate interested investors. As well, we will ask smaller banks to join the Platform Carbon Accounting Framework to calculate their carbon footprint.

Our methane work will continue to promote best practices in measurement and management to minimize methane leakage. We plan to engage companies on including their “non-operated assets” (i.e. joint ventures) in their methane targets, and step up engagement of distributors and retailers to source “sustainably produced” natural gas. At the same time, we recognize that natural gas can no longer be viewed as a “bridge fuel” to clean energy and agree that no new gas power plants can be justified given the climate crisis. On the other hand, replacing industrial and residential uses of natural gas remains a challenge.

It is clear that we recognize the increased urgency and need to step-up our demands. Within ICCR, we reflect this by the change to our Program name from Climate Change to Climate Crisis. This can no longer be considered a gradual change. We are in crisis mode so we need to respond differently!

The surprisingly powerful voice of shareholders

By Mark Peters, Director of Justice, Peace and Reconciliation, Priests of the Sacred Heart, US Province, Member, SGI Board

How did I, someone who’s never been much into shopping and stores and has gotten his clothes from Kohl’s since junior high, find myself addressing the CEO, Board and a smattering of shareholders of Macy’s, Inc. in Cincinnati last month? It’s all thanks to a Capuchin priest who had the foresight to see how important corporations would become in the 21st Century.

Fr. Mike Crosby, OFM Cap, died two years ago, but he lives on in the work of Seventh Generation Interfaith Coalition for Responsible Investment. Fr. Mike recruited me back in 2014 and coached me through my first shareholder resolution, which was with TJX, the company that owns TJMaxx, Homegoods and Marshalls. We got 3% of the vote, a victory because you needed that much to bring it back the next year. That time we got under the next benchmark and that was the end of that campaign, though not of our continuing dialogue with TJX. Votes under 5% are not unusual in this line of work! We often plant seeds that don’t bear immediate fruit.

This year Chris Cox, Associate Director of SGI (along with Executive Director Frank Sherman, who was mentored by Mike), directed our resolution with Macy’s, requesting a report on their process for ensuring that no vendor is engaged in forced labor (their byzantine supply chains are the reason their clothes are so cheap and the company is so profitable). Chris consulted with experts in the drafting of the resolution and provided me with lots of material for the dialogue that the company agreed to after we filed. But ultimately the company would not agree to undertake the report, so we did not withdraw, as is sometimes done when a company does make a good faith beginning.

That’s what brought me to Cincinnati on May 17. Someone needed to be present to “move” the proposal, as the Board had made known it’s opposition to it and it would be dropped if no one spoke for it. However, Macy’s was stingier than most with the time they allot speakers, and we were told we had only one minute. So 800 miles driving and a hotel stay, all for the sake of 90 seconds (try and keep me to 60!) of opportunity to sway the votes of a mere handful of shareholders present at the (to me) surprisingly sparsely-attended AGM (annual general meeting) — all of whom, as it turned out, had apparently already voted their shares prior to the meeting.  So I was basically just talking to the board.

But in the end the shareholders spoke to them as well, because our proposal received 40% of the vote!  Chris and I were shocked, but very pleasantly so, as this ensures us a continued seat at the table with the company, and the very real chance of a win next year. Apparently investors are starting to care about human trafficking!

As often happens (and as someone else has done for us with this same proposal at the TJX AGM this week outside of Boston), we’d been asked to move another group’s proposal, this one on transparency on political contributions. I read their statement as well, and that proposal actually received 53% of the vote. I spoke to the Corporate Counsel afterward, and she said the company would likely implement the proposal because of that showing.

A number of other SGI members have had successful outings this proxy season, especially those working on climate change-related resolutions, which for most investors is now clearly a strong value. Now begins the work of readying ourselves for the next season!

Mark’s statement at the annual shareholder meeting can be found here.

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!