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.

What Story Do We Tell?

For an author and former tech company executive, Seth Godin has a no frills blog that offers pithy insight. In a podcast some years back, he observed the following:

“Once you have enough for beans and rice and taking care of your family and a few other things, money is a story. You can tell yourself any story you want about money, and it’s better to tell yourself a story about money that you can happily live with.”

SGI is an organization for those who want to tell a different kind of story about their money than a simple report on the bottom line. Our members are those who want their investments to tell a story consistent with the values and passions of their lives. Our members have served those on the margins in far-flung missions or just on the other side of town. Our members have run schools to provide a quality education, inspired by faith, to those who might not otherwise be able to obtain it. Our members have built health institutions that have served the ill and injured regardless of their capacity to pay. Our members have worked tirelessly to care for and to protect creation. Would it not make sense that the savings destined for their healthcare and retirement, and those funds entrusted to them by generous donors, be used in ways that reflect what our members believe to be important?

Once upon a time, I used to urge folks to look through the last ten checks they wrote—now, I’d suggest that younger readers look through the credit card statement—what do those expenditures say about our priorities and values? The work of SGI is to tell a story with our funds. It is a story that values the poor so often invisible within the economy, especially vulnerable children and women. It is a story where the Earth, its soil and seas and air, is more valuable than the gold and oil buried underground.

A story that focuses solely on the economic return is a story too thin to heal. Indeed, we need a story rich enough to live by. Our story will not interpret the world to everyone’s satisfaction. But, finally, in our judgement, their stories can’t stand up to our stories.

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.

The Decade We Stopped Climate Change

By Aaron Ziulkowski, Walden Asset Management

A New York Times Magazine published in August included one single article: “Losing Earth: The Decade We Almost Stopped Climate Change.” The title contains the spoiler that we all already knew: We are not stopping climate change. But the focus of the article by Nathaniel Rich—a whopping 30,000 words—is a historical recounting of how close the U.S. and global community came to establishing a binding framework that would have set us on a path to limit warming to what scientists consider manageable. Several decades later, we have still not accomplished this feat.

While some readers likely found the article depressing, it gave me a bit of hope. Rich chronicled a time when the risks of climate change were appreciated and regulations to limit emissions were recognized as the prudent action to take. This knowledge was accepted and embraced by conservatives and liberals as well as leaders of business and advocacy groups. While this promising response eventually derailed, investors may be able to help return the U.S. to a 1980s context—poised to act to mitigate the worst impacts of climate change.

Here’s what we can do.      

Ask companies to set emissions reduction goals that align with climate science. While this may sound outlandish, it is not. Many companies recognize that climate change presents both risks and opportunities and are committed to doing something about it. Forty-eight percent of Fortune 500 companies have set public targets to reduce greenhouse gas emissions, improve energy efficiency, source more renewable energy, or some combination of the three. While some of these targets are not science-based (i.e., aggressive enough to reach carbon neutrality by the second half of the century), nearly five hundred companies from around the globe have publicly committed to set science-based targets, and over one hundred have already done so.

Ask companies to be more transparent about their political spending and lobbying, as well as lobbying done on their behalf by trade associations such as the U.S. Chamber of Commerce. The business community wields significant influence over public policy, for better and for worse. Transparency breeds accountability. As investors, we need to know how a company is lobbying, both because the reputational risk it might entail for the companies we invest in, as well as the risks that lobbying may create for the broader economy. According to AFSCME, more than 40 companies engaged by investors have strengthened their corporate lobbying policies, practices (e.g. a decision to end ties with a third party involved in controversial lobbying activities), and transparency.

Ask companies to proactively advocate for comprehensive climate legislation. While at the federal level it is unlikely there will be an opportunity in the near-term to pass comprehensive climate legislation, there is important groundwork that needs to be done to prepare for when the political moment is right. There are also numerous opportunities to influence state- and local-level policies related to climate change. We should ask companies, especially those that are setting their own goals and targets to reduce emissions, to support legislative and regulatory efforts that are consistent and indeed facilitate achieving their goals. For example, recently, in my home state of Massachusetts, the business community successfully mobilized to support strengthening climate legislation, including the sourcing of renewable energy. Groups like the Business for Innovative Climate and Energy Policy (BICEP), organized by Ceres, can help companies identify and participate in such efforts.

What we did not achieve in the past provides us our current goal and focus. The business community can be a supportive partner in fighting climate change, and investors have an important role in catalyzing that action.

How Well Are Your Financial Service Companies Incorporating ESG?

by Frank Sherman

Of US institutional investors, 43% incorporate ESG factors into their investment decision-making process, according to the sixth annual ESG survey by Callan. This percentage has almost doubled since the survey was first launched in 2013. Yet many financial service companies only pay lip service to these issues. How well do your financial advisors and money managers incorporate ESG best practices?

The Forum for Sustainable and Responsible Investment (US SIF) is committed to advancing sustainable, responsible and impact (SRI) investing across all asset classes. One of the core deliverables from their strategic plan is to identify and disseminate information about best practices within the field and provide tools for practitioners to undertake a rigorous and comprehensive approach to sustainable and impact investing. They published a Roadmap for financial advisors earlier this year on how to incorporate SRI investing into their practice. US SIF released a second Roadmap this month, this time focused on money managers. This Roadmap describes steps to establish board and senior level oversight; identify sources of ESG data, research and training; develop an ESG incorporation strategy; implement an investor engagement strategy; measure impact; and participate in building the field. Due to come out later this year, the third and final guide in the US SIF series will focus on asset owners.

I recommend that SGI members read and share these guides with their Investment Committees and question them on how well your financial advisors and asset managers have incorporated these best practices into their services.

Seventh Generation Interfaith will continue to support your corporate engagements and public advocacy on your community’s priority social and environmental issues. . . a key part of your SRI investment strategy.

Member Webinar: Shareholder Resolution Process

Today, we hosted our latest webinar for member education on the “Shareholder Resolution Process.” ICCR’s Guide to Filing Shareholder Resolutions is a great tool. We are grateful that Tim Smith of Walden Asset Management and Pat Miguel Tomaino of Zevin Asset Management were able to join us. Their input was a great contribution. Without further ado, here is the video: