The CHOICE Act is the Wrong Choice

With all of the chaos happening in Washington, DC it can be hard to keep up with everything that is changing. While your advisors here at Natural Investments stay up to date on a wide variety of policy issues, we particularly want to highlight a bill that would have a large impact on our industry and our ability to advocate for social change.

Earlier this year Republicans in the House introduced HR10 The “CHOICE” Act. CHOICE stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, but in simple terms this bill is a massive give-away to large Wall Street firms. It destroys much of the regulatory framework put into place under the Dodd-Frank reforms. And, most disruptive to socially engaged investors, it puts limits on the shareholder activism work that is so critical to our ability to impact change at the businesses we invest in on your behalf.

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Policy Priorities for a New Administration

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:

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Quakers and SRI: Some Historic Perspective

Quakers are often given credit for being pioneers in the formative era of Socially Responsible Investment. As I was reading an array of early SRI publications, it was easy to see that Quaker traditions and practices have played an important role in this movement’s history. While you may not have the same faith as the thinkers and authors quoted here, the lessons and insights are applicable regardless of your spiritual background or belief.

When we remember that many of the concerns we are trying to address through our investments are global issues (climate change, deforestation, gender equity and LGBT rights, supply chain/human rights, etc.), it becomes even more important to broaden our understanding. While Quakers come from the Judeo-Christian tradition, universalism is a commonly held belief among Friends, as Quakers are often called. There is diversity among Quakers, and an openness and curiosity about others is central. As Tom Head wrote in Envisioning a Moral Economy, “To study well the other faith traditions through which all humankind knows and experiences the sacred is especially important in our era of globalization.” (Footnote 1)

Quakers are one of the three historic Peace Churches, believing there is “that of God” in all people. This has inspired a strong history, still continuing today, of social justice advocacy on pressing topics of the day, from slavery to women’s rights, prison reform, and armament issues. As early as 1688, Quaker meetings in the United States were corresponding and discussing the ethical issue of profiting from the slave trade, and in 1758 the Philadelphia yearly meeting unanimously issued a proclamation forbidding its members from participating in the slave trade.

Could you imagine a church/mosque/temple in 2017 forbidding its members to profit from the fossil fuel industry? Or forbidding its members from investing in and working with predatory or discriminatory financial institutions?

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Natural Investments’ 2016 Social Impact Report

Our commitment to positive change is reflected in our advocacy, how we operate the company, and the 1% of gross revenue that we donate to worthwhile local and national charitable organizations. Our commitment to evolving corporate behavior revolves around our shareholder advocacy efforts, while our passion for protecting citizens from harm is embodied in our public policy efforts with regulators and Congress. This report includes examples of our work in 2016.

Download the NI 2016 Social Impact Report (PDF)

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Good Cop, Bad Cop and Shareholder Engagement

Did you know that “good cop/bad cop” situations can be found in the social investing world? “Good cops” are those that listen, cultivate understanding, and develop relationships in order to resolve a situation. “Bad cops” work to resolve the same situation through confrontation and pressure. They aren’t bad in the conventional use of the word; they just aren’t necessarily nice. They draw harder lines. Good cops and bad cops can both get the job done. And when working toward the same goal, they make a powerful impact.

In social investing, both approaches are useful in pursing the goals of shareholder engagement. The good cop meets corporate officers at the table where policy decisions are made. The bad cop may instead call for divestment or separation from offending corporations. Both are educating, leading, and moving us toward an economy that is sustainable and just.

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The Progressive Investor’s Action Guide for the Next Administration

Now that the 2016 presidential election is in the history books with a shocking outcome that few foresaw, the rough outlines of the next few years are starting to become a little clearer. We can reasonably expect a federal government with less interest in protecting voting rights, reproductive rights, and civil rights of historically disadvantaged and targeted communities such as immigrants, Muslims, LBGT people, disabled people, and people of color. We can also expect more interest in increasing fossil fuel production and distribution, stirring up international geopolitical conflicts over trade, territory, and resources, and lowering corporate taxes, among many other priorities. With our values and ideals—and for some, our lives—under what’s likely to feel like a constant siege, it’s natural to react emotionally with outrage or despair. And while it’s important to vent, we must not allow ourselves to be paralyzed into inaction or satisfied with mere talk! This is a moment that calls for us to activate our resources and engage our communities, not just to defend against potential losses, but to build on the gains of the last eight (and more) years. You, dear investor, are in the advantageous position of having resources that can be mobilized to help catalyze much-needed outcomes. With that in mind, here is your action guide for the next administration.

Step One: Lift up communities by investing in them. Lend your money to Community Development Financial Institutions (CDFIs) that specialize in redistributing access to wealth to vital projects in vulnerable communities. For example, investors nationwide can open a High Impact CD at Hope Credit Union, which serves formerly under-banked communities of color in the Mississippi Delta region. While the Standing Rock Sioux blockade of the Dakota Access Pipeline highlights the myriad of challenges that Native Americans face, First Nations Oweesta CDFI is actively redeploying investor capital to create jobs, grow businesses, and secure ancestral lands across Indian Country. The Calvert Foundation offers two initiatives that invest in specific constituencies targeted by the incoming president: Latinos (the Raíces Investment Initiative) and women (the Women Investing in Women Initiative: WIN-WIN). Self-Help Credit Union and Beneficial State Bank take federally insured deposits and reinvest them in affordable housing and small business loans in low-income neighborhoods that are otherwise unlikely to benefit from the new regime. Seek out CDFIs doing similar work in your city or region. And help build a thriving economy right where you live by buying local and investing in local small businesses and nonprofits that you know.

Step Two: Fight climate change by investing in the ongoing green revolution.

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Conversations from the 2016 Social Capital Markets Conference

In mid-September, I travelled to San Francisco to participate in the annual Social Capital Markets conference known as SoCap. In its ninth year, SoCap describes itself as the place “where the global community using business as a force for social change gathers to listen to each other, and to learn, and to get things done.” I last attended SoCap three years ago, and was pleased to see how much the event has grown and evolved in that span of time. There were over 2500 people in attendance, from 60 different countries. They represented impact investment funds, international community development organizations, regenerative agriculture projects, and social enterprises, all focused on addressing critical issues like global poverty alleviation, social justice, and climate change, and the conversations were inspiring. Important questions were asked, and moving calls to action were made.

As we’ve seen Impact Investing begin to move dramatically into the mainstream, I was heartened to hear SoCap bring to the fore the priority of ensuring that the social and environmental goals at the heart of Impact Investing don’t become overshadowed by the drive of the extractive economic model currently dominating our financial system. With a huge focus on inclusive strategies for investing, there was deep attention given to addressing racial and gender inequities within our capital system, and how to transition from an Extractive Economy to a Regenerative one.

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Hey, get that oily mess out of my money!

A rapidly increasing segment of the investment world is coming to the realization that not only is carbon pollution putting our planet’s future at risk, but that the big energy extraction companies are dragging down the returns in their portfolios. Oil is not well on the energy investing front!

The fossil fuel divestment movement is coordinated by Bill McKibben’s 350.org and members of US SIF (The Forum for Sustainable Responsible Investment) to encourage universities, endowments, and family of ces to implement divestment strategies. Divestment is often implemented by selling off (or just not buying) stock in the Carbon Underground 200. CU200 consists of the companies that own the largest untapped reserves of fossil fuels. The idea is that this coal, oil, and gas needs to stay where it is to avert climate catastrophe.

Divestment historically faced fairly stiff headwinds from money managers and trustees. They claimed that univer- sities, foundations, and individual investors would suffer if they forgo investment in coal and oil companies that were once solidly performing stocks. Recent analyses cause us to question those claims. In fact, the new information is being taken to heart by investors. According to GoFossilFree.org, 629 institutions with a total of $3.4 trillion have committed to full or partial divestment, including seventy colleges and universities, 128 foundations, and 111 cities and towns, and they’ve been joined by over 50,000 individual investors.

Divestment probably doesn’t make much of a dent in the wallets of fossil fuel companies, some have asked, so why bother? Yes, but the movement is not naïve to the deep pockets of these companies.

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SEC adds key disclosure requirements

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

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The IRS and Department of Labor Encourage SRI!

Victory! After seven years of delicate but persistent advocacy to the U.S. Department of Labor, one of the key policy priorities for US SIF: The Forum for Sustainable and Responsible Investment has been accomplished.

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.

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