Three new articles are posted to the Library — “Collateral Damage”, exploring corporate externalities, the impact on systems, and how those externalities really create internal damage to company balance sheets when looked at properly; “Pulled in Many Directions”, discussing the alignment of stakeholder requirements in corporation and community; and “Breaking Free”, an all-too-brief look at the presence of modern slavery in Western corporate supply chains.
This photograph, entitled “Brothers Carrying Stone — Nepal“, is part of an achingly beautiful but absolutely devastating series of photographs taken by humanitarian photographer Lisa Kristine. Please visit her website and be a patron of her work but also a vigilant supporter of correcting the profound wrongs she has documented. Regarding this photograph, from Ms. Kristine’s website — “Each day, children make several trips down the mountain, delivering stones from higher up in the Himalayas. They use makeshift harnesses out of ropes and sticks, strapping the stones to their heads and backs. Many of them come from families where everyone is trapped in debt bondage slavery. One of the mothers describes what it was like to be in slavery, ‘Neither can we die, nor can we survive.'”
As is frequently the case in the money management industry, we are awash in terminology to address ESG and impact investing, and it all means everything and nothing at the same time. Well-intentioned but not well-considered marketing campaigns have repositioned words like “impact” to mean sustainable investing in the broadest sense, or negated their meanings entirely. Meanwhile, “SRI” has been re-branded as “sustainable and responsible investing” while simultaneously being relegated to the dust-bin as a pejorative for well-meaning but poor performing strategies.
As more people join the discussion we are increasingly talking past one another using language we think means the same things to others as it does to us, only to find out we are speaking different languages, or just plain gibberish. In the securities industry words mean something, and it is probably high time to see some of the discipline and compliance that governs the rest of the language of investing come into play since asset owners, advisors and consultants are making real decisions based on the words we use.
While it may be appropriate to examine pay discrepancies or the imbalance in gender representation in leadership as a starting point, a much deeper examination is required to understand the systems-level constraints preventing equality in the working economy. The naive approach to investing for diversity and inclusion is to simply measure pay parity and the presence of women in the C suite or on boards. Better performance on these metrics may be an indicator of a more progressive enterprise, but it is by no means clearly causal. It could just as easily be that more inclusive companies perform better as it is better performing companies have the latitude to be more inclusive.
From an investment point of view it is necessary to look at everything from HR policies to recruiting and promoting practices to corporate cultures as well as the operational, competitive and other forces that are shaping them. Inclusiveness and equity start at a deeply fundamental level, and comprehensive ESG analysis can be the mechanism for digging to that level and establishing a platform for understanding and engagement to improve performance.
This month’s Citywire column posted in the Library starts to scratch the surface of this challenge, and looks to UN SDG 5 for guidance on what the foundational principles of gender equality and the empowerment of all women and girls looks like in investment terms.
Today is Giving Tuesday. Numerous worthwhile charities are raising their hands and asking for our attention and our dollars in pursuit of their missions. The difficulty with a one-day campaign is that, while it may bring in new dollars from existing donor relationships, there is a low probability of establishing durable relationships with new donors. Whether the connection is spiritual or practical, driven by a single crisis or by a lifelong pursuit, connecting givers with worthy recipients is a process. Not only does a donor, whether organization or individual, need to find that alignment of purpose, that donor also needs to go through some degree of due diligence to see whether the receiving organization is a good steward of donated capital and creating meaningful and measurable impact with it over time.
Let today not just be a flash in the pan, but let it be the start of an ongoing process for kind and caring individuals, families, and institutions to discover and build long term relationships with impactful organizations creating positive change in the world. As part of that, donors should also consider solutions that help create a platform for purposeful giving that could last months, years or even generations. Consider donor advised funds (DAFs), private foundations, community trusts, and other solutions that make it possible to institutionalize giving, make larger financial commitments that can be disbursed systematically, and provide partners and resources to help identify and evaluate potential recipients.
I have been doing a lot of work on how to relate what and how we consume everything else around us with how we consume financial services. The great divide has been rooted in equal parts in a lack of understanding that the same rules could apply, and in a belief, misguided I will assert, that the sole objective of investing should be financial return.
Maybe this is a byproduct of well-intentioned but heavy-handed regulation, and maybe some of it is the cowardice of investment professionals and fiduciaries who do not want to take a single step outside of the lines inside which they are protected when delivering mediocre or even inferior results. “Here is food. It is nutritious and diversified and portioned according to the US recommended daily allowances. I understand it doesn’t taste good, but my responsibility wasn’t to make sure you enjoyed it. It was to make sure you don’t die of starvation.” We don’t consume anything else where the bare minimum is also the maximum expectation.
There is no reason, even in a well regulated environment, that consumer behaviors that apply elsewhere shouldn’t apply to investing. A movement back to the way we used to make and consume, local and artisanal, is afoot. We want to see the supply chain. We want to know where things came from, that those things were sustainably and responsibly obtained, that they are healthful and mindful, and that they support our local communities. That small-batch mentality, from arts and crafts to food to beer to clothing, has taken hold particularly with Millennial consumers. A local, sustainable, community-oriented focus is available in investment products as well. Read my latest article in CityWire USA pro buyer magazine on how investing small helps to foster sustainability and serve consumer demands while still delivering on core investment mandates.