Socially Responsible Investing (SRI) or Environmental Social Governance (ESG) can be integrated into an investment strategy in many ways. Typically funds leverage some or all the following approaches:
Here are a couple of stories highlighting the potential impacts of investing through an SRI/ESG lens.
Teams of shareholder advocates from many different SRI/ESG mutual funds groups press organizations to improve their corporate sustainability practices every year. The push may focus on changes to the governance within a corporation or possibly encouraging the adoption of more robust environmental practices and policies throughout their operations and supply chains. The following Green Century shareholder advocacy success stories serve as great examples:
Plastic pollution: Shareholder advocacy efforts secured a commitment from The Coca-Cola Company (Coca-Cola) to reduce its cumulative use of virgin plastic by 3 million metric tons by 2025, which is the equivalent of eliminating 200,000 plastic bottles per minute.
Tropical Forests: Green Century Funds secured a commitment from Archer-Daniels-Midland Company (ADM) to strengthen its prior commitments to stopping deforestation. Shareholders pressed to strengthen Bunge’s no-deforestation policy. Bunge and ADM are two “Big 4” global agricultural commodity traders.
Climate Change: They engaged Duke Realty Corporation resulting in its commitment to meet the greenhouse gas goals of the Paris Climate Agreement and joining the Science Based Targets initiative (SBTi).
Clean Energy: Green Century pressed Verizon Communications, Inc. to increase its energy from renewables. It had initially planned to go from 2% to just 4% by 2025. However, after shareholder engagement, the company announced a new goal of 50% renewables by 2025. As a result, Verizon is now nearly two-thirds of the way to meeting this new target.
Biodiversity: They pressed JPMorgan Chase to adopt a comprehensive no-deforestation policy for its financing activities, which helps protect endangered species and the ecosystems that they and many other diverse species depend on.
Animal Welfare: Shareholder advocacy engaged Hormel Foods Corporation to improve animal welfare practices and phase out gestation crates.
Antibiotics: Green Century secured a commitment from Darden Restaurants, Inc., the largest casual dining operator in the U.S., to phase out the routine use of medically necessary antibiotics in its chicken supply chain by 2023.
Divesting from fossil fuels is often a focus for many SRI/ESG fund clients. A decade ago, the call to divest from fossil fuels was initially launched by college students. Its goal: to shift the rosy false narrative around fossil fuel companies and to expose and reduce the political power the industry has used to block climate action. Since then, it’s grown into a global movement, inspiring individuals to divest from fossil fuels and pressure their institutions – from Harvard University to the New York Pension Fund – to move their money. So far, nearly 1,500 organizations with assets of more than $39.2 trillion have committed to divest from fossil fuels – that’s a figure higher than the annual GDP of the United States and China combined2.
Since the divestment movement began, the attitude toward having taxpayers support the industry has changed. In a recent Forbes article, the divestment movement is credited with reframing the discussion around fossil fuel finance and pushing investors to question the long-term viability of the entire sector.
Change was evident in 2020, when ExxonMobil was dropped from the S&P Dow Jones Indices, ending its 92-year listing. A change that would almost have been unthinkable ten years ago when the fossil fuel divestment movement began.
Proponents of divestment may seek to starve fossil fuel producers of capital, but they also make savvy business decisions. Over the past decade, the fossil fuel supermajors (e.g., Exxon, Chevron, Shell, BP) have tumbled from their perch as the planet’s largest companies. The once-mighty energy sector is now the smallest in the S&P 500 and continues to lessen the industry’s political influence over national policy.
Socially, Responsible Impact Investing (SRI) and Environmental Social Governance (ESG) are a complex landscape of opportunities to support companies that utilize strategies that promote environmental or social justice goals and demonstrate good corporate governance. At Birchwood Financial Partners, we have been and continue to be passionate about SRI since our doors opened in 1990.