Revised: The USCCB SRI Guidelines

For the first time since 2003, the U.S. Catholic Conference of Bishops revised and approved new Socially Responsible Investment Guidelines at their gathering in November of 2021. 

Please, join SGI for our first educational webinar of 2022 to learn about what is new in the guidelines, how an investor might implement them, and how the guidelines may call us to act in new ways. We’ll gather at 10 a.m. (Central) on Tuesday, February 15th, and we’ll be joined by Duane Roberts of Dana Investment Advisors and Katie McCloskey of Mercy Investment Services.

Join the webinar on Zoom via this link

If the Zoom meeting is full, please, join the webinar via our YouTube channel which will also live stream the webinar. We will attend to questions from the both Zoom and the YouTube comment box.

Can Nestlé reduce or eliminate child labor? We hope so.

Today, Nestlé announced a new plan to tackle child labor risks in cocoa production. Child labor is not a new issue to the company—the U.S. Supreme Court ruled in the company’s favor in a case concerning child slavery in June of 2021. The plan is simple: Nestlé will pay cash to cocoa farmers if they send their children to school, rather than out to tend crops. Consequently, the company aims, by 2025, to purchase all of its cocoa through a fully traceable, directly sourced supply chain.

The company expects this new initiative to triple their costs to about $1.4 billion by 2030. To be honest, spending more to pay a just wage, a living wage seems like a good recipe to eliminate child labor. Naturally, SGI will be following the implementation process.

Don’t get your hopes up that other chocolate makers will follow suit. Hershey is fighting a resolution, led by the American Baptist Home Mission Society, that asks for a report assessing whether the company’s current program will eradicate child labor or not. For that matter, maybe Mars can do more than rebrand M&M’s (here is a surprising reflection from comedian Russell Brand on that one).

Think about that the next time you bite into a KitKat.

Crypto: The Fifth C

If you’ve been cooped up inside due to weather or COVID, you have probably seen a fair bit of football on television, along with a lot of high-priced advertising. Both will reach their apex on Super Bowl Sunday. A ubiquitous ad this season features Matt Damon touting how “Fortune favors the brave” in an ad for I’d urge us to think of another fact when we see this ad: “Trafficking preys on the vulnerable.”

Today, January 11th, is National Trafficking Awareness Day. Just yesterday, the U.S. Government Accountability Office released a new report: Virtual Currencies: Additional Information Could Improve Federal Agency Efforts to Counter Human and Drug Trafficking. The report notes that human and drug traffickers increasingly turn to cryptocurrencies to facilitate their illicit businesses.

Often, when experts speak about trafficking, they refer to the four Cs: chocolateclothescoffee, and cellphones. Sadly, now, I need to add a fifth.

So when you see the ad this weekend, remember that Matt Damon also advocates strongly against food insecurity and for water stewardship. Remember, too, as Damon says in the ad, “History is filled with almosts.” With this glaring exception, his body of work almost gets it right.

2021 – A Year of Resilience

Likely, we all thought the pandemic would be over sometime in 2021, and our hopes rose and fell with the daily infection counts. The vaccines worked better than expected, restrictions were relaxed, and things started to return to normal. Then came the COVID variants, which threw a wrench into our hopes for a swift recovery, and Omicron raises the specter of a deadly winter.

While the year had its joys, we would be remiss if we neglected to recall that, in our personal lives, SGI members and staff also mourned losses, including one who endured the loss of a daughter, and weathered storms.

The great problems that we face, such as racism, poverty and the climate crisis, are structural in nature. With long histories, they are embedded socially in ways that are often masked in day-to-day life.

Sadly, we learned on January 6th that the U.S., like so many places around the globe, is an all-too-fragile democracy, vulnerable to demagoguery and the exploitation of populist sentiment. Aware that corporate donations contributed to the chaos, shareholder calls for greater corporate political spending and lobbying disclosure garnered higher support than usual.

This year we saw what is possible as the 2021 Proxy Season provided a watershed moment in shareholder advocacy with record-breaking support for environmental proposals (Exxon Mobil being a case in point). SGI members drove a series of significant corporate engagements including Walmart, Merck, Restaurant Brands International, Wendy’s, Yum! Brands, and Kraft Heinz.

After President Biden’s increased the 2030 NDC to reduce GHG by 50%, the 26th meeting of the UN Conference of the Parties (COP26) fell short of expectations. However, important pledges on deforestation and methane and the phase down of coal and fossil fuel subsidies were steps forward. Senator Joe Manchin’s declaration that he opposes the Build Back Better reconciliation bill makes the administration’s task of meeting its climate goals far more difficult. As corporations and asset managers make net-zero commitments, Milton Friedman is turning in his grave; but it would be unwise to trust that companies will deliver on their promises, without investor pressure and third-party verification.

As we wrap up 2021, we look back at an amazing year. SGI has grown to 36 institutional members, elected a new board president and added new board members, including at-large members. We refreshed our strategic plan and hosted a great conference on Resilience: Building a Just & Equitable Economy for All. Our mission to build a more just and sustainable world for those most vulnerable continues in 2022. In the New Year, SGI will be hosting events to better understand the revised U.S. Catholic Conference of Bishops Guidelines for Socially Responsible Investment. We will advocate for the critical components of the Build Back Better plan. And we will work with companies to live out their societal purpose. As we end another year marked by both pain and hope, we want to thank you, our members, for your contributions to our ministry. Shareholder advocacy works. May the holiday season refresh all of us for our important work for people and planet in the New Year.

Facebook has Meta problems, needs metanoia

The company formerly known as Facebook, now Meta, aims to shift into a new organization focused on virtual connectivity. Rebranding is not new for this firm; some may recall that it was originally Mark Zuckerberg explained the name change in a founder’s letter for the new company at the end of October.

Facebook also announced at the beginning of November that it would end its facial recognition program. In the fine print of accepted terms, Facebook users permitted the company to develop facial ID templates. Consequently, Facebook now will delete more than a billion facial recognition templates.

Facebook’s new name changes absolutely nothing about the company’s problems – an avalanche of misinformation, hate, and other issues within the platform. To paraphrase the Bard, “That which we call Facebook / By Any Other Name would smell” (the phrase can stop there, omitting the subsequent words of Juliet). Frances Haugen, the Facebook whistleblower, has brought to light, with internal company documents, a series of substantial concerns.

It comes to this: If we cannot trust Facebook in the real world, why would we be willing to trust them in the “metaverse?” If we occasionally experience Zoom fatigue, do we really want to live even more of our lives on the internet? Facebook needs not so much a change of name but a change of heart.

As Facebook faces critical coverage pushing the company to reform itself, it also confronts the virtually impossible: Transforming a company with a market capitalization just south of a trillion dollars—and yet that change, that conversion (what the Gospel calls metanoia) is what Facebook desperately needs.

The media outlet Vox interviewed 12 experts on how to fix Facebook. Some of the ideas track well with this year’s crop of shareholder resolutions. Last Friday was the filing deadline, and, in all, ICCR members and members of the Investor Alliance for Human Rights filed eight resolutions with the company. SGI members co-filed two of the resolutions: one calls for a separation between board chair and CEO, both currently occupied by Mark Zuckerberg, and the other calls for a report on Child Sexually Explicit Materials (CSAM) distributed on the platform. This year’s filings even caught the eye of the Wall Street Journal that reported on these efforts today.

While these efforts are important, will they change things at Facebook? Not yet. Zuckerberg, through Facebook’s dual class share structure and his “super-shares,” controls about 58% of the vote. Even if our efforts do not change the company at the 2022 shareholder meeting, we must remain persistent and call for genuine metanoia from this company, not just a glossy rebranding.

Does Sustainable Investing Help Wall Street More Than the Planet?

By Frank Sherman

Two experts recently debated the impact of the ESG investment strategies that has reached mainstream (Does Sustainable Investing Really Help the Environment?, WSJ 11-7-2021). Tariq Fancy, formerly the sustainable-investing chief at BlackRock, argues that the investment sector is doing more good for Wall Street than it is for the planet! He left the financial services industry and has become a critic of relying on the market economy to solve societal problems. “Funds that focus on ESG issues are profitable for Wall Street—but amount to a dangerous placebo that doesn’t cure the planet’s problems.” He calls the ‘win-win’ SRI philosophy of being good for business AND good for people & the planet a fantasy. “The ESG industry today consists of products that have higher fees but little or no impact and narratives that mislead the public and delay the government reforms we need.

Alex Edmans, a professor at London Business School, says that Fancy’s criticism goes too far. While government intervention is essential, he believes engaging with companies on ESG issues has indeed made a difference. Companies that treat their employees well outperform their peers in total shareholder returns. And where some ESG issues can’t be regulated, such as corporate culture, investors can play a role to hold companies to account. He also argues that focus on ESG issues has shifted the Overton window, broadening the range of policy proposals that are acceptable in the political mainstream.

SGI member Duane Roberts, Dana Investment Advisors, agrees with the Professor in thinking Mr. Fancy is too pessimistic. “There are valid reasons for some of his cynicism. Our industry has identified ESG as the new investing fad that can make a lot of money. Thoughtful investors and consultants are trying to distinguish between greenwashing and true ESG investing. But the placebo effect is a real possibility.”

Roberts views sustainable investing vs. public policy as a false choice. “ESG investors and managers see their portfolios, and finance more broadly, as a tool to be applied to the problems society faces. But it should not be considered the only tool.” He agrees with Edmans’ assertion that sustainable investing has influenced public policy. “Business can support necessary policy changes, or work against those changes in their own selfish interest. Investors can nudge companies toward the former.”

I believe we can learn something from Mr. Fancy’s challenge of SGI’s theory of change. Our effort to make the business case to create a win-win can hold faith-based investors back from asking companies to simply do the right thing for their stakeholders. Does there always have to be a return on investment for companies to pay their workers a living wage or to take steps to reverse systemic racism?

SGI Board member Ed Fitzpatrick sums it up this way: “There may be risk of greenwashing; but net-net, investment managers incorporating ESG strategies will ultimately help society.”

Pay and Wealth Disparity Webinar

Good corporate governance, the “G” in ESG, allows for companies to better lean into the challenges and opportunities. Well-governed companies drive change rather than being subjected to it.

Warren Buffett, Chairman and CEO of Berkshire Hathaway, famously described executive compensation as the acid test of corporate governance. For my part, I think the Oracle of Omaha may only be half right. Yes, executive compensation is critical, but it is only half of the picture. The other half of the picture is looking at the wages of the lowest paid, most vulnerable within a company or within its supply chain. It’s a matter of looking not only from the top down, but also the bottom up.

On November 19th, we continued efforts to educate ourselves on issues related to pay and wealth disparity and about some actions we can take to address them. We are grateful that Brandon Rees of the AFL-CIO and Rosanna Landis Weaver of As You Sow joined us to enrich our conversation.

A couple of weeks ago, Tesla CEO Elon Musk made headlines as the first person in history with a net worth exceeding $300 billion. The other part of that story is that, by comparison, the median U.S. worker would need more than 4 million years to make that much.

SGI has a long history in this space. From our founding in 1973, Fr. Mike Crosby has advocated for a living wage. SGI consistently advocates for increasing the federal minimum wage.

In 2013, President Obama said, “Rising income inequality is the defining challenge of our time.” Pope Francis, in the same year, noted, “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?” As a consequence, one of Fr. Mike’s final efforts was a campaign for pay equity in 2014 by filing shareholder resolutions with 12 retailers. SEC allowed companies to omit the resolution based on “micro management.” SGI members continues to challenge retailers and restaurants to pay living wages, for their own workers and for those in their supply chain.

In hopes of building an economy that works for the many, not one that concentrates more and more wealth in the hands of a privileged few, we keep coming back to this issue to see if there are new ways that we can address income and wealth disparity. The Franciscan Sisters of Perpetual Adoration proposal on racial equity & starting pay at the Walmart AGM obtained strong shareholder support for a first-time resolution. SGI members have joined this year’s ICCR campaign to ask restaurants to raise their sub-minimum wage for tipped workers.

Increasingly, economists have come to see that wealth and income disparity harm the economy. Rising concern for pay and wealth disparity in proxy voting and changes at the SEC lead us to think the tide may be shifting, and so we come to today’s conversation to get better informed and to renew our commitment to act.

Again, we are very grateful for the presence of Brandon and Rosanna in this webinar, for their commitment to this work, and their generosity in sharing their wisdom and experience with us. As always, we welcome your feedback via a confidential evaluation found here. Slides are available here.

Pay and Wealth Disparity Resources:

Be a catalyst for change in Native American Heritage Month

Since 1990, the United States has formally recognized November as Native American Heritage Month, a time when we can celebrate the culture, traditions and ways of this country’s Indigenous peoples, while also taking time to better understand our part in their often-painful history. We must also recognize that our country has a history of mistreatment and even genocide against indigenous people.

We can reflect on this collectively through our role as institutional investors. There are reports that should trouble us and spur us to action, like the Business & Human Rights Resource Centre’s Renewable Energy and Human Rights Benchmark 2021. Transition minerals, including nickel, lithium, cobalt, and platinum, are critical to the development of a green, low-carbon economy. Increased mining for these resources threatens indigenous rights and territories through the desecration of sacred places, pollution, and an increased risk of sexual violence and homicide. While international agreements provide for Free Prior and Informed Consent (FPIC), the benchmark finds that barely one-quarter of companies had policies recognizing and respecting the rights of indigenous peoples.

We can recall that SGI has been a part of efforts to respect the rights of indigenous peoples. Investors played a significant role in retiring the offensive name of the Washington Football Team. Mercy Investment Services helped organize the letter that spurred the action. As the Washington Post noted: “The company’s request comes less than a week after a group of more than 85 investment firms and shareholders representing $620 billion in assets called on FedEx, Nike and PepsiCo to sever ties with the team unless Snyder changes its name.”

Moving forward, we can also collaborate with and participate in groups like the Investors & Indigenous Peoples Working Group (IIWPG). Launched in 2006 as a task force by US SIF, it became a stand alone organization in 2016. The IIWPG recently wrote an important Letter to the SEC concerning Indigenous Rights in ESG and Climate Disclosures. A recent news report described the group’s work here. In fact, ICCR’s fall conference had a great session outlining the work of the IIWPG entitled “Championing Indigenous Peoples Rights through Shareholder Advocacy.”

The IIWPG has also developed and gathered valuable resources for investors to use: 

If you are not a member of the Investors & Indigenous Peoples Working Group and would like to be, you can join the mailing list. The IIPWG invites investors to join its monthly calls. As well, the Group serves as a clearinghouse for education, news, and joint action to bridge and bring together Native and Non-Native communities on issues related to sustainable and responsible investing.

Perhaps the best way to honor Native American Heritage Month is to be a catalyst for change.

Merck signs agreement with Medicines Patent Pool

Yesterday, Merck announced an agreement with the Medicines Patent Pool (MPP) for the COVID-19 therapeutic molnupiravir, reported to cut COVID-19 hospitalizations and death in high-risk patients in half, that makes the pill available for generic manufacture in 105 countries, dramatically increasing access and affordability in low- and middle-income countries.

SGI believes this is an important event for two reasons. First, the agreement makes molnupiravir the first COVID product to allow for the sale of lower-cost generic versions of medicines in over a hundred developing countries. Second, the agreement is transparent. You can read the agreement, without any redactions, here. At the same time, we remain concerned about the enduring price for health systems in high income countries and how the company will ensure access in the countries not covered by the MPP license. While not perfect, the agreement is vastly better than what the other companies have done.

The pharmaceutical industry deserves praise for producing safe and effective COVID-19 vaccines so quickly. Developing a vaccine takes an average of 10 years — if it works at all. Despite years of well-funded research, there are still no vaccines for HIV or malaria.

These vaccines are the product of innovative research, spurred by unprecedented public investment. Operation Warp Speed provided more than $10 Billion in support of vaccine makers for the development and expansion of manufacturing capacity. Another $825 million has been given in support of monoclonal antibody therapies. As of March, U.S. commitment to the CT-Accelerator stood at $6 billion. In April, President Biden pledged another $2 billion to the international COVAX effort.

Amid such vast public investment, most pharma companies have been pursuing monopolistic deals rather than getting those vaccines and therapeutics to everyone, everywhere, at the lowest cost possible, as quickly as possible. Merck’s agreement with the MPP goes a long way toward advancing access globally.

ICCR’s 2021 filings with Johnson & Johnson, Pfizer, Merck, and Eli Lilly, asked the board of directors to report on how public investment in vaccines and therapeutics is or will be accounted for in such things as settings prices. This is important because drugs can’t work if people can’t afford them. An increasing number of signs — the rise of coronavirus variants and our collective failure to mask up and maintain social distance — suggest that Covid-19 will become an endemic condition, much like the flu. Billions of us will likely need the vaccine each year. This is not an issue that only depends on governments. Corporations have an important role to play in ensuring equitable access to affordable, quality care. These resolutions asked pharma companies to account for their role in our collective fight against the Coronavirus. Many shareholders agreed with our concerns; 33% of Merck shareholders voted in favor of the proposal filed by the Capuchin Province of St. Joseph, 31.8% at Johnson & Johnson, and 29.9% at Pfizer (while the SEC allowed Eli Lilly to omit the resolution).

The MPP agreement has transparency that is lacking in the bilateral agreements signed before this one. Pfizer’s practice has been especially egregious. Only 6% of the text of contracts between vaccine-makers and countries remains after redactions. The non-redacted material suggests particularly harsh terms for Latin American countries including Brazil, Colombia, the Dominican Republic, and Peru. The Guardian reports that Pfizer has held Brazil “to ransom,” including putting up sovereign assets as collateral to guarantee indemnity. Public Citizen outlines some of Pfizer’s draconian terms here.

We do believe that Merck’s decision to make the agreement with MPP is consistent with our proposal request. We now hope that Johnson & Johnson, Pfizer, Moderna, and so many other pharmaceutical companies follow Merck’s lead and make these lifesaving medications available broadly through mechanisms like the MPP and to do so in terms that are transparent.

Connecting faith and finance for 50 years, ICCR had a hand in the early years of the Medicines Patent Pool. The MPP, established in July 2010, in response to the global HIV/AIDS epidemic, had difficulty acquiring commitments from pharmaceutical companies. In February of 2011, ICCR hosted a multi-stakeholder roundtable including representatives from the MPP, leading pharmaceutical companies, NGOs such as Doctors without Borders and Oxfam, as well as intergovernmental organizations like the World Health Organization, to explore and work through some of the barriers to entering the patent pool. In response to investor encouragement, Gilead Sciences became the first company to join the MPP in 2011, sharing licenses with generics manufacturers for its vital HIV and Hepatitis B drugs. (To learn more, read this report.)

For more information about the Merck-MPP agreement, please, read the ICCR press release here.

Barely Building Back Better

All eyes and ears are open to learn what might be cut next from the Biden Administration’s Build Back Better Plan. News reports are fast and furious with the latest hints that come out of the room where it happens. The social policy bill initially set at $3.5 trillion is being cut to under $2 trillion resulting in a debate over what can be cut out and not be missed, and what can be decreased and still make an impact. 

This isn’t however, just about the top line cost decision, though it is being presented that way by the media. The impact on real people and society cannot be separated from this price tag. The focus has been on the cost of the bill if it passes rather than the cost to society if this doesn’t pass. 

The bill includes policies for child tax credits, paid family and medical leave, lower childcare costs, lower higher ed costs, lower prescription drug prices, clean energy and electricity, forest management, penalties for methane leaks, and programs for the formerly incarcerated, among others. Corporations are actively lobbying against the bill, in opposition to increased corporate taxes, expanded Medicare, and fees for carbon emissions. Yet businesses admit that they will benefit from the childcare, healthcare, education and climate provisions in the bill. One Senator remains firmly against the clean electricity provisions in the bill, despite the fact that his state of West Virginia is the most vulnerable to flooding due to climate change (The Daily, Oct 20, 2021). Another Senator opposes any corporate or income tax rate increase yet voted against those Trump-era tax breaks in 2017 (MSNBC, Oct 21, 2021).

SGI members had an opportunity to discuss the Build Back Better plan at our fall meeting. We discussed how SGI’s priorities align with the proposed plan and asked “if you were in Congress and had to make the decision, what would you cut from the bill?” It is not an easy question to answer, nor were we necessarily looking for our members to have the answer. Rather, we wanted our members to better understand the impact this bill could have on families, society, and the climate crisis. 

Rev. Dr. Liz Theoharis put it simply when addressing attendees at our annual conference: “we have to restructure our society around the needs of the poor.” If we created this divide and allowed poverty to exist, we can restructure the economy to get rid of it. This bill, if not cut to mere scraps, could have a significant role in doing just this. 

SGI members disagree that the U.S. can’t afford the bill, and believe that the positive impact would far outweigh the monetary implications that are being argued over. This seemingly endless debate is a balancing act: weighing the impact of social safety against climate change. Paid family leave and child care, which are ways to address poverty, would make for better employees and thus be good for business. And, at this point in the game, one would think that the climate crisis should speak for itself. However, ironically, the US and 14 other countries are pledging to increase fossil fuel extraction over the next decade. 

This is all to say that the challenges the Build Back Better Plan hopes to address are not going to disappear and will only get worse. 

As investors, SGI members are engaging companies on many of these issues, stressing the importance of climate action, paid family leave, affordable drug pricing, responsible lobbying, etc. They see the importance of putting dignity to workers and individuals first and are asking companies to do the same. But we also know that these voluntary actions are not enough. It’s time for our elected officials to stand up.