Sustainable, Responsible, Impact Investing

Sustainable, Responsible, Impact Investing: Part 2

Sustainable, Responsible, Impact InvestingThis is the second in a multi-part series on the 25th annual SRI Conference on Sustainable, Responsible, Impact Investing held November 9–11, 2014 at The Broadmoor in Colorado Springs.

See also Video Friday: What is Sustainable, Responsible, Impact Investing?Violating Indigenous Peoples’ Rights Increases Industry Risks, Surveys: Nonprofit Board Members & SRI 2014 Conference AttendeesSustainable, Responsible, Impact Investing: Part 1. The Agenda page of the Conference site now has links to video, audio and presentation slides. 

George Gay

George Gay

Will the Part-Time Recovery Continue?

We were welcomed to the conference by George Gay, the CEO of First Affirmative Financial Network. George is a big hugger and embraced nearly everyone who set foot on the stage. He and Steve Schueth make quite a pair. Their efforts are greatly appreciated.

Mel Miller

Mel Miller

Mel Miller, Chief Economist, First Affirmative Financial Network, started us off with his assessment of the state of the economy.

2014ForecastReal median income lower than when we started the conference. 25 years ago. He apparently came fairly close to hitting the numbers (his predictions) from the last conference. Not many economists are happy to share their predictions from a year ago.

Manufacturing job numbers are the same as 1933. The service sector is now getting automated. (see my coverage of Pay it Forward for the World of 2025).

We are now past the average recovery period since WWII, yet the economy still looks weak. The spread between junk bonds and investment grade bonds is still narrowing (that’s good). Chicago Fed National activity indicator stable. Spread of yield curve going up slightly. Economy is strengthening.

2015ForecastLabor metrics. Household incomes on decline. All the lost jobs since the Great Recession have been replaced… but with lowering paying jobs. Underemployment rate has dropped to about 12% but won’t reach 9% until about DeleveragingOctober next year.  Current labor situation is that there are a lot of part-time jobs. Quality is down.

Consumers have deleveraged from 14% to 9.9% household debt. Completed?

Unwinding the bonds generated during quantitate easing will be hard. Historic P/E ratios. No better than fairly valued at this point. Needs to be driven by earnings growth. Next year’s P/E ratios may be lower based on earnings growth of 4.7%. Expects stock market returns of 6-10%. No place else to put the money to earn more than inflation. 80% of Czech Republic doesn’t want to join Euro – they’re doing well… unlike EEC’s southern tier.Mel Humor

Corporate bonds might collapse, too many variations. No trouble getting in but trouble getting out. Lack of transparency. Euro crisis revisited. Mel had a lot of charts and graphs… humor too. (click image to enlarge) All I can say is that it was very informative. Come see and hear for yourself next time.

Understanding the Impact of Engagement

Sonai Mahida

Sonai Mahida

Sonal MahidaUNPRI 1200 signatories Active owners, seek appropriate disclosure. 70% undertake engagement directly or through service providers. Much more engagement than divestment. Engaging collaboratively.  2006 study Returns to Shareholder Activism: Evidence from a Clinical Study of the Hermes U.K. Focus Fund found abnormal net WhyEngage?return 4.9% more. (Maybe engagement pays better than stock picking?) 2012 study of US companies involved in fighting(?)  climate change by F&C outperformed 1.8%/yr.

PRI has some staff led engagement. Research – investor group – further dialogue – escalation phase. Clearinghouse platform for collaboration. Investment managers (most), asset owners, service providers. 420 investors involved in 500 projects.

Josh Humphreys

Josh Humphreys

Josh HumphreysCroatan Institute nexus of sustainability and finance. Together with the multi-stakeholder Impact of Equity Engagement (IE2) initiative, Croatan Institute released a new report. The report, The Impact of Equity Engagement: Evaluating the Impact of Shareholder Engagement in Public Equity Investing, found that investors often engage in the proxy process, dialogue, public policy advocacy, and assertive action. However, no standard method exists to date for demonstrating the impact of these activities. Says Humphreys,

Investors are increasingly interested in generating social and environmental impact in addition to financial returns, but many simply don’t think you can have much impact by investing in publicly traded companies. Our analysis highlights the multiple ways that investors can make a difference by engaging with corporations, and the new reporting framework that the IE2 initiative has developed will provide an important foundation for documenting this impact.

They are interested in collaborating with investors willing to document every step of engagement from proxy process (formal filing), dialogue (directly or indirectly), policy (influence governmental relations), assertive action (legal action or campaign to pressure change), etc. Most impact investment aimed at private. Shifting now to also include publicly traded companies. Difficulty in tracking. Developing reporting framework tool to track in a systematic way. Specify ultimate objectives and then measure activities made at specific companies. Specifies relative role in collaboration. 1. Collaborate not just with investors, but with civil society. 2. Do it in a sustained way. Series of tools to analyze engagement. What’s working, not working. Will be integrated with PRI reporting. Determine highest impact opportunities. Alpha testers needed. Then develop app.

DavidSchilling

David Schilling

David Schilling – ICCR’s impact through engagement. 300 organizations $100 billin invested capital. Engaging hundreds of multination corporations.

1. community raises concerns, 2. community brings to ICCR, 3 ICCR member brings issue to attention of management as concerned investors, 4. Corporates agree to engage, 5 Dialogue with relevant stakeholders, 6. Collaboration of parties in finding effective solutions and addressing impact.

Showed a hierarchy of impact. Get the company to acknowledge and eventually develop benchmarks and demonstrate positive impact.

Got Archer Daniels Midland to adopt a commitment to respect human rights – no passport retention, fees that must be paid by job-seekers, etc. Agreed to meet with ICCR members quarterly. ICCR Bangladesh Investor Initiative. – Multi-stakeholder accord signed by 200 investors from 12 countries with $4T.

Mark Regier of Praxis Mutual Funds – Exciting examples of models. Outside in and inside out. Relationships between stakeholders.

Tools will allow investors to focus. Lots of multi-stakeholde initiatives. Rana Plaza – labor led. Tomato pickers in Florida. Open versus closed dialogue. Allow user to toggle reporting on and off. Tool is for the investor, not public. Confidential – can be private but they can toggle it to make it public. Cloud-based online data (anonymized for academic research). 

Random Notes

Steve Seth quoting others: “Don’t confuse the fringe with the frontier.”  “A picture may be worth a thousand words but Experience is worth a thousand pictures.”

Gloria S. Nelund discussed TriLinc Global. Most of her clients are interested in earning a reasonable return but they see SRI impact is a a very nice bonus.

Trillium sponsor of party on Tuesday night. Merger with Portfolio 21. New campaign on fossil fuel free portfolios 350.org, Green Century, Trillium releasing new report. Extracting Fossil Fuels from your Portfolio.

Liter of Light video from the Philippines was an award winner.

Cello playing by Michael Fitzpatrick: Earth’s Call – very nice!

The Dance of the Blue Planet

Susan Avery, Woods Hole Oceanographic Institution used visuals to chart the oceans and atmosphere as a dance. Climate change is really ocean change. (the ocean is like the memory of our climate system)  Currents in the ocean mirror those in the atmosphere. Global winds and earth’s rotation help redistribute heat from the equator. Exchange, heat, moisture, momentum, energy.

Fate of human Co2 emissions. 9B tons of carbon: 46% to atmosphere, 29% to land, 26% to oceans.  90% of the heat is going to the ocean. It is giving us some time. Eventually, the ocean will be overloaded. Warming of the surface ocean has slowed but the deeper ocean is now warming. As the deeper ocean warms, changes will become more profound. As sea ice melts, the mass declines. Ice melting much more quickly than presumed. Showed us how warm currents are breaking through cold and running up fiords in Greenland, undercutting ice shelves. Ocean acidification. Growing oxygen minimum zones in the ocean. Gloom and doom. Argo floats needed to collect data.

Personal Observations

Is it my imagination or did the biological types at the conference present a picture of utter disaster, while the tech geeks said we have all the tools we need to prevent armageddon? Since I’m a human life-form, not a bionic, I’ll pay more attention to the biologists, even though investments in technology seem to pay. We live in a market economy. Traditional socio-economic systems were based on reciprocal relationships but market economies are generally impersonal in nature. As Milton Friedman once said, “In the great global market it is not necessary to know, let alone to sympathize with, one another.”

photo of James McRitchie, Publisher of Corporate Governance (CorpGov.net)

James McRitchie

Market relations are impersonal based on the ‘exchange of equivalents.’ An iPhone and jeans for me — food for you. Social ties seem to be constantly dissolving in the larger society (despite Facebook and SRI conferences). There are obvious physical limits to growth. 20% consume 83% of production. The other 80% can’t join us, at least not with the technology now in use.

However, maybe we need to be thinking a little more about how our socially constructed reality also frames social limits to change. What we seem to be missing is a shared image, necessary for any action of the type needed. The Internet and other bits of technology bring us a high degree of freedom as individuals but they also diffuse us into our own individual channels, while we remain dependent on infrastructures maintained by monopolists. I work for democracy and decentralized grids but I’m not sure we can wait until the waters are lapping at our feet before we all tackle ecological sustainability in a much more serious way.

We live in the best of times. Economic growth has led to a fantastic transformation. We are way beyond the agricultural revolution that allowed a small number of people to feed masses. The same occurred in manufacturing. The service sector is next. See Pay it Forward for the World of 2025. Yet, at the same time, growth threatens to destroy the Earth’s salubrious environment.

End of Part 2

, , , , , , , , , , , , , , , ,

Comments are closed.