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:

 

EPA Rolls Back Auto Fuel Efficiency Standards

By Frank Sherman

Yesterday, the EPA announced a long awaited rollback of federal fuel economy standards for cars and light-duty trucks in the U.S. (Vox, Aug 2, 2018). (See a previous blog post about it here.) The proposal, released Thursday morning by the EPA and the US Department of Transportation, called the Safer Affordable Fuel-Efficient (SAFE) Vehicles Rule freezes the fuel economy standard for model years 2021-2026. The rule also revokes California’s waiver to set its own rules under the Clean Air Act, a waiver also followed by 13 other states and the District of Columbia, representing approximately 35% of the vehicle market.

The transportation sector has taken over from electric power generation as the largest greenhouse gas emitter in the United States. This short-sighted move not only undermines one of the most significant steps the U.S. has taken to address climate change, but also hurts the global competitiveness of the U.S. auto industry at a time when the world is demanding cleaner, more efficient vehicles. The Union of Concerned Scientists estimated that this rollback would add 570 million metric tons of greenhouse gas emissions by 2030, equivalent to 140 typical coal-fired power plants for a year. The Environmental Defense Fund (EDF) found that the proposal would result in nearly 200 billion gallons of cumulative additional gasoline consumption by 2040. According to Margo Oge, former head of the EPA’s Office of Transportation and Air Quality, the fuel savings alone through 2025 would add up to $1.7 trillion. Ceres estimated the proposal would result in the loss of $20 billion in sales by auto parts suppliers between 2021 and 2025.

The EPA argues that the proposed changes would save money and lives. The agency reported that the prior standards would cost $500 billion over the next 50 years. They claim that people will continue to drive older, less safe cars to avoid the cost of air pollution equipment installed in new cars. “More realistic standards can save lives while continuing to improve the environment,” said EPA Acting Administrator Andrew Wheeler in a statement.

But many question the EPA’s rational. “At first glance, this proposal completely misrepresents costs and savings. It also relies on bizarre assumptions about consumer behavior to make its case on safety,” said California Air Resources Board Chair Mary D. Nichols in a statement. The existing CAFE fuel standards would add an additional $2,340 to the overall ownership costs of a new vehicle or an additional $468 per year over five years. Given that air pollution from vehicles is responsible for 30,000 premature deaths annually, it stands to reason that the lives saved by improving efficiency and reducing air pollution outweigh the lives saved by potential car buyers on the margins upgrading to safer cars.

California plans to fight back. “The Trump Administration has launched a brazen attack, no matter how it is cloaked, on our nation’s Clean Car Standards,” wrote California Attorney General Xavier Becerra in a statement. “The California Department of Justice will use every legal tool at its disposal to defend today’s national standards and reaffirm the facts and science behind them.”

A 60-day comment period will begin once the proposal is published in the Federal Register. Ceres will be organizing investor comments during that time. Buckle your seat belts…

ICCR Climate Change Strategic Review

By Frank Sherman

The ICCR Climate Change Workgroup met in mid-June, hosted by the Nathan Cummings Foundation, an ICCR member in NYC, to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. We took time to reflect on the social and faith trends; review the political and economic landscape; and map the growing investor actions on climate. We then evaluated our progress over the past couple years before developing a SWOT analysis, mission and vision. In the afternoon, we discussed the path forward by re-directing the existing programs and discussing some new areas to pursue.

Jake Barnett (Morgan Stanley Graystone), together with Mary Beth Gallagher (Tri-State CRI), presented the climate justice perspective by describing the disproportionate adverse impacts climate change has on vulnerable communities. These include decreased agricultural production due to drought resulting in increased migration, disproportionate impacts on women, increased disease burdens due to intensified heat and insect-borne diseases, and displacement from intensified storms due to lack of resilience (e.g. Hurricane Harvey and Maria). In addition, roughly 1.1 billion people lack access to electricity, making the provision of clean, affordable energy essential for communities trying to escape poverty. Unlike secular asset managers, the faith community can elevate climate change from a partisan political discourse to a moral issue that we are all called to address. We need to be bold and exhibit urgency by leveraging partner organizations (Human Rights Watch, Earth Justice, Sierra Club, etc.), and put a human face on the climate change impacts.

Aaron Ziulkowski (Walden Asset) provided the political and economic overview noting that, despite growing awareness, global GHG emissions continue to rise, although they have leveled off in OECD (developed) countries. The national commitments made in Paris fall short of the 2 degree scenario and get the world nowhere near the 1.5 degree ambition. Transportation has replaced electricity production as the top emitter in the U.S. due to the displacement of coal by natural gas. Despite the White House announced withdraw from Paris, several states have set targets for GHG reduction, renewable energy and CAFÉ standards (which reduce auto emissions) that exceed federal standards. Japan, the EU, China and India continue to increase CAFÉ standards while Trump’s EPA rolls back U.S. targets. The EPA is being sued for rolling back methane emissions standards in oil & gas production. Economists are confident that economics wins over politics with the cost of unsubsidized wind and solar electrical power now competitive with fossil fuels. We agreed to step up public advocacy and pressure corporations to do the same if the U.S. wants to remain competitive in a low carbon world.

Jamie Bonham (NEI) mapped the growing awareness and complexity of various investor groups to manage climate risks and opportunities. ICCR has to find its unique voice while leveraging these larger asset managers and NGO’s. Sean Wright of EDF presented some ideas for continued engagement on methane engagements (“The ICCR methane campaign is making a critical difference”). Rob Berridge of Ceres discussed the overlap of the Climate Action 100+ (CA100) with existing ICCR engagements with 40 U.S. companies. He has been identified as the Ceres contact with ICCR on the CA 100+, and will encourage CA100 teams to include ICCR members in their engagements or at least keep us connected (note that SGI members are on the CA100 teams for Exxon, Chevron and Valero). Ceres will analyze the Fortune 500 companies to identify climate laggards that have slipped through the cracks for ICCR to consider engaging.

In assessing ICCR’s progress over the past couple years, we noted advances with heavy GHG emitters by asking for long-term 2-degree scenario plans and science-based reduction targets (SBT). We’ve made more progress with utilities than the transport sectors, while O&G companies continue to hold on to their business-as-usual model, although they too, are starting to develop 2degree scenario reports. ICCR also led the methane campaign with good results (…as attested by EDF) due to our trusted corporate relationships, convening power with companies and non-ICCR investors, and ability to bring NGO expertise and investor focus. Finally, ICCR members were ahead of the investor world engaging global banks and asking for climate related disclosure consistent with TCFD guidelines.

In reviewing ICCR’s capabilities, we felt our strengths included our reputation for long-term, respectful yet challenging engagements; our moral credibility to speak for people and planet; and collaborative culture between members and partners. However, we recognize that often times we lack focus and are spread too thin; we’re not as diverse as desired, in terms of race, faith traditions, and younger generations; and we’re sometimes not clear or consistent in our objectives (“asks”). Opportunities include focusing on climate justice; engaging mid-cap companies: regional companies in communities where we have a presence (CRI’s); diversifying our membership with millennials and other faiths; and better collaboration with partners (e.g. Ceres). In addition to the current political environment, we recognize threats to our dated model such as aging/consolidation of faith members; corporate opposition to shareholder rights; and overlap with some of our partners.

We developed a draft Mission statement: “Through the lens of faith and as stewards of creation, we engage companies as investors and participate in public advocacy to accelerate the just transition to a low carbon economy consistent with the Paris Climate Accord and in preference to those most vulnerable.” We then brainstormed a Vision or what success looks like in terms of the companies we engage, the communities for which we advocate, the environment and society. Out of this came the realization that ICCR needs to stay above political partisanship while having the audacity to (continue to) speak truth to power; be pioneers in addressing emerging, cross-cutting issues; and be true to our justice mission.

Going forward, we will continue the SBT engagements by collaborating with CA100, expanding the energy utility list, adding the Fortune 500 laggards, and identifying mid-cap/small-cap companies in communities where we have members. Engagement of local companies has the potential added benefit of encouraging support for pro-climate policies more broadly. We will shift our conversation from 2 degrees (where too many people will suffer) to 1.5 degree scenarios and will seat our climate change work within a frame of “Just Transition”. Just Transition focuses on the needs of workers and communities as the energy economy transitions away from a reliance on fossil fuels. We plan to expand the methane campaign by challenging the ‘clean natural gas’ mantra – working more closely with affected communities, engaging companies across the value chain, and bringing larger asset managers to the discussion. We will establish an Amazon team where we hope coordination among investors and collaboration with select NGOs will achieve better results than the individual efforts to date. This big tent effort with Amazon will address issues across program areas, including climate change. Finally, we will broaden the effort to engage the financial sector, focusing on regional banks.

We concluded with agreement that the growing investor attention towards climate change is a welcome development that is especially needed in the current political environment. ICCR needs to stay true to its mission and focus on those activities that incorporate marginalized communities and their needs into the vision that guides our corporate engagements.

ICCR Human Rights/Human Trafficking Strategic Review

Two weeks ago, Frank Sherman and I participated in the ICCR Program Strategy Week. The Program Directors met with their Work groups in NYC to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. This article will summarize the human rights/human trafficking session.

Estimates indicate that 27 million victims fall prey to trafficking and slavery each year and that it is a global trade valued at $32 billion dollars. But due to the clandestine nature of these crimes and the reluctance of victims to speak out because they live in fear of physical retribution and/or deportation, trafficking and slavery are typically very difficult to uncover and prosecute. Through the Human Rights/Human Trafficking (HR/HT) Work Group, ICCR members ask the companies they hold to adopt human rights policies that formally recognize human trafficking and slavery and to train their personnel and their suppliers to safeguard against these risks throughout their supply chains. Human rights provides an umbrella for all ICCR efforts.

Investor Alliance for Human Rights (IAHR)

The day prior to our session, the Alliance met as well. It will take some time to define action that corresponds to IAHR or to the HR/HT work group as both groups are concerned with issues that overlap. The Alliance has three components: Human rights responsibilities of investors, collective action, and multi-stakeholder engagement.

The IAHR:

  • Promotes implementation of human rights due diligence by companies
  • Encourages the creation of enabling environment for responsible business conduct through awareness raising, standard setting, and regulatory development – states, multi-lateral institutions, the UN, development banks and, of course, investors
  • Encourages engaged companies to develop and strengthen activities and process to provide remedy
  • Builds partnerships with business community, NGOs, trade unions, local communities and others to leverage this work

It seems likely that the IAHR will focus, this year, on Banking and Tech sectors as it relates to salient human rights issues. Again, it will take some time to develop the necessary coordination between the efforts of IAHR and ICCR working groups.

Ethical Recruitment

Even though we no longer have a full-time staff position, ICCR will sustain efforts in this area. Significant progress has been made, but more work remains to be done.

Companies face significant challenges related to ethical recruitment strategies. Historically, it has been difficult to make progress on labor rights/working conditions for companies in their first tier. Now there is a new paradigm where companies need to think about their labor supply chains in every tier. There is a state of paralysis and it is hard to make progress. While there are leaders who are making progress, not enough companies are following. Most companies focus on attending conferences and webinars and think of a legal response: “What is the shape of the risk to the company?”

When the companies attempt to assess their risk, they often rely on risk-mapping platforms that all tend to give a sense of the country risks (using the State Department’s Trafficking in Persons Report and/or the Labor Department’s child and forced labor report listing countries and commodities), but not go any deeper. Further, the auditing systems need training and refinement: If you don’t ask the right questions, you won’t find forced labor. Occasionally, corporate legal counsel can suggest that the company may not want more information about recruitment as it may open the company to litigation concerning what is discovered. As well, we need to develop clear standards to separate the good from the bad recruiters. Currently, only certain sectors and commodities have been the focus of recruitment: ICT, seafood sector and palm oil sector, and coffee. This work will need to be broadened.

A critical question for work: what is the true cost of recruitment? There is the cost of recruitment, and there are charges that migrant workers pay that are not recruitment costs but the cost of corruption. More focus on this issue is needed plus an emphasis on companies sharing the cost of recruitment with suppliers as well as workers who have paid getting reimbursements. Again, progress has been made, but we must deepen and extend that progress.

Sex Trafficking

We spent some time in discussion about how we might engage companies in the airline industry, hotel industry, transportation sector, and the tech sector. We assessed some of the corporate engagements in recent years as well as identified some of our allies in this work.

Legislative Priorities

We also discussed legislative and regulatory priorities in the upcoming year concerning human trafficking. A significant priority is the re-authorization of the Trafficking Victims Protection Act (TVPA). In the U.S. House (HR 2200)
and in the U.S. Senate (S1311, S 1312, S 1862), bills may come to the floor during this year. Given the mid-term elections and other factors, these bills may not be considered, but advocates are continuing to call for this. Additionally, we want to be mindful of the appropriations process in a few areas: State Department programs to end human trafficking; State and foreign appropriations; some provisions in the Department of Labor as well as Health and Human Services; and appropriations for Homeland Security’s enforcement of the ban on forced and child labor.

In the fight against human trafficking, a critical role for faith-based investors, then, is to continue to work with “Know the Chain,” engaging corporations and boards in conversations about supply chain and due diligence. These efforts keep the issue spotlighted.

Supporting Materials

  1. Materials on the U.N. Sustainable Development Goals:
  1. Know the Chain Benchmarks – 2018 Benchmarks Company Lists (ICT, F&B, Apparel and Footwear)
  2. International Tourism Partnership’s Principles on Forced Labor launched June 12th: http://www.greenhotelier.org/our-news/industry-news/hotel-sector-unites-under-itp-to-tackle-forced-labour/
  3. “Ripe for Change: Ending Human Suffering in Supermarket Supply Chains” Oxfam’s new report, June 21, 2018
  4. One page summary of Global Forum on Responsible Recruitment In Singapore,  June 11-12, 2018

ICCR Food and Water Strategic Review

By Frank Sherman

Last week, Chris & I participated in the ICCR Program Strategy Week. The Program Directors met with their Workgroups in NYC to evaluate the progress over the past year and chart out a path forward for the 2018-19 corporate engagement season. This article will summarize the Food strategy session.

The Food Workgroup has been focused on several issues over the past few years including the overuse of antibiotics in meat, supply chain deforestation, food waste, nutrition, pesticide use, and worker rights. As would be expected, many food & beverage (F&B) companies are confronted with many of these risks. Different ICCR investor groups often times deal with the same company in silos, leading to inefficient and ineffective engagements. In the future, the company leads will try to discuss their issue objectives and strategies with each other annually, inform each other of upcoming dialogues, and support each other with joint agendas.

Animal agriculture accounts for 70% of antibiotic use, most of which is not medically necessary. Although we are engaging the meat producers, our focus has been on restaurants and retailers. We have been successful in reducing antibiotics in poultry with Sanderson Farms being the last holdout (43% vote). We’ve made far less progress on beef, pork and turkey; however we anticipate a beef policy from McDonald’s by the end of the year which may be the catalyst for the industry. We will also collaborate with Karner Blue Capital on engaging F&B companies on animal welfare issues.

Deforestation has been a nexus of issues from deforestation and soil erosion to biodiversity loss and land & labor rights abuses. Investors and allied NGO’s have made considerable progress on palm oil with 74% of SE Asia’s palm oil refining capacity now covered by these No Deforestation, No Peat, No Exploitation (NDPE) sourcing policies. We plan to weigh in on RSPO’s update of the Principle & Criteria to strengthen them. Company commitments to source certified timber & pulp are also fairly extensive whereas commitments on sustainable beef and soy are far fewer, partly due to the lack of investor and NGO focus. This coming season, we will work with the broader global PRI investor coalition to focus on these commodities at companies who are creating the biggest impact.

With up to 40% of food (and all the resources that goes into producing it) wasted in the U.S., investors are calling on F&B companies to assess, reduce and optimally manage their food wastes. Kroger stepped up with their Zero Hunger-Zero Waste program with a target of zero food waste by 2025. Progress was also made at Target, Darden, McDonald’s, Kellogg and Hilton. The company target list will expand next season with stronger demands for companies to measure and report on waste reduction progress.

With more than 1 in 3 adults and 1 in 6 children considered to have obesity in the U.S. while 15% of American households are food insecure, nutrition continues to be a societal issue that we focus on. ICCR investors are engaging F&B manufacturers, retailers and restaurants to establish nutrition policies, improve product profiles, and change their marketing strategies, especially towards children. We have made progress in collaboration with the Access To Nutrition Index to encourage companies to improve their ranking. We will continue to work with UConn Rudd Center on marketing to children and minority communities.

We’ve increased our focus on food supply chain labor rights. We continue to support of the Coalition of Immokalee Workers and are starting to advocate for meat processing workers in the U.S. We are planning a campaign on the poultry sector where workers are typically immigrants and often undocumented leading to abuses. This is also the case for farm workers who are subject to unethical recruitment practices. We plan to work with Oxfam who’s recently released report, Behind the Barcodes, exposes the root causes behind human suffering in food supply chains.

The Food Workgroup has a full agenda, and Seventh Generation Interfaith members are welcome to jump in.