Against the rosy backdrop of recent market gains lies the cold reality that with the reopening of the economy comes an end to the brief respite from polluting cars and factories. The long-term effects of this pollution are more visible than ever before. California and the West Coast are once again under siege from wildfires, leaving many choking on dense toxic smoke, while skies across much of the country fill with a smoky haze. The northern Hemisphere recorded its hottest summer on record,i while slow moving hurricanes are slamming the Gulf Coast. A vast chunk of ice 50 miles long and 12 miles wide broke off from Greenland, accounting for two-thirds of the total loss that ice shelf has seen in the last 20 years. And that was just in September!ii
To add insult to injury, now we find out that socially responsible investing has come under assault from the Trump administration. Recently rules have been proposed limiting access to sustainable investments in retirement accounts. Last month the SEC also voted to severely raise the hurdles for shareholder advocacy, making it harder to hold companies accountable for their bad actions. These new rules serve not only to raise the number of shares one needs to own in order to put forth a resolution, but they also increase the overall shareholder support necessary to qualify for resubmission. In addition, the rules prevent smaller shareholders from banding together to meet these increased hurdles. We view this as a ploy by corporate America to hinder the ability of responsible investors to evoke progressive change.
The rules were backed by the deceptively named “Main Street Investors Coalition”.iii Their purpose is to make it more difficult for regular shareholders to participate in corporate governance. It turns out the coalition was a totally fictious grassroots organization funded by the National Association of Manufacturers.iv The result is a group using potentially millions in shareholder money to claim that it is too costly to consider initiatives made by those very stakeholders. We believe what they are truly afraid of is the increased level of transparency that shareholders are demanding through advocacy, especially around the environmental impact of corporate practices. The group was against the fact that corporations are increasingly being forced to promote environmental, social and governance issues like climate change, gun control and employee diversity.v
The stated rationale for these changes was that resolutions appearing on company proxy ballots year after year are burdensome and unjustified. We view it as just another example of large corporations attempting to continue their nefarious ways, further cloaking them from the light of day. If allowed to continue it will inhibit the flow of information. This is what the bad actors really want – to obfuscate and confuse, to prevent anyone from grasping how bad their policies are.
Companies often claim that the initiatives pushed by shareholders around ESG metrics prove costly and hurt the performance of the company’s bottom line. The facts seem to differ - Harvard Business School ran a study that indicated if you invested a dollar 20 years ago in a select portfolio of public companies focused just on growing their businesses, that dollar would’ve grown to $14.46. But if you’d instead invested that same dollar in a portfolio of companies that focused on the most important environmental and social issues while also growing their businesses, that same dollar would’ve grown to $28.36.vi Recent performance of ESG investments seems to further validate this thesis, as ESG strategies have outperformed on an absolute and risk adjusted basis.vii However, it is important to remember that past performance is not a guarantee of future results.
Now more than ever remains a time to rise and fight the powers that have ill intentions towards sustainable ideals in order to further line their own pocketbooks. One of the best ways to accomplish this is to “vote” on their corporations by withholding the investment money they cherish. The disparity in investment performance between sustainable companies and bad actors seems to indicate that we are gaining traction. We must keep up the fight!
As always, with our portfolios we strive to invest in ways that not only match or exceed market returns, but advocate for a cleaner, fairer and more just world. If you, or someone you know would like to join the divestment movement and align your investments with your core values, please do not hesitate to reach out to us.
This blog post represents the opinion of Amalgamated Bank.
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vi Serafeim, G. (2014). Turning a Profit While Doing Good: Aligning Sustainability with Corporate Performance. Brookings Institution. Khan, M. Soon, Serafeim. (2015). Corporate Sustainability: First Evidence on Materiality. Cambridge: Harvard Business School.