News From the Sustainability Front as The Trump White House Makes Controversial Moves on ESG Issues — Actions and Reactions

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…”

Important Perspectives – 1995 – Sustainability in Focus

by Steve Viederman – Fellow, G&A Institute

Introduction by Hank Boerner

In 1995, Stephen Viederman, then President, of the Jessie Smith Noyes Foundation, authored this thoughtful, forward-looking view of key stakeholders’ focus on sustainability and the quest for a more “sustainable world” — a topic of discussion that has grown in importance in recent years.. 

Steve Viederman is a respected pioneer and thought leader of the sustainable and responsible investment (SRI) movement.  We found his 1995 commentary compelling and certainly applicable today to the various public conversations going on about “sustainability.”

At the time of writing this article, Dr. Viederman was President of the Jessie Smith Noyes Foundation in Steve ViedermanNew York City. A historian by training, he has also held senior positions with the Population Council and the UN Population Fund.

Today, Steve is a Fellow of the G&A Institute and a valued advisor to our team.

Steve’s perspective on the importance of sustainability c 1995:

 

Knowledge for Sustainable Development: What do we need to know?A chapter from a “Sustainable World” By Stephen ViedermanOn January 17, 1994 a major earthquake rocked Los Angeles. That event, combined with chronic problems of water and air, underline the obvious: that Los Angeles presents a textbook example of technology and science winning out over common sense. This bears directly upon our concerns today: knowledge for sustainability.There are those who see sustainability as a problem of science. Harvard scholar and science statesman Harvey Brooks (1992) has written:“There is a need for a relatively value-neutral definition of sustainability that permits consensus among people with widely differing value perspectives and world views to agree on whether or not the objective criteria for sustainability have been met in any given development strategy or project, but without necessarily endorsing that strategy or project in terms of their value system. In other words, whether or not a given development path is sustainable should, in principle, be a scientific rather than a trans-scientific question . . .”Robert White, President of the U.S. National Academy of Engineering, has similarly argued recently that scientists are more capable of creating “rational” public policy than the public-at-large (White 1993).Sustainability is not a technical problem to be solved or an “uncertain characteristic,” as suggested by David Munro in his [article in this volume]. Sustainability is a vision of the future that provides us with a road map and helps to focus our attention on a set of values and ethical and moral principles by which to guide our actions, as individuals, and in relation to the institutional structures with which we have contact—governmental and nongovernmental, work-related, and other.

  • I have argued elsewhere that sustainability is a community’s control of capital, in all of its forms—natural, human, human-created, social, and cultural—to ensure to the degree possible that present and future generations can attain a high degree of economic security and achieve democracy while maintaining the integrity of the ecological systems upon which all life and production depend (Viederman 1993).

We must begin by recognizing that many of the problems that we face today, as Barry Commoner observed many years ago, are not the result of incidental failures but of technological and scientific successes. Witness nuclear power and the problems of agriculture. The problems of environmental justice are also products of technological successes, without comparable social and moral development.

Witness Los Angeles

Science can describe, with different degrees of precision, what is, and to a lesser degree, can help us to assess what can be. Science cannot tell us what should be, and that is the key issue of sustainability. Science is a form of know-how: it is a means without consideration of ends. It underlines the differences between knowing how to do something, and knowing what to do.

Many have argued for new thinking about science at different times in this century. Albert Einstein observed that “we cannot solve the problems that we have created with the same thinking that created them.”

Economist John Maynard Keynes remarked that “the difficulty lies not in new ideas, but in escaping from old ones.”

And Friedrich Hayek, in his Nobel address, noted the irony that economists of his time were being called upon to solve the very problems which they had helped to create. Each of these observations should become an internal guide for each of us as we think about the role of knowledge in sustainability.

With this as introduction, let us return to the assigned question: “What do we need to know?” It may not come as a surprise to you by now that I think that is the wrong question on at least two counts.

First, the problem of sustainability is not a problem of lack of knowledge. Focusing on “need to know” as an issue assumes that lack of knowledge is the problem and suggests that there is a cure—namely, more and “adequate” knowledge.

But as David Orr (1991) has correctly observed, “As important as research is, the lack of it is not the limiting factor in the conservation of biodiversity.”

The problems of sustainability are primarily problems of power, on the one hand, and political will, on the other hand. Debates over international whaling and wetlands in the United States reflect this.

These issues, however, go beyond the purview of the task assigned to me, so I will focus more on my second concern, which relates to the nature of science and the limitations that are encountered in addressing issues of sustainability.

Sustainability confronts us with a situation where, as Funtowicz and Ravetz (1991) have observed, “facts are uncertain, values in dispute, stakes high, and decisions urgent.” This is not a set of circumstances where conventional science excels, to say the least.

Investigator-initiated, peer-reviewed research, as suggested by the proponents of the U.S. National Institutes for the Environment, is not likely to be responsive to such circumstances.

The problems of sustainability are systemic in nature. In a system there are no byproducts, there are no side-effects, nor are there any externalities, all of which are rather products of too narrow a paradigm. In a system there are only effects and products. Conventional science reflects the narrower paradigm, however, and is, therefore, often ill-equipped to deal with issues of significance for sustainability. Again, investigator-initiated, peer-reviewed research is unlikely to deal effectively with the system issues.

What, then, do we need?

First, I think we need to restate the question to conform with one of the key principles of sustainability. This is the humility principle, which states that we should recognize the limitations of human knowledge. The question then becomes: What is our tolerance for ignorance and uncertainty in order to act in a timely fashion with the highest degree of certainty possible while avoiding harm and doing good in the short and long-term? That is what Ravetz (1986) has called “useable ignorance.”

Yes, there are immutable laws of nature. But despite the mythology of science, they are not always knowable to us, and most certainly not knowable—or rarely knowable—in the time frames necessary to right the wrongs of the past and prevent future harm. Yes, we humans are always dominating nature. We have no other choice, in many respects.

The issue is do we dominate in ways that destroy nature, such as is the case of conventional agriculture, or in ways that can contribute to sustainability, as organic and sustainable agriculture are assumed to do. Can we dominate without or at least while minimizing adverse repercussions? This brings us to another dimension of the knowledge base—economics, which is increasingly being recognized as part of the problem of sustainability.

There are no immutable laws of economics. Nor are there what Nobel laureate Paul Samuelson has called “inexorable economic forces.”

Economics and the economy are human constructs. The assumptions and assertions that are part of conventional economics are key issues that we need to address if we are to achieve sustainability. Among these are the mantra of growth; the assumption that rising tides raise all ships; that increasing national wealth effects distribution and equity within a country; that comparative advantage and specialization apply in an economy where capital is mobile; that the market can deal with all issues, including equity; and that competition is good and natural, in all cases.

The need for a new economics—an ecological economics—is clear.

Questions – What We Need to Ask

What then are some of the things that we might need to know to achieve sustainability, along the lines of the definition that I have offered above that includes economic security, democracy, and ecological integrity? This is clearly not a research agenda. Rather, my purpose is to suggest questions that I believe are quite different from those more normally asked.

  • How can we design an economy that honors economic security, democracy, and ecological integrity? What would an economy look like that goes beyond socialism and beyond capitalism?
  • What can be done, working with indigenous peoples to help them to preserve their lives and cultures, as well as their habitats?
  • Can we begin technology development and product design with the question of need foremost in our minds, rather than simply worrying about how to do it better and in a less damaging way, as important as that is? What is appropriate technology? Does “industrial ecology” really deal with the fundamental issues, or simply postpone the ultimate problem?
  • What are appropriate measures of work and wealth that value sustainability? Ponder for the moment that the word “asset” once connoted “having enough.” Can we move from “excessities” to necessities? How?
  • What determines the sustainability behavior of individuals and institutions, and how can it be encouraged? Finger (1993), for example, has completed empirical research in Switzerland that suggests that only environmental action, with values of equity and justice, lead to environmental behavior. Environmental experiences, linked to fear and anxiety and awareness about environmental problems do not appear to translate into environmentally responsible behavior. This runs counter to the usual suggestion that knowledge, values, and attitudes taken together create new behaviors.
  • How do we achieve a sustainable agriculture, one which includes sustainable communities? Is there such a thing as sustainable forestry? What are appropriate measures of production in agriculture and industry that reflect concern for sustainability? For example, why do we measure crop yields in terms of units of land, rather than in terms of, or in addition to, units of water used, land degraded, workers and consumers harmed, etc.?
  • How can we live in peace within and between families and communities and nations?

The Reversibility Principle

I would urge us all to add to the list, while recognizing that in many—in most cases—we sadly cannot wait for the answers. We must proceed with caution, respecting the two other principles of sustainability, beyond the humility principle already referred to. These are the precautionary principle: When in doubt (which, taken together with the humility principle, means most of the time) move slowly and think deeply; and, the reversibility principle: Do not make irreversible changes.

We must make clear our own values, assumptions, and assertions and demand the same of others, in terms of the problem definition, the scientist’s response, the methods and models used, and the policy climate. We must understand the politics of knowledge, and the political economy of science.

There are no knowledge products independent of institutional setting, financial support, scale, place, pace, and person. Fortunately, scientific bodies seem to be more accepting of this analysis now than has previously been the case, although the acceptance is far from universal.

Of particular importance is the recognition that much of the discussion of sustainability—all too often narrowly defined as ecological sustainability—has taken place in and is driven by northern elites. The South, no less interested in the concept of sustainability, has, however, spoken more of issues of poverty and inequity and justice. Only recently has there been a joining of the concerns.

But the northern paradigm of science still prevails. The prestige of southern institutions is still measured against a northern standard. Molecular biology is more highly valued than taxonomy as David Ehrenfeld (1989) has pointed out. As a result, what is taught, how it is taught, and what is researched all too often are designed to meet international standards rather than national needs.

Thirty years ago Ali Mazrui referred to African universities as multinational corporations rather than national institutions (Mazrui 1975). The same is still too often the case all over the South. I have serious doubts that this contributes to sustainability.

The northern tradition of science has generally failed to value indigenous and experiential knowledge. While this is changing among some groups of scientists, the change is slow.

Knowledge generation for sustainability also demands that we involve stakeholders in the process because sustainability is more than ecological or economic.

Sustainability is a statement of values

Sustainability  is a statement of values; in effect,  a vision of the future. Stakeholder involvement is also essential because, as I have noted earlier, “values are in dispute.” In a democracy, value dispute requires participation.

In speaking of science for sustainability, it is important to observe that the corporate world has been stating its support for environmentalism more and more frequently in terms of support for “good science” rather than emotion. I suggest that is a smokescreen for inaction.

The “good science” they want before they act—the exact answers to unanswerable questions—sounds good but is destructive. For example, the effects of the toxic soups that we are each exposed to by modern life cannot be assessed in a manner that reflects human variation.

We do need science and knowledge to address the realities of sustainability, but it will be a new science, an issue-driven science. It will not pretend to be either value-free or ethically neutral, although it will certainly need to remain objective and unbiased in its approaches and continue to be based on rigorous hypothesis testing.

The scientific enterprise in this new paradigm will have to accept the world as it is, rather than try to recreate it in ways that are more susceptible to its research needs. The circumstances that demand this new paradigm are worth repeating: “Facts are uncertain, values in dispute, stakes high, and decisions urgent” (Funtowicz and Ravetz 1991).

As a result, the new paradigm will focus attention on the qualitative assessment of the quantitative data available, recognizing that uncertainty exists. It will also extend the peer community involved in assessment to all stakeholders, as the only way to arrive at decisions that are both scientifically sound and politically tenable.

An “issue-driven” science would, therefore, begin with a problem orientation that is non-disciplinary or trans-disciplinary, recognizing at the outset that it is fraught with uncertainties. This distinguishes it from curiosity-driven science, where the effort is to minimize uncertainties.

In this respect, the new paradigm is “post-normal,” to differentiate it from the scientific paradigm that is now considered “normal.” The characteristics of this new paradigm will include:

·         Pragmatism and plurality. Tools and conceptual frameworks will be appropriate to the solution of the problem, rather than being limited by the tools and conceptual frameworks of a particular discipline.

·         Acceptance of uncertainty as a given. It is acceptable to ask questions about the real world that at present we do not know how to answer.

·         A focus on data quality rather than data completeness.

·         Use of a systems approach that is comprehensive, holistic, global, long-term, and contextual.

·         Explicit concern for future generations, sustainability, and equity.

·         A concern for dynamics, non-equilibrium, heterogeneity, and discontinuity.

  • Expression of social points of view, as well as individualistic points of view.
  • Concern for the processes through which the behaviors of individuals and institutions change.

I would like to close with two observations. First, history teaches us that we should expect the unexpected. We should, therefore, study history as part of the knowledge base for sustainability, as a constant reminder of humans’ incapacity to manage the planet.

Second, knowledge is obviously better than ignorance. But wisdom is even better. We should proceed with caution and humility, and try to avoid doing something that cannot be undone.

Notes:  The preceding is a chapter from T. Trzyna, ed. A Sustainable World: Defining and Measuring Sustainable Development. Sacramento and London: California Institute of Public Affairs and Earthscan for IUCN, 1995. Copyright © 1995, IUCN – The World Conservation Union.

 References 

  • Brooks, H. 1992. The concepts of sustainable development and environmentally sound technology. ATAS Bulletin 1(7): 1924.
  • Ehrenfeld, D. 1989. Forgetting. Orion.
  • Finger, M. 1993. When knowledge is inaction: Exploring the relationships between environmental experience, learning, and behavior. Paper available from author [as of 6/2006 at the École Polytechnique Fédérale de Lausanne, Switzerland, www.epfl.ch].
  • Funtowicz, S., and J. Ravetz. 1991. A new scientific methodology for global environmental issues. In Ecological economics: The science and management of sustainability, ed. R. Costanza. Columbia University Press, New York.
  • Hayden, G. 1991. Institutional policy making. In Ecological economics: The science and management of sustainability, ed. R. Costanza. Columbia University Press, New York.
  • Mazrui, A. 1975. The African university as a multinational corporation. Harvard Educational Review 45(2): 191210.
  • Orr, D. 1991. Conservation Biology.
  • Ravetz, J. 1986. Useable knowledge, useable ignorance: Incomplete science with policy. In Sustainable development of the biosphere, ed. W. E. Clark and R. E. Munn. Cambridge University Press, Cambridge.
  • Viederman, S. 1993. The economics and economy of sustainability: Five capitals and three pillars. Talk delivered to Delaware Estuary Program. Available from Noyes Foundation, New York.
  • White, R. 1993. Regulations shouldn’t be relics. Technology Review 96(4): 66.