by Hank Boerner – Chair/Chief Strategist – G&A Institute
February 23, 2017
Forward Momentum! – Sustainability 2017
Are you like many of us having sleepless nights and anxiety spells as you watch the antics of the Trump White House and the creeping (and similarly moving-backwards) effects into the offices of important Federal agencies that the Administration is taking over?
Consider then “other news” — and not fake news, mind you, or alt-news — but encouraging real news that is coming from OTHER THAN the Federal government.
We are on track to continue to move ahead in building a more sustainable nation and world — despite the roadblocks being discussed or erected that are designed to slow the corporate sustainability movement or the steady uptake of sustainable investing in the capital markets.
Consider the Power and Influence of the Shareowner and Asset Managers:
The CEO of the largest asset manager in the world — BlackRock’s Larry Fink — in his annual letters to the CEOs of the S&P 500 (R) companies in January said this: “Environmental, social and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth:
(1) sustainability of the business model and its operations; (2) attention to external and environmental factors that could impact the company; (3) recognition of the company’s role as a member of the communities in which it operates.
A global company, CEO Fink wrote to the CEOs, needs to be “local” in every single one of its markets. And as BlackRock constructively engages with the S&P 500 corporate CEOs, it will be looking to see how the company’s strategic framework reflects the impact of last year’s changes in the global environment…in the ‘new world’ in which the company is operating.
BlackRock manages US$5.1 trillion in Assets Under Management. The S&P 500 companies represent about 85% of the total market cap of corporate equities. Heavyweights, we would say, in shaping U.S. sustainability.
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As S&R investment pioneer Steve Viederman often wisely notes, “where you sit determines where you stand…” (on the issues of the day). More and more commercial space users (tenants and owners) want to “sit” in green spaces — which demonstrates where they “stand” on sustainability issues.
Consider: In the corporate sector, Retail and other tenants are demanding that landlords provide “green buildings,” according to Chris Noon (Builtech Services LLC CEO). The majority of his company’s construction projects today can easily achieve LEED status, he says (depending on whether the tenant wanted to pursue the certification, which has some cost involved). The company is Chicago-based.
This is thanks to advances in materials, local building codes, a range of technology, and rising customer-demand.
End users want to “sit” in “green buildings” — more than 40% of American tenants recently surveyed across property types expect now to have a “sustainable home.” The most common approaches include energy-saving HVAC systems, windows and plumbing. More stringent (local and state) building codes are also an important factor.
Municipalities — not the Federal government — are re-writing building codes, to reflect environmental and safety advances and concerns. Next week (Feb 28) real estatyer industry reps will gather in Chicago for the Bisnow’s 7th Annual Retail Event at the University Club of Chicago to learn more about these trends.
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Institutional investors managing US$17 trillion in assets have created a new Corporate Governance framework — this is the Investor Stewardship Group.
The organizers include such investment powerhouses as BlackRock, Fidelity and RBC Global Asset Management (a dozen in all are involved at the start). There are six (6) Principles advanced to companies by the group that including addressing (1) investment stewardship for institutional investors and (2) for public corporation C-suite and board room. These Principles would be effective on January 1 (2018), giving companies and investors time to adjust.
One of the Principles is for majority voting for director elections (no majority, the candidate does not go on board). Another is the right for investors to nominate directors with information posted on the candidate in the proxy materials.
Both of these moves when adopted by public companies would greatly enhance the activism of sustainable & responsible investors, such as those in key coalitions active in the proxy season, and year-round in engagements with companies (such as ICCR, INCR).
No waiting for SEC action here, if the Commission moves away from investor-friendly policies and practices as signaled so far. And perhaps – this activism will send strong messages to the SEC Commissioners on both sides of the aisle.
Remember: $17 trillion in AUM at the start of the initiative — stay tuned to the new Investor Stewardship Group. These are more “Universal Owners” with clout.
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Not really unexpected but disappointing nevertheless: The Trump Administration made its moves on the Dakota Access Pipeline (DAPL), part of the Bakken Field project work, carrying out a campaign promise that caters to the project’s primary owners (Energy Transfer Partners**) and other industry interests, S&R investors are acting rapidly in response.
The company needed a key easement to complete construction across a comparatively small distance. Except that…
- The Standing Rock Sioux Tribe says the route would cross their drinking water source, impact their sacred sites, and threaten environmentally-sensitive areas;
- would violate treaty territory without meeting international standards for their consent; (this is the 1868 Fort Laramie Treaty, which according to the U.S. Constitution, should be the supreme law of the land);
- and ignore alleged shortcomings in the required environmental review (under the National Environmental Policy Act – NEPA).
These are “abuses”, and banks and financial services firms involved may be complicit in these violations by the nature of their financing, S&R investors note. Their involvement in the project financing could impact their brands and reputations and relationships with society. And so S&R shareholders are taking action.
Boston Common Asset Management, Storebrand Asset Management (in Norway) and First Peoples Worldwide developed an Investor Statement to Banks Financing the DAPL. The statement — being signed on to by other investors — is intended to encourage banks and lenders to support the Rock Sioux Tribe’s request for re-routing the pipeline to not violate — “invade” — their treaty-protected territory. The violations pose a clear risk, SRI shareholders are saying.
The banks involved include American, Dutch, German, Chinese, Japanese, and Canadian institutions. They in turn are owned by shareholders, public sector agencies, and various fiduciaries — “Universal Owners,” we would say.
The banks include: Bayerische Landesbank (Germany); BBVA (Argentina); Credit Agricole (France); TD Securities (Canada); Wells Fargo; ABN AMRO (The Netherlands); Bank of Tokyo-Mitsubishi UFJ; and Industrial and Commercial Bank of China, and others.
The shareholders utilizing the Investor Statement say they recognize that banks have a contractual obligation with the respect to their transactions — but — they could use their influence to support the Tribe’s request for a re-route…and reach a “peaceful solution” acceptable to all parties.
As The Washington Post reported on January 24th, soon after the Trump Administration settled in, President Trump signed Executive Orders to revive the DAPL and the Keystone XL pipelines. “Another step in his effort to dismantle former President Barack Obama’s environmental legacy,” as the Post put it.
One Executive Order directed the U.S. Army Corps of Engineers to “review and approve in an expedited manner” the DAPL. Days later the Corps made their controversial decision, on February 7th reversing course granting Energy Transfer Partners their easement. This week the remaining protestors were removed from the site (some being arrested).
The sustainable & responsible & impact investment community is not sitting by to watch these egregious events, as we see in the Investor Statements to the banks involved. The banks are on notice — there are risks here for you.
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May be what is happening in the asset management and project lending activities related to the project is the IBG / YBG worldview of some in the financial services world: I’ll Be Gone / You’ll Be Gone when all of this hits the fan one day. (Like the massive Ogalala Aquifer being contaminated by a pipeline break. The route of the extension is on the ground above and on the reservation’s lake bed. Not to mention the threats to the above ground Missouri River, providing water downstream to U.S. states and cities.)
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Energy Transfer Partners, L.P: (NYSE:ETP) This is a Master Limited Partnership based in Texas. Founded in 1995, the company has 71,000 miles of pipelines carrying various products. The company plans to build other major pipelines — the Rover Project — to carry product from the shale regions (Marcellus and Utica) across the Northern U.S. state east of the Mississippi. ETP LP acquired Sunoco (remember them?).
Mutual Funds – Bond Holders – other key fiduciaries with brands of their own to protect — are funding the operations of ETP LP.
Brand names of equity holders include Oppenheimer; Goldman Sachs Asset Management; CalPERS; JPMorgan Chase. Bond holders include Lord Abbett, PIMCO, Vanguard. There are 567 institutional owners — fiduciaries — with some 45% of ownership, according to Morningstar. Partners include Marathon Petroleum Company (NYSE:MPC) and Enbridge (NYSE:ENB). (Bloomberg News – August 2, 2016 – both firms put $2 billion in the project and related work.)
The Partnership used to have an “Ownership” explanation on its web site — now it’s disappeared. But you can review some of it in Google’s archived web site pages here: http://webcache.googleusercontent.com/search?q=cache:http://www.energytransfer.com/ownership_overview.aspx&num=1&strip=1&vwsrc=0
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We are seeing in developments every day (like these above with non-governmental strategies and actions) that hold out promise for corporate and societal sustainability advocates and sustainable investment professionals that with — or without — public sector support, the Forward Momentum continue to build.
We’ll share news and opinion with you — let us know your thoughts, and the actions that you / your organization is taking, to continue the momentum toward building a better future…a more sustainable nation and world.
Out the Seventh Generation, as the Native American tribes are doing out in the American West in protecting their Treaty lands. In that regard we could say, a promise is a promise — the Federal and state governments should uphold promises made in treaties. Which are covered as a “guarantee” by the U.S. Constitution that some folk in politics like to wave around for effect.
FYI — this is Article VI: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land, and the Judges in every State shall be bound thereby…”
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