New Vatican Document on Markets and Ethics

While CEOs may have nervously read Larry Finke’s letter, they may find greater guidance in their task reading a new Vatican document, Oeconomicae et pecuniariae quaestiones (Considerations for an Ethical Discernment Regarding Some Aspects of the Present Economic-Financial System). The new document, approved by Pope Francis, running to just over 11,000 words, brings Vatican heft to financial instruments including shareholder risk, subprime mortgages, derivatives, credit default swaps, interbank loans (LIBOR), shadow banking systems (think, cryptocurrency), and offshore tax havens.

While some may consider Pope Francis an outlier, the 49 footnotes, grounded in traditional Catholic teaching, illustrate the continuity of St. John Paul II, Pope Benedict, and Pope Francis on papal teaching related to the economy. The document aims to apply those principles to the current context. The document posits:

No profit is in fact legitimate when it falls short of the objective of the integral promotion of the human person, the universal destination of goods, and the preferential option for the poor. (#10)

In other words, profit in the marketplace, in and of itself, is not enough.

Another paragraph reflects the concerns that we raise in our resolutions regardinging executive compensation with the pharmaceutical companies:

In addition, such logic has often pushed managements to establish economic policies aimed not at increasing the economic health of the companies that they serve, but at the mere profits of the shareholders, damaging therefore the legitimate interests of those who are bearing all of the work and service benefiting the same company, as well as the consumers and the various local communities (stakeholders). This is often incentivized by substantial remuneration in proportion to immediate results of management, but not likewise counterbalanced by equivalent penalization, in the case of failure of the objectives, though assuring greater profits to managers and shareholders in a short period, and thus ending up with forcing excessive risk, leaving the companies weak and impoverished of those economic energies that would have assured them adequate expectations for the future. (#23)

Not only does it speak to management and shareholders, the document offers some challenges to consumers as well:

It becomes therefore quite evident how important a critical and responsible exercise of consumption and savings actually is. Shopping, for example, a daily engagement with which we procure the necessities of
living, is also a form of a choice that we exercise among the various products that the market offers. It is a
choice through which we often opt, in an unconscious way, for goods, whose production possibly takes place through supply chains in which the violation of the most elementary human rights is normal or, thanks to the work of the companies, whose ethics in fact do not know any interest other than that of profit of their shareholders at any cost.

It is necessary to train ourselves to make the choice for those goods on whose shoulders lies a journey
worthy from the ethical point of view, because also through the gesture, apparently banal, of consumption, we actually express an ethics and are called to take a stand in front of what is good or bad for the actual human person. Someone spoke of the proposal to “vote with your wallet”. This is in reference to voting daily in the markets in favor of whatever helps the concrete well-being of all of us, and rejecting whatever harms it. (#33)

For those of us who engage in socially responsible investing, the document concludes with some significant encouragement:

In front of the massiveness and pervasiveness of today’s economic-financial systems, we could be tempted to abandon ourselves to cynicism, and to think that with our poor forces we can do very little. In
reality, every one of us can do so much, especially if one does not remain alone.

Numerous associations emerging from civil society represent in this sense a reservoir of consciousness, and social responsibility, of which we cannot do without. Today as never before we are all called, as sentinels, to watch over genuine life and to make ourselves catalysts of a new social behavior, shaping our actions to the search for the common good, and establishing it on the sound principles of solidarity and subsidiarity. (#34)

The most evocative phrase for me from the document is here, that “we are called, as sentinels.” Frank Sherman, when describing our work in corporate social responsibility, likes to say that we are “canaries in the coal mine.” While more and more people are taking up the work of fighting human trafficking, we would be nowhere were it not for the work of so many dedicated religious sisters who have kept a laser-like focus on the issue. Time and again, faith-based socially responsible investors take up a concern, “as sentinels,” long before others take notice. For 45 years, SGI has been a pioneer in socially responsible investing, and we can draw strength from this document that our work is critical for achieving a more just and sustainable economy.

The full text of the document can be found here in a PDF or on the Vatican website here.

Helpful commentary on the new document can be found here:

Less helpful but interesting commentary:

A Math Challenge for Tech’s Gender Gap

Even if companies pledge to making women the majority of new hires, redressing the gender imbalance at companies like Facebook, Apple, and Google could take more than a decade, according to Jennifer Saba in an article at Reuters Breakingviews. In the age of #MeToo, Silicon Valley firms face new scrutiny about male dominance in their labor force. Reuters also provides a handy calculator to project when a company could achieve gender parity.

Key quotes:

  • “[A]t 200 companies surveyed, women made up 36 percent of entry level positions in the technology sector but just 27 percent of middle-management positions. The figures were worse for positions at vice-president level or above.”
  • “Say Google, Facebook and Apple committed to 51 percent of new staff being women – pretty close to the overall makeup of the labor market.
  • “Based on the rate their workforces expanded last year, and assuming one in five existing workers quit and are replaced annually, it would take Apple 15 years to reach parity. Google would do it in 14, and Facebook in a faster-but-still-slow seven years.
  • “Small steps make a big difference. Set a truly bold goal of six in 10 new hires being women, keeping all else constant, and all three companies would achieve parity within six years.”

Inside the tech industry, efforts like #CauseAScene raise the issue of “inclusion and diversity as the latest marketing buzz words” rather than occasioning substantive change. The sorts of efforts that Saba points to in her article could well occasion real change in Big Tech. Concern about the gender gap in the workforce complements SGI’s work in Racial Justice Investing. Making workforce composition more transparent will help industry leaders, investors, and stakeholders take meaningful steps toward an authentically inclusive and diverse workforce.

Member statement at Kohl’s AGM

Yesterday, Frank Sherman, Chris Cox, and Tim Dewane attended the annual shareholder meeting at Kohl’s. For Kohl’s, the shareholder meeting was the closing of a significant chapter in the company’s history and the beginning of a new chapter. Having begun his career with the company in 1982, Kohl’s CEO Kevin Mansell retired, a post he has held since 2008. With the retirement, Michelle Gass is the company’s new CEO.

Tim Dewane

ICCR and SGI have a long history of engagement with Kohl’s. At the shareholder meeting, Tim Dewane, the JPIC director for the School Sisters of Notre Dame of the Central Pacific Province offered a statement:

Good morning Mr. Chairman and Kohl’s Board members. My name is Tim Dewane, I am the JPIC Director for the School Sisters of Notre Dame of the Central Pacific Province. The School Sisters of Notre Dame CPP are a long time shareholder of Kohl’s and a member of Seventh Generation Interfaith, an ICCR-affiliated coalition of faith-based institutional investors that has engaged in positive dialogue with Kohl’s for nearly 20 years. Our members first sat down with Kevin Mansell and Rick Schepp in 2000 to provide input into the language of Kohl’s Terms of Engagement, a set of standards on worker rights and working conditions for its suppliers throughout the world. Since 2000, faith-based shareholders have met with the company annually and have seen improvements its supplier’s performance on workplace human rights as well as significant improvement in its’ environmental sustainability of your operations through a variety of programs that are described in its 2017 CSR report.

We welcome Michelle Gass as Kohl’s new Chief Executive Officer, the first woman to occupy this important position at the company. We look forward to working with you and your staff. As you build on the legacy of Kevin Mansell we encourage you to expand and deepen the integration of Kohl’s commitment to corporate social responsibility throughout the company’s business strategy and messaging to customers, investors and to society. In the current environment, stakeholders and rating agencies, who have incorporated social and environmental criteria into their valuation of companies, are expecting more transparency of Kohl’s and other companies. Kohl’s has a good story to tell, one that we are working on to improve with every meeting we have with you.

We encourage you to apply ‘human rights due diligence,’ based on the UN Guiding Principles on Business and Human Rights, the new global norm, to identify potential risks to people and communities, especially where your business partners operate in high risk countries where rule of law is weak. In addition, we encourage Kohl’s to join a number of companies in aligning its CSR strategies to the realization of the UN Sustainable Development Goals adopted in 2015 to eradicate poverty, gender inequity, child and forced labor, adverse impacts of climate change, among others, by 2030.

Larry Fink, Chair and CEO of Blackrock, stated in his Letter to CEOs entitled, A Sense of Purpose, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Pope Francis has echoed the understanding of many our own Kohl’s customers when he said that purchasing is not simply an economic act, but also a moral one. We are called to love and care for our neighbors as our selves and in today’s world our neighbor includes not only the folks in this room, or those here in Menominee Falls, but all those whose lives touch ours – including the garment workers in Bangladesh and elsewhere.

We look forward to working with you to build on Kohl’s solid commitment to quality and community – with profits we can all live with. Thank you!

A PDF version of Tim’s statement can be found here.

Update: NYT reports on investors’ letter to Disney

In February, we posted news of SGI and its members joining other investors in a letter to Disney to restrict smoking in products from newly acquired Fox film and television assets. Yesterday, The New York Times carried news of our letter in an article entitled “There’s No Smoking in Disney Films. What About When It Owns Fox?

More about the engagement with Disney on tobacco can be found here:

SGI joins investor statement on 5th Anniversary of Rana Plaza Disaster

At the fifth anniversary of the collapse of the Rana Plaza building in Bangladesh which resulted in the deaths of over 1,100 garment workers, SGI joins ICCR members in an investor statement assessing advancements made to improve worker health and safety in the Bangladesh apparel sector.

Within months of the disaster, the Bangladesh Accord on Fire and Building Safety was established as a model for collective action between brands and retailers sourcing in Bangladesh, as well as global and local trade unions, and NGOs, to inspect the country’s apparel factories and implement necessary reforms to safeguard workers.

Led by the Interfaith Center on Corporate Responsibility, the Bangladesh Investor initiative, an investor coalition comprising 250 institutional investors representing over $4.5 trillion in assets under management, was formed in May of 2013 to urge a strong corporate response to Rana Plaza including participation in the Accord. Further, in their engagements with companies the investors made four main recommendations:

  • Join the legally binding Accord on Fire and Building Safety (Accord) signed by trade unions, brands and retailers with NGOs as witness signatories;
  • Commit to strengthening local trade unions and ensuring a living wage for all workers including through their engagement with the Bangladesh government;
  • Publicly disclose all their suppliers including those from Bangladesh;
  • Ensure that appropriate grievance mechanisms and effective remedies, including compensation, are in place for affected workers and families.

The investors argue that supply chain transparency is critical to safeguarding worker safety and employer responsibility since visibility into extended supply chains, including sub-contractors, is a precondition to identifying risks, including safety, forced labor, harassment, discrimination and denial of freedom of association.

“Stakeholders, including investors, rely on transparency as a tool for evaluating corporate performance on a range of social, environmental and governance issues,” observed Lauren Compere, Managing Director of Boston Common Asset Management. “The Accord has been very transparent in requiring disclosure of each of the 1,600 factories it covers which helps investors track progress. This disclosure requirement is a ‘best practice’ that all companies need to implement, beginning with 1st tier suppliers, then throughout their extended supply chains.”

The Accord model has proven to be effective due to the binding nature of the agreement, and a governance structure that has equal representation of brands and trade unions with an independent chair from the International Labor Organization.

“We applaud the Accord for Fire and Building Safety for establishing safer factories through collective action at an unprecedented level, with 220 brands using their leverage to change supplier behavior in partnership with global and local trade unions,” said David Schilling, Senior Program Director, ICCR. “This transformative model should be applied and adapted to at-risk supply chains in other sectors and countries.”

Investors have been pressing companies and their boards to take the ‘high road’ when setting prices to enable factories to pay fair wages and comply with workplace human rights standards, including freedom of association and collective bargaining.

“Investors have the ability to influence company directors. This means that moral responsibilities accompany the rights we enjoy as shareholders,” said Steve Waygood, Chief Responsible Investment Officer, Aviva Investors. “The casual disregard for employee welfare demonstrated by the directors involved in the Rana Plaza catastrophe should be unacceptable to anyone. As institutional investors, we should challenge corruption and exploitation in all its forms wherever we find it. Ensuring we motivate the right kinds of corporate behavior is part of our own duty to our clients.”

While the investors are pleased with progress made by the Accord, they emphasize that the job of remediating all the issues is far from done and will continue to urge those companies that have not signed on to the 2018 Accord and its three-year extension to do so.

“It has been five years since the nightmare that took place at Rana Plaza, and while significant progress has been made by the Accord to address the root causes of the tragedy, we must not forget that these workplace risks persist in many sectors across the globe,” said Sr. Barbara Aires of the Sisters of Charity of St. Elizabeth, NJ. “The moral and business imperative for corporations to preempt these risks by implementing comprehensive safeguards throughout their supply chains is clear. As investors and stakeholders, we will continue to monitor progress on these concerns in the Bangladesh apparel sector and beyond.”

To see the full statement, please visit here. See more from ICCR here.

SGI Webinar Recording: Health

Hearing from both members and ICCR colleagues (Donna Meyer of Mercy Investment Servces and Meg Jones-Monteiro of the ICCR staff), this webinar provides tools for an understanding of our engagements in nutrition, insurance, pharmaceuticals, tobacco, and opioids as well as global health issues. This webinar also proposes time efficient ways of deepening our engagement with these issues.

The article, mentioned by Donna, about the relative expenses of research and development and marketing for pharmaceutical companies can be found here or in a PDF version here.

If you have any questions from the content of the webinar, please, feel free to direct them to us at SeventhGenerationInt@gmail.com.

As always, we welcome your feedback via a confidential evaluation found here.

SGI Health Webinar on April 20

We are pleased to offer our second quarterly webinar on shareholder engagement in health. The webinar will take place on Friday, April 20th, at 10 a.m. (Central). It will last 90 minutes. We will hear from both members and ICCR colleagues who lead components of our health campaigns. This webinar will provide tools for an understanding of our engagements in nutrition, insurance, pharmaceuticals, tobacco, and opioids as well as global health issues. This webinar will also propose time efficient ways of deepening our engagement with these issues.

SGI members should have received an email with the data to log on to the webinar. If for some reason you have not received it, please contact our associate director, Chris Cox, at SeventhGenerationInt@gmail.com.