We finally get to take some victory laps! After years battling the previous administration, we are finally seeing executive branch actions that roll back its archaic rules and guidance that clearly benefited corporations and not investors.
The Securities and Exchange Commission (SEC), for example, recently issued new guidance addressing the criteria by which shareholders may submit proposals to the ballot for a shareholder vote. The guidance restores the original intent of the shareholder submission process in order to reduce the subjectivity of SEC staff interpretations, which typically blow in the political winds depending on which party controls the executive branch.
Fifty years is a long time to be active in any field. For Tim Smith, his five decade career has been defined by leadership in the socially responsible investment industry. Smith co-founded the Interfaith Center on Corporate Responsibility (ICCR), which is celebrating its 50th anniversary this year, in 1971 and served as Executive Director from 1976 to 2000. The Episcopal Church, one of its members, was the first organization to file a shareholder resolution with a corporation; the resolution to General Motors in 1971 addressed its investment in South Africa’s apartheid regime.
Natural Investments plays a proactive role within our industry by facilitating positive economic, social, and environmental change. One of the ways we push for the transformation we want to see is through shareholder engagement with companies, as well as advocacy with elected officials and federal agency commissioners on matters of public policy.
Despite the pandemic and ensuing economic crisis, socially responsible investments (SRI) have received higher inflows of capital in 2020 than in any other period of American history. That’s right: investors have poured more than $21 billion into 300+ publicly available domestic SRI funds, well before the year’s end. All told, investors have already purchased more sustainable investments in the first half of this year than in all of 2019––a year that had already seen inflows that were a whopping 4 times higher than any previous year.
Natural Investments is involved in a range of efforts with our industry colleagues that facilitate positive economic, social and environmental change, including shareholder engagement with companies and public policy advocacy. Natural Investments regularly engages in corporate and political advocacy to protect ecosystems, defend human rights, and advance racial and economic justice. In 2019, we participated in more than 30 environmental, social, and governance activities on behalf of investors on issues ranging from gun violence and shareholder rights to climate change and reproductive rights.
2019 Social Impact Report
We’re witnessing a watershed moment in history that will redefine the parameters of our global economic system. The traditional capitalists who created this system believe the sole purpose of business is to make money regardless of the cost to our environment, people, or the rule of law. This short-termism ignores the consequences of corporate practices and favors regulatory policies that benefit the largest businesses (as well as the politicians who depend on them to preserve their power).
Yet the harmful effects of systemic self-interest have become increasingly obvious—from inequality, exploitation, and injustice to the collapse of natural systems—spurring a movement of people around the world who want business and government to address these problems and raise operational expectations for business.
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:
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
Earlier this month, Salon ran a hefty excerpt of Barry Eichengreen’s new book, “Hall of Mirrors: The Great Depression, the Great Recession, and the Uses—and Misuses—of History,” which examines the ways that Wall Street managed to minimize the structural and regulatory changes that many had hoped would follow after the near-collapse of the financial system.
This excerpt focuses on comparisons between the political and regulatory response in 2008 and those taken after the Great Depression; while Eichengreen clearly feels we fell far short this time, he also tells the tale in a way that helps make sense of some of the factors—beyond Wall Street power-plays—that contributed to the lackluster response. He notes that several of the proposed banking reforms were vehemently opposed by smaller community banks, which apparently felt that their smaller operations would be overly burdened by new requirements aimed at cooling the excesses of banking giants. And he looks closely at many of the particular elements of what he calls “Obama’s competent response,” acknowledging the fiscal and political constraints that stood in the way of some of the more vigorous proposals to ease the burdens of homeowners and Main Street.
The whole piece is worth a read; this concluding paragraph captures its essence:
The experience of the 1930s suggests that radical reform is possible only in the wake of an exceptional crisis. Absent that crisis, business as usual remains the order of the day, and radical reform that threatens to disrupt such business is ruled out. An exceptional crisis halts such business for a time. The problem starting in 2009, if it can be called a problem, was that policy makers managed, just barely, to prevent a 1930s-style crisis. There was still business as usual to conduct. Radical reform that interfered with customary banking practices could be criticized as jeopardizing the recovery then slowly getting underway. This left only strengthening the existing system, as opposed to replacing it. And the incremental nature of the reform process, which unfolded slowly as new rules implementing Dodd-Frank directives were proposed by the regulators, allowed concentrated interests, notably the bank lobby, to re-form and mobilize in opposition.
Following up on our earlier coverage of the long process of rule-making that has been going on since the passage of the Dodd-Frank financial reform package, two recent articles caught our eye.
In the first, a Wonkblog interview with Sheila Blair, the former director of the Federal Deposit Insurance Corporation, we get an informed look at how the reforms are likely to play out in the banking industry. Blair offers some refreshing clarity about the ways that the emergency financing available from the FDIC going forward will be very different than the bail-outs we saw in 2008, as well as some realistic discussion of the challenges of applying domestic fixes to a banking economy that is clearly global.
The second is an article in The American Prospect, which provides a bit of a primer (and many outgoing links to other articles) on recent developments. While noting the widespread concern about Wall Street lobbyists watering down Dodd-Frank behind closed doors, this piece raises concerns about the swing vote on the Commodity Futures Trading Commission’s 5-person governing team, Democratic appointee Mark Wetjen, who has sided with the two Republican appointees on some key 3-2 votes about new rules, and may be in line to be the new chair of the CFTC. It’s very “inside baseball,” but if you like that sort of thing, it’s worth a read.
BONUS: For the extreme policy geeks among you: a long, detailed piece from the Washington Monthly (published in March) goes deep into what it calls “the seventh circle of bureaucratic hell” of Dodd-Frank rule-making. Great stuff.
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