Issues and Action

Making a Difference by Investing in Sustainability

~ Richard Niesenbaum

One way that individuals can make a difference with regard to sustainability is through their portfolio choices in their retirement plans or other investments.  There are now many opportunities to invest in companies, organizations, and funds with the objective to both generate a measurable, beneficial, social or environmental impact and provide a financial return for the investor. This type of investment is referred to as impact or socially responsible investing.  It is also known as socially conscious, green, or ethical investing.  This can include investment in assets such as stocks, exchange-traded funds, and mutual funds in which the underlying strategy seeks to consider both financial return, and environmental and social sustainability objectives.

By directing retirement and other savings towards impact investments, individuals that wish to promote the goals of sustainability are able to do so by directly supporting corporate practices that promote environmental stewardship, consumer protection, human rights, and diversity through impact investing. This can include environmental or green investments in companies that are either developing solutions to environmental problems such as alternative energy technology, or in companies that maintain the highest environmental standards.   Social oriented investments may provide capital, credit, and training for economic development in low income and other underserved communities, or may invest in companies with a proven record of protecting and empowering workers.

There are a variety of metrics that an individual investor can use to assess the positive impact of their investments. One major way is through the assessment of Environment, Social, and Governance (ESG) criteria for specific companies or funds. The environmental criteria measure a company’s performance in terms of environmental impact and stewardship including accounting for externalities.  Social criteria examine how a company manages relationships with its employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits and internal controls, and shareholder rights. Investors who want to purchase securities that have been screened for ESG criteria can do so through socially responsible mutual funds and exchange-traded funds.  Most major investment firms provide independent ESG ratings.  There has been some  criticism of assessment criteria on ESG performance because reporting can be inconsistent.  More detailed, uniform and independently assessed criteria are needed.

There are other metrics for assessing the sustainability of a corporation or fund.  Corporate Knights (http://www.corporateknights.com/) and The Global Impact Investing Network (https://thegiin.org/) provide resources that assist individuals who wish to maximize their impact through personal investment.  For those interested in making sure their investments are not put into high carbon emitting fossil fuel companies, The Carbon Underground 200TM identifies the top 100 public coal companies  and the top 100 public oil and gas companies, ranks them by their potential carbon emissions content of their proven reserves[i].

Such impact investing is rapidly gaining in popularity.  According to the US Forum for Sustainable and Responsible Investment, more than one out of every five dollars under professional management in the United States – or $8.75 trillion – is invested in assets that promote social or environmental causes.  In the US, the overall number of mutual funds incorporating environmental and social benefits has increased 33% from 2015 to 2016[ii].  Globally, interest in impact investing is even more impressive – as much as 61% per year and well above $21.4 trillion.  This outpaced the growth of total professionally managed assets[iii].  In many cases socially and environmentally investments are either equally or outperforming those not in this class.

The changing composition of the workforce is beginning to drive patterns of investment even further towards those with positive impact.  By 2020 Millennials will comprise nearly half the working population, and thus have the potential to lead the effort to impact corporate values through investment. According to a study by Morgan Stanley in what is referred to as The Millennial Effect, members of this demographic are twice as likely to invest in companies or funds that target sustainability related outcomes compared to the total pool of investors with specific interest in investments that will directly address climate change or help reduce global poverty.  Also, given their $2.5 trillion dollars of spending power they are acting to promoting corporate social and environmental responsibility by choosing brands that support these causes[iv].

Governments are also increasingly supporting impact investing.  For example, in the UK, the government provides a 30% tax relief for social investments, which is anticipated to stimulate as much as GBP 500 million in additional investment over the next five years.  The EU created a regulation to formally recognize funds that invest 70% of investor capital into European Social Entrepreneurship Funds, enabling these managers to market and fundraise more effectively among impact investors.  In addition, government-controlled pension funds are often very large players in the investment field, and are being pressured by the by activists to adopt investment policies which encourage ethical corporate behavior, respect the rights of workers, consider environmental concerns, and avoid violations of human rights.  One outstanding endorsement of such policies is the Government Pension Fund of Norway.

Another way that individuals can influence corporate behavior is through shareholder advocacy: proposing and representing resolutions that promote environmental, social, and governance change at annual stockholder meetings.  As set forth by the US Securities and Exchange Commission, individuals have the opportunity to leverage their power of stock ownership to help further sustainability objectives.  The organization As You Sow[v] promotes and supports shareholder advocacy in the areas of energy and water conservation, pollution prevention, waste reduction, environmentally and socially responsible sourcing, and community education and engagement.

 

[i] The Carbon Underground 200TM – 2016 Edition. (n.d.). Retrieved October 19, 2017, from http://fossilfreeindexes.com/research/the-carbon-underground/
[ii] US SIF: The Forum for Sustainable and Responsible Investment: Community Investing. Ussif.org. http://www.ussif.org/Files/Publications/SIF_Trends_14.F.ES.pdf. Retrieved 2015-12-01.
[iii] 2014 Global Sustainable Investment Review, The Global Sustainable Investment Alliance (GSIA), http://www.gsi-alliance.org
[iv] Millennials Drive Growth in Sustainable Investing. (n.d.). Retrieved October 9, 2017, from https://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth
[v] http://www.asyousow.org

The Question of Divestment

~ Richard Niesenbaum

One way that campus administrators and trustees can further sustainability objectives is through divesting institutional endowments from industries that detract from sustainability, and re-investing in socially responsible companies or funds.  Endowments consist of donations that are held in perpetuity, and are invested to create income for colleges and universities. The average and median endowment for all US and Canadian institutions were approximately 650,000 USD and 115,828 USD, respectively, but nearly 100 institutions have endowments over 1 billion USD [i].  The earnings from these endowments can represent a large portion of operating funds and the global investment market.

The basic argument for divestment is that ethically-driven institutions such as colleges and universities should not hold market positions that undermine the very values of that institution. The main objective is to send a signal to the market to slow cash flow into companies such as those in the fossil fuel industry by stigmatizing them.   Such divestment is seen as a moral imperative, and given the overall size of endowments could be quite effective in furthering sustainability. In the past, divestment proved to be successful when a large proportion of colleges and universities divested from South African companies in the late 1970’s to end Apartheid, and from Darfur in response to the genocide occurring there in the 2000’s.

Today, there is a movement for educational institutions to divest their endowments from fossil fuel and related companies.  This campus divestment movement is typically initiated by students. This has led to the emergence of more than 400 student-driven fossil fuel divestment campaigns on US campuses. In 2011, Unity College became the first to divest. Today, according to the organization 350.org, 40 US institutions of higher education out of a global total 124 committed to either full or partial divestment from fossil fuels.  The UK has the highest number of divesters [ii].  For an updated list of divestment commitments click <here>.  Many of these divestment decisions are based on recommendations by the Carbon Underground.  

Though there have been some early movers on divestment of institutional endowment from fossil fuels, it remains controversial.   A number of colleges and universities have been reluctant to shift their endowments away from fossil fuels to more sustainable investments in spite of student demand and the moral imperative to do so.  The arguments against doing this have included the perception that divesting the endowment could diminish returns, and that there would be substantial transaction costs given the size of these investments.  Another problem is that individual investments in fossil fuel companies are typically embedded in multiple, more diverse funds adding to the complexity of divestment.  Also, as long as there are “unethical” investors in the market, those divested shares could be quickly purchased at a discount and sold for a profit.  As a result the market price would essentially stay the same, and the company would lose no money and perhaps not even notice a difference.  Still others suggest that that some fossil fuel companies are also heavily invested in the development of renewables so divestment could hurt that transition [iii].   Despite these concerns, for many institutions and their stakeholders divestment is an important statement about the ethics of fossil fuel companies and their responsibility for climate change, and for this reason the divestment movement continues to grow.

Another issue of concern is that limiting the divestment of institutional endowments to the fossil fuel industry neglects other businesses that violate sustainability principles.  These businesses include those in industrial agricultural that are responsible for substantial GHG emissions, the private prison industry that promote mass incarceration, or other businesses that might include exploitation of workers or the environment.  An alternative approach to divestment from a specific business or class of businesses that could address this would be to move endowments into social impact investment portfolios.  One such class of investments includes those businesses that are highly ranked in environmental, social and governance (ESG) criteria.

Many of those institutions that are not divesting from fossil fuels or moving funds into social impact investment portfolios make the case that their large financial commitments to sustainability through operations, and the support of sustainability related research and academic programs are more effective in furthering sustainability than divestment. They argue that if the amount potentially lost through transaction fees and perceived reduced returns were invested in actual sustainability initiatives the positive impact towards carbon emissions reductions would be greater than through divestment.

[i] NACUBO: Public NCSE Tables. (n.d.). Retrieved October 3, 2017, from http://www.nacubo.org/Research/NACUBO-Commonfund_Study_of_Endowments/Public_NCSE_Tables.html

[ii] Commitments. (n.d.). Retrieved October 18, 2017, from https://gofossilfree.org/commitments/

[iii] National Association of Scholars. 2015.  Inside Divestment: The Illiberal Movement to Turn a Generation Against Fossil Fuels.  Retrieved October 3, 2017, from https://www.nas.org/projects/divestment_report

Open Source GMOs as a Sustainable Solution

~ Richard Niesenbaum

One of the arguments for the development and use of GMOs was to make food production more sustainable through higher yields, increased nutritional quality of food, and decreased dependency on pesticides.  Pamela Ronald, a professor of plant pathology at the University of California Davis, has argued that by increasing yield without increased need for chemical fertilizers and pesticides, the future of organic agriculture may actually benefit from the use of GMOs.  She makes the case that feeding the world in a sustainable manner may require what seems like an unlikely marriage between organic farming and beneficial engineered crops[i].

The majority of GMOs have not increased yield, have not decreased chemical use but actually increased it, nor have they solved the global hunger problem.  This is because they were not developed with these thing in mind.  Rather, the GMOs on the market today were developed to advantage the biotech corporations that created them through their use on large-scale, capital-intensive industrialized farms. These corporations have not been interested in meeting the needs of the poorest people of the world because they do not see significant income potential or return on research and development investment from doing this.  So where increases in yield, disease resistance, and increased nutrition are needed the most, little or no benefits from GMOs have been realized. Also, the current way that GMO crops are developed gives absolute control of the intellectual property of the food crops on which we depend to these corporations.  Innovation, modification, safety testing or research of any kind on these GMOs by outside scientists is prohibited.  Corporate control has also limited the application of GMOs in addressing global food and nutrition issues.

So how can we take advantage of the potential benefits of GMOs to increase food sustainability as Pam Arnold suggests?  One way is to bypass and perhaps undermine corporate control through the development of open source GMOs.  Like open-source software, such as Linux and Firefox, open source GMOs would be shared and made freely available for users to make improvements.  Many believe that open source genetics would advance GMO research by shifting it away from intellectually controlled and restrictive corporations to universities, government agencies, and non-profits.  This could allow for a realignment of the goals of GMO crop development to be more consistent with the goals of sustainability.

There are a number of examples of how open source GMOs and collaborative partnerships contribute to sustainability.  One is the nonprofit initiative Public Intellectual Property Resource for Agriculture that brings together intellectual property from more than 40 universities, public agencies, and nonprofit institutes and makes these technologies available to developing countries around the world for humanitarian purposes.  This type of collaboration has essentially saved the papaya through genetic modification.  Papaya is a widespread, economically important crop in most parts of the world, including Brazil, Mexico, and India, where crops have been devastated by the ring spot virus.  A team of public researchers from the Hawaii University, the Cornell University, the USDA, independent of private multinational companies created genetically resistant varieties of Papaya using GM technologies.  It took more than 15 years to achieve this goal, but when finally approved in 1998 disease-resistant GM papaya seeds were distributed for free to the farmers who had suffered significant crop loss and economic hardship as a result of the virus and papaya production has rebounded.

Another example of how open source GMO technology through public-private partnerships could alleviate global food and nutrition problems was through the Golden Rice Initiative.  This initiative was aimed at developing a rice variety rich of beta-carotene to help make up for the Vitamin A deficiency in most developing countries.  This sort of micronutrient deficiency is referred to as “hidden hunger” because it can occur even when caloric intake is sufficient, but the diseases and physical disorders related to such deficiency represent a significant socioeconomic public health problem in developing countries.  Research on golden rice started in 1982 as an initiative of the Rockefeller Foundation, eventually becoming a collaborative effort with the private multinational company, Syngenta.  Golden rice will eventually be shared in the public domain, spreading to several developing countries.  Syngenta’s only commercial interest is potential revenues from developed countries.

Another fruitful innovation to increase innovation and access in the development of GMOs is the development of open source biotech methods.  These processes are not patent restricted, so any company or researcher can use them to develop more sustainably meaningful GMOs.  An example of this is a novel method for making transgenic plants called Transbacter created by the Australian biotech company, Cambia Technologies.  The company offers a licensing agreement for this technology that can be used to make any number of modifications with great potential for innovation.

Ironically, one of the major obstacles to this approach of aligning GMOs with the goals of sustainability has been the through the efforts of well-intentioned, but unscientific, anti-GMO activists.  Another is the long and expensive regulatory process that makes the approval of GMOs in the US open only to the largest corporations, which in turn have gotten rid of any liability for their products. Open source, private-public partnerships, enforced corporate responsibility, and increased ability to conduct research on the safety of GMO foods may better permit us to meet the nutritional needs of current and future generations.

[i]Ronald, P. C. & R. W. Adamchak. 2008. Tomorrow’s table: organic farming, genetics, and the future of food, Oxford University Press.