We have arrived at a watershed moment in US history, when the principles and practices of sustainable, responsible, and impact investing are finally becoming mainstream. The biennial report on U.S. Sustainable, Responsible, and Impact Investing Trends 2018 (the Trends Report), published by US SIF Foundation, reveals a 38% increase over two years in the assets under professional management that integrate environmental and social corporate governance (ESG) criteria. This means that currently, one in every four dollars under professional management in this country, or $12 trillion, is invested using ethical or socially responsible criteria.
Twenty years ago, SRI assets tallied just over $600 billion. The new data shows that assets have increased 18-fold since 1995—an astounding annual growth rate of nearly 14%.
The frontline battle over the limits of corporate power is turning into a full-fledged war, as the legislative and executive branches of the US government accelerate their push to deregulate companies and curb shareholder influence.
Shareholders like the ones we work with, of course, want companies to act responsibly and profit without exploiting employees, communities, and the environment. But we are up against corporations with an entirely different agenda— and with hefty lobbying budgets. In response to the sea change in Washington, socially responsible investors (SRI), including Natural Investments, formed the Shareholder Rights Group in 2016. Our mission is to defend the right of shareholders to engage with public companies on governance and long-term value creation. We hired attorney Sanford Lewis to
Carpenter Training Male Apprentice To Use Mechanized Saw
Socially responsible investing (SRI) is a diverse field with various aims, standards, goals, and objectives focused on sustainability, responsibility, and positive impact (SRI, again). The industry includes both corporate and community development dimensions and covers everything from startup innovation, international micro-finance, and ecosystem services to changing corporate policies and practices, advocating for regulatory and legislative improvements, and facilitating evolutionary shifts in the financial system.
As we pointed out in The Resilient Investor, we must embrace change on many levels—personally, locally, and globally—in communities, boardrooms, and nature if we are to adapt to a more complex and uncertain trajectory for human civilization.
While the media and conventional investors may be obsessed with the next tech IPO or tax breaks for major corporations, we keep our focus attuned to our long-term vision of a world in balance, and that includes careful consideration of how we can support the social and racial justice and regenerative environmental activity that will allow us to thrive in these turbulent times. In other words, when investors, including SRI proponents, are focused on exclusively on short-term growth—large companies merging and acquiring others and startups going public from nothing—we will fail to remedy the underlying social issues that stagnate the economy in the long term.
In nature, pioneer species are often the first to become established in a barren or disturbed landscape. With great tolerance for poor conditions, erratic weather, and isolation, these tough and hardy species manage to put down roots in cracks and rocks amid inhospitable, barren landscapes. They germinate and grow in these edges, eventually creating enough surrounding fertility to allow for new species to take hold, natural succession to occur, and a thriving ecosystem to emerge over time.
Permaculture principles like this guided Natural Investments founders Hal Brill, Christopher Peck, and I when in 2007 we decided to become co-owners of this firm dedicated to socially responsible investing. We decided to operate like a guild in nature, honoring the diverse skills, gifts, and traits of each person while focusing on cultivating beneficial relationships—thereby creating an adaptable, strong, and healthy organism through which we could thrive as people and as a company.
In 1990, there were just about a dozen pioneers of socially responsible investing (SRI)—mutual funds with about $200 billion engaged in responsible investing, the bulk of which were categorized as such for excluding tobacco or companies operating in South Africa from their portfolios. As this approach slowly gained steam, more businesses started to follow suit. We were among the first to attain B Corp certification 10 years ago, which recognizes the positive environmental, social, and governance policies and practices of companies.
We have intentionally designed and fostered our operations to be in alignment with the same principles of nature, including human nature. Our approach to decision-making is inclusive and consensual. We are organized as an autonomous collective, emphasizing freedom for each member within a collaborative framework of systems, protocols, and initiatives that benefit the whole. Christopher Peck and I oversee all operations of the firm, but we invite the entire group to discuss major decisions, including our investments, strategy, policies, procedures, and overall direction. Rather than micromanage our exceptionally capable advisors, we delegate and monitor, offering support as warranted. We are transparent about company operations, invite feedback and suggestions to help us course correct if needed, and invest time and energy into building a sense of community among us.
Our advisors share leadership by taking on initiatives and performing tasks for the whole. It’s clear that they do so out of a sense of responsibility for the firm’s overall success. A horizontal approach to organizational leadership isn’t always easy, but when people are regularly and actively involved, they are engaged and empowered. For those rare instances when we cannot reach consensus, we’ve introduced a voting process.
How we communicate with each other is also an important aspect of bringing our whole selves to our work. We make time to talk on an emotional level and connect our personal lives to our work. This creates a safe container through which people can not only share life’s joys but also feel comfortable bringing up sensitive topics or personal situations, building a support system in the spirit of community.
This year, we also saw a shift in ownership of the company. After 10 years of Hal, Christopher, and I owning and managing the company equally, Hal sold some of his stake to longtime advisors Malaika Maphalala, James Frazier, and Greg Pitts. They have stepped up with new ideas, energy, responsibilities, and perspectives, reflecting our company’s plan to cultivate leadership among all its members.
Our organizational experiment as an autonomous collective has been fascinating since the outset, and 10 years after forming our first ownership triad, it’s clear that this experiment is working well enough to warrant the next plateau of expansion. For when you plant a few trees and nourish their growth, it’s not possible to know what will happen to them. As we have witnessed their healthy roots and felt their strong trunks, and as we have branched out, the bountiful foliage and fruits of our labor are now being harvested. And this year, we began to truly grow a forest.
Recent catastrophes provide an opportunity to practice a future-planning mindset.
It’s obvious that significant Earth changes are occurring these days—in the past month alone, we’ve seen several major earthquakes, ravaging fires, devastating hurricanes, and torrential flooding. When we wrote The Resilient Investor a few years ago, we anticipated future volatility and uncertainty due to climate change and other factors, but we didn’t know how immediately prescient our insights would be. The September trifecta of superstorms in the Atlantic provided a stark reminder that as resilient investors, we must incorporate disaster mitigation, in addition to disaster preparation, into our financial analysis and planning—for there are few places in the world that will be truly “safe” from the impacts of climate change.
To this end, our top priority must be a bold adjustment in how we produce and consume energy. The good news is that businesses and local governments had already begun to take steps in this direction before our current, climate-change-denying Administration took power. In fact, despite a near-total absence of leadership by the federal government, Americans are on target to meet he 2025 CO2 reduction targets set by the Paris agreement (1800 million tons of CO2); by the end of 2016, we were halfway there. Carbon-based utility generation is down 25% already, ten coal plants are closing, and many states are setting aggressive renewable energy goals.
Last fall, NI Managing Partner Michael Kramer gave a 45-minute talk at a conference in his home state of Hawaii that offers an good introduction to socially responsible investing and our variation on the theme, resilient investing. It catches Michael in a relaxed setting, and it’s recently been posted at the conference website (or click through to see it embedded below). Their teaser includes some of their favorite quotes from Michael’s talk:
“We think investors have a right to know. We want to require the disclosure of political contributions. I won’t use Verizon because I know how much money they contribute to the conservative side of the political equation… Imagine if all companies were required to disclose that publicly then you would know that and could make a decision about whether you want to own that company.” (Timecode 21:40).
“We have not fixed hardly any of the problems that caused that financial meltdown eight years ago… It is still going on because the Republicans in congress want to treat the economy like the Wild West.” (Timecode 22:20).
In my role on the national policy committee of the socially responsible investment (SRI) industry’s trade association, USSIF: The Forum for Sustainable and Responsible Investment, we had a wonderful legislative priority document prepared in October for the new President. Like many others, we expected to have the opportunity to build on the many successes of our advocacy with the Obama Administration on a variety of issues to protect the public from systemic abuse by the financial industry, encourage wider adoption of SRI by fiduciaries, and facilitate investment in the green economy. For responsible investors, the Obama years were very encouraging indeed, and we at USSIF had an ambitious agenda ready to share with the Clinton Transition Team to expand on these victories for investors and the public.
Naturally with the election result, everything has changed, and we now find ourselves in a radically different political climate that demands a defensive stance to protect recent laws and regulations from being dissolved. When it comes to issues of importance to sustainable and responsible investors, the Republicans in Congress, long opponents of most regulations—especially relating to business and investing—now have an ally in a President who shares their belief in small and minimally intrusive government. That’s why within the first months of this Administration we’re already seeing efforts to unravel the reforms to the financial system that were established during the Obama Administration. They’ve already removed the Dodd-Frank provision that required companies to disclose payments (i.e., bribes) to foreign governments to extract fossil fuels and minerals from often-oppressive governments.
The Republicans have their pitchforks raised in outrage over a broad array of regulatory protections, and the fight is now on to:
After the election, I left the country. Many people had a similar instinct, but no, my doing so wasn’t out of disgust over the election results. It was planned long before, in response to an invitation to speak in Deauville, France at the annual global Womens Forum for the Economy and Society (also known as “Davos for women”). This was quite an affair: 1200 powerful political, business, media, and NGO women from around the world all focused on economic development and improving the status of women. The theme this year was “The Sharing Economy,” which as you know is an Evolutionary investment strategy in The Resilient Investor, so I fit right in despite being one of the only men in attendance.
The timing was good for my presence at the event—resilience is resonating well with people, not just because of global instability, but also because the current political situation, in particular Brexit and the American presidential election. There was even a “What America’s Choice Means for Women” panel at the event that featured Star Jones of The View and Leah Daughtry, the chair of the Democratic National Convention Committee, discussing the battles on the horizon.
So what does resilience mean in this political environment?
In yet another victory for Wall Street reform that the SRI industry fought hard for, the Securities and Exchange Commission (SEC) last month announced that it has adopted final rules to require companies that develop oil, natural gas, and minerals to disclose any payments they make to governments. These payments, often done in secret, can directly conflict with and hinder U.S. foreign policy interests and may expose shareholders to geopolitical risks that can directly affect share value. From an ethical perspective, the payments can also prop up oppressive regimes and dictatorships, which often use the payments to grow their leaders’ personal coffers while hindering the democratization of those countries.
The rules were one of many elements of corporate financial reform mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. The following year, President Obama specifically targeted resource extraction as an industry in need of greater international transparency.
Though the rules were initially written in 2012, the SEC was mired in legal challenges by the extraction industry and the U.S. Chamber of Commerce. As a result of a lawsuit, the U.S. District Court for the District of Columbia vacated the rule as originally written, but
In 2008, as President Bush was running for the hills, his Department of Labor issued guidance for pension plan fiduciaries that suggested that they should not consider non-financial factors in the investment selection and management process. The guidance had a chilling effect—mission-oriented fiduciaries managing assets for foundations, universities, and public pensions interpreted the guidance as a serious limitation on their discretion to consider the environmental, social, and governance analyses that are fundamental to an SRI approach.
Thankfully, Secretary of Labor Thomas E. Perez was amenable to our advocacy.