Questions We Are Thinking About in the Midst of Major Disruption on Sustainable Investing Trends & Corporate Sustainability Journeys

by Hank Boerner – Chair & Chief Strategist – G&A Institute

As the global coronavirus pandemic continues to uproot our normal business, financial, economic and personal pursuits, questions that we could logically ask are…

(1) what impact does the virus crisis have on the ongoing corporate sustainability / ESG / citizenship efforts; and

(2) what is the investor reaction – does the move into more sustainable / ESG investment vehicles continue?

Some answers come from Sanghamitra Saha, of Zack’s, writing in Yahoo Finance – “Here’s Why ESG ETFs Are Hot Amid Pandemic”.

He begins by explaining that ESG investing has remained “hot” since the pre-outbreak period, and as Wall Street recorded its worst quarter overall since Q 2008, ESG ETFs appeared [somewhat] resilient to acute selloffs in Q1 2020. (Read, he says: “ESG ETFs Appear Unscathed by the Coronavirus Carnage”.)

These investment vehicles had US$8 billion-plus inflow in 2019, four times their total 2018 inflow. In the first three months of 2020 the flow into ESG Exchange Traded Funds was $6.7 billion — pushing total assets in such funds to $19 billion (only a bit less than the total in February 2018).

Several of these ETFs outperformed the S&P 500® and came close to the Nasdaq performance (which has been the hot place for returns in 2020, bouncing close to the 9000 mark as we write this).

What are some of the reasons for such outperformance even during the virus crisis?

The author shares perspectives from Morningstar and Bloomberg, and presents data on performance on some of the ETFs offered by Nuveen, State Street SPDRs, Vanguard, and iShares MSCI.

We’ve been seeing news and commentary about this trend since the start of the virus crisis as investors seek out what they consider to be more resilient, “safer” companies as packaged in the respective ESG ETFs.  What are public company managements doing to be part of this trend?

Mary Mazzoni, Senior Editor of Triple Pundit and Managing Editor of CR Magazine, shares news from the corporate sector in “Sustainability Isn’t Stopping:  Just Ask These Companies.”

The firms and the stories of their continuing sustainability journeys that she profiles include Bayer and Microsoft.

She begins by addressing the comments of business columnist John D. Stoll in The Wall Street Journal…that “several top companies are starting to put the brakes on their ESG programs due to economic strain…”

Pushing back in TriplePundit:  “Right now we’re all understandably consumed with the human suffering and economic strain posed by the pandemic…but we’re not convinced we’ll see a sunsetting of sustainability – and the eight corporate examples are just some of the reasons why…”

The two Top Stories present the two answers to the questions posed up top.  And throughout the collection in this week’s newsletter you’ll see other answers presented in slightly different form.

The good news from the G&A Institute offices is that our corporate clients continue with vigor and strong commitment on their respective sustainability journeys, even as operations are disrupted by the virus crisis.

Managers tell us that questions from their investors about sustainability, ESG and related issues continue to increase, and major customers continue to ask questions related to their own supply chain management.

2020 is a challenging year – and sustainable, resilient companies are stepping up to meet the challenges, setting a welcome pace.

Top Stories

Here’s Why ESG ETFs Are Hot Amid Pandemic
Source: Yahoo Finance – Environmental, social and governance (“ESG”) investing has remained a hot favorite among investors since the pre-outbreak period. Wall Street recorded the worst quarter to start 2020 since the fourth quarter of 2008. But ESG ETFs appeared somewhat resilient to acute selloffs in Q1 (read: ESG ETFs Appear Unscathed by the Coronavirus Carnage).

Sustainability Isn’t Stopping: Just Ask These Companies
Source: Triple Pundit – Over the weekend, a sustainability-focused Wall Street Journal article started making the rounds on social media. In it, business columnist John D. Stoll notes that several top companies are starting to pump the brakes on their…

And here’s some additional perspectives on the two questions to mull over:

Seven Ways To Make Business Truly Sustainable Post-COVID
Source: Forbes – We humans are a spectacularly resilient species. Wars, famines, plagues, economic crashes – we dust ourselves off and press on. So we will get beyond COVID-19. But is it too much to hope that, devastating as the virus’s effects…

Can companies still afford to care about sustainability?
Source: FT – Note — Please use the sharing tools found via the share button at the top or side of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy….

University Endowments – Fidicuiary Duties – Whose Money is it — What Are “Societal” Responsibilities?

by Hank Boerner – Chairman, G&A Institute

Many of our nation’s colleges and universities — which are “Social Institutions” — have long had established endowments. Some are truly wealthy — these are pools of assets designed to serve future generations.  Other types of  various types of social institutions” are similarly wealthy. Endowment assets are managed in-house or by outside professional money managers.   Over the years, the college and university endowments have been in focus for sustainable & responsible investors (SRI advocates) — as they are right now.

For example, Harvard University has an endowment fund reported to have  US$36 billion in Assets Under Management (AUM) — the largest of these “funds-for-the-future” of the higher education community in the USA.

The students and other stakeholders would like to see “more responsible” investing by the Harvard endowment, such taking the decision to divestment shares of traditional fossil fuel companies in the portfolio. (think: “ExxonMobil“). Among the arguments, gaining ground. including beyond the university endowments discussion, is that these public companies have “reserves” (such as coal, oil, natural gas) that are important parts of their capital markets valuation, and with climate change and the development of renewable fuel sources and other factors, the reserves on the balance sheet will over time become “stranded assets” – thus, devaluating the business enterprise. That is, the coal or crude oil in the gorund will not be harvested and sold…they will be stranded and of little or no value.  And therefore, as fiduciaries, responsible for the fund in the future, a collision course is set up:  the fund needs in 2050 will be diminished as the value of the corporate holdings moves downward.

And so, students of the Harvard Law School have filed a lawsuit seeking to compel the endowment fiduciaries (the trustees) to divest holdings in fossil fuel enterprises.  Interesting:  their case is based on 17th Century transactions (back when whale oil and wood were the primary energy sources).  In 1640, Harvard College was established as a seminary and documents were filed with the Massachusetts Bay Colony.  Under those documents, the 21st Century students argued that they had standing (to bring the action) under “special interest” provisions.

The endowment leadership responded:  “The endowment is a resource, not and instrument to compel social and political change…” (The New York Times). Harvard President Drew Gilpin Faust has spoken on fossil fuel divestment.  In October 2013, a statement to the Harvard community said in part:  “[I] and members of the Corporate Committee on Shareholder Responsibility have benefitted from conversations [with students] who advocated divestment…while I share their belief in the importance of addressing climate change, I do not believe, nor do my colleagues on the Corporation, that university divestment from the fossil fuel industry is warranted or wise…”

The president also said that “…especially given our long-term investment horizon, we are naturally concerned about ESG factors that may affect the performance of our investments now and in the future…”  Harvard policy is engagement and collaboration, rather than “ostracizing” companies based on their product (such as fossil fuels). The Harvard Management Company brought on a VP for sustainable investing. (You should  read the full statement here: http://www.harvard.edu/president/fossil-fuels to understand the university’s official position on these issues).

Alice M. Chaney, who with six other Harvard students filed the lawsuit to compel Harvard Corporation (the governing body of the university) to divest fossil fuel companies, said the following: “We allege that Harvard’s investment in those companies violate its duties as a public charitable institution by harming students and future generations.” (Cheney is a law school student and member of the Harvard Climate Justice Coalition.)

The students — organized as “Divest Harvard” — have been campaigning on the issue.  The first step was a survey of students in 2012 — 72% at the college and 67% at the law school voted in favor of divestment.  Since then 200 faculty members, 1,000+ alumni, and 63,000 community members have signed divestment petitions, the group says.

The legal arguments:  the Harvard Corporation’s public charitable obligations include managing its endowment so as to protect the ability of Harvard students to learn and thrive. The Corporation also has a responsibility not to act in ways that threaten the health and welfare of future generations. (You can read her statement at: http://billmoyers.com/2014/11/22/suing-harvard/)

The pressure on universities to divest holdings in companies based on ESG issues is a long-time tradition.  American university interests were deciding factors, I believe, in the American and global campaigns to abolish Apartheid practices in South Africa in the 1980s and the aid to combatants in the civil war in Darfur more recently.  (The drive was to get investors out of the stock of US companies “supporting” the Sudan government which was making war on its own populations.)

Beth Dorsey, CEO of Wallace Global Fund and leader of the Divest-Invest Movement, commented on the Harvard University leadership’s opposition to divestment:  “In the last great divestment campaign, Harvard said ‘no’ before it said ‘yes’ and I think if just a matter of time.  Unlike the anti-apartheid movement, this is not just an ethical issue.  There is a powerful financial reason as well…”

As the lawsuit in the Commonwealth of Massachusetts / Suffolk County courts winds on, and the Divest Harvard protests continue, half a world away, the world’s largest Sovereign Wealth Fund – the US$800+ billion AUM Norway Government Pension Fund — just announced it will divest holdings in coal mining companies.  the list of companies will be made public on December 1.  The SWF will not divest oil and gas companies.  (Consider: the wealth of the wealth fund is primarily based on taxes on the country’s North Sea fossil fuels.)

While you think about that last tidbit, consider that the descendants of John D. Rockefeller — the 19th Century Titan of Industry who assembled the giant Standard Oil Company — have decided to divest their fossil fuel investments (in September 2013)! Great and great-great grandchildren Peter O’Neil, Neva Rockefeller Goodwin and Stephen B. Heintz are in the lead for the Rockefeller Brothers Fund, which has $860 million AUM.

Said Stephen Heintz:  “John D. Rockefeller, founder of Standard Oil, moved American out of whale oil and into petroleum.  We are quite convinced that if he were alive today, as an astute business man looking out to the future, he would be moving out of fossil fuels and investing in clean, renewable energy…”   (More about this in The Guardian coverage of the announcement at: http://www.theguardian.com/environment/2014/sep/22/rockefeller-heirs-divest-fossil-fuels-climate-change)

The Rockefeller family announcement was an important part of a “momentum moment” for fossil fuel divestment proponents.  The influential World Council of Churches joined the divestment movement. American cities are adopting similar policies (as many did in the anti-Apartheid movement).  Advocates are working under the umbrella of the Divest-Invest Movement.  To date some 800 institutional investors have pledged to withdraw more than $50 billion in fossil fuel investment over the coming 5 years.

ExxonMobil’s position?  In October The Wall Street Journal headline read:  “Exxon Blasts Movement to Divest From Fossil Fuels…the oil giant seeks to counter the campaign…”  The article by Ben Geman said that the company published a “lengthy attack about the divestment movement, positioning the argument that [the movement] is at odds with the need for poor nations to gain better access to energy, as well as the need for fossil fuels to meet global energy demand for decades to come…” The author is Ken Cohen, VP for Public and Government Affairs (writing in the company’s blog.)

“Almost every place on the planet where there is grinding poverty,” he wrote, “there is energy poverty.  Wherever there is subsistence living, it is usually because there is little or no access to modern, reliable forms of energy.”

And so, the battle lines are formed — advocates vs. university, asset owners (and managers) vs big fossil fuel companies, institutions and fiduciaries (in Exxon’s view) vs. the people of poor nations.

The positions (and actions) of two important institutional investors could create a tipping point:  Harvard University (with considerable wealth, influence, prestige, powerful alumni, world-class faculty, a powerful publishing arm and on and on) and the Norwegian Sovereign Fund, which invests in literally thousands of public companies…and soon will have $1 trillion in AUM to leverage in pursuit of its social / societal issues policies and investment actions.

Stay Tuned to the Fossil Fuel Divestment Movement…and the push back by giants of the fossil fuel industry and their allies in the US Congress and other power centers.

 

 

 

 

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