Media updates on human trafficking and other issues

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.

“Brothers Carrying Stone — Nepal” Lisa Kristine (c) 2019

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.'”

There is more sustaining gender inequity in business than meets the eye

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.

“Equal Pay for Equal Work” — Citywire USA May 6, 2019

Happy (?) Earth Day

Well, the Earth isn’t particularly happy, and we aren’t so happy about what is happening to the Earth, so perhaps we should rephrase that to be Wishing You a Day of Concerned Observance for the Earth.

Today it seemed appropriate to come back to a recurring theme at RIS, that being the idea of the commons. We have been stuck with this notion that caring for the planet comes at the cost of truly free commerce. Underpinning that notion seems to be the sense that taking from the planet comes at no cost other than the expense of obtaining the license to exploit and the costs of the materials and processes to execute on that taking.

What we all need to recognize is that everything comes at a cost. Even if you subscribe to the notion that humans are the supreme beings on this planet, or even that only certain humans are supreme, that cost is socialized among us. If a factory belches GhGs or heavy metals into the air, we all share in that one atmosphere and the consequent health effects. If an oil well dumps millions of barrels of oil into the ocean, coastal communities and fisheries pay the price. If the water supply is polluted or overused, it is the citizens of Flint, Michigan or Charleston, West Virginia who get poisoned or the farmers of Nebraska or California who can’t grow productive crops. The consequences to access to clean water, breathable air, farmable land, fishable waters, safe and healthy food, clean beaches, and sharable wildernesses are shared by all.

In a free and fair market, people are compensated for taking risk, providing labor or sharing resources. But, the reality is people are not adequately compensated individually or collectively for the use of our commons. Our shared environment within our communities, our countries, and across our planet is being exploited with little concern for what it actually costs. Put aside for the moment you care about oily birds and homeless polar bears. If the market actually priced what it costs just human society for the uncompensated taking of our natural environmental resources in terms of health, welfare and prosperity, it would be far too expensive to sustain.

As long as it is cheap or free to take oil, coal, natural gas, minerals and water from our public lands, or to fill our public waters and public air with garbage and pollutants, this problem will never be rectified. The cost of doing business and the cost of capital need to take into account all of the costs for our people and our planet. What is the price for the use of our commons? Will they pay it? If not, they should lose their licenses to operate. Other businesses will take their places that serve the same needs but better consider the interests of all stakeholders. That is how a truly free market works. 

Quarterly catch-up

A few additions have been posted to the Library of note. First is an article entitled “Got the Message” on systems-level thinking on markets and sustainability. The short version is that we believe it is more capital-efficient to address the root causes of climate change than to discount the capital destruction caused by it. The free market is capable of pricing climate change risk if it is permitted to do so. Failing to recognize the true cost of capital by ignoring the system in which it exists is short-sighted and destined for ruin.

Next up, a fresh look at the investability of emerging markets through an ESG lens in “ESG and EM”. The transparency of emerging markets has improved significantly, making it easier for fundamental managers to examine environmental, social and governance criteria with the same intensity as in developed markets. Some of this improvement is a credit to the governments and home markets that are driven to attract stable, long-term investment capital from the developed world, and some is thanks to data providers and investment firms working harder to capture and catalog the same material information available to developed market investors.

Lastly, a copy of HR 109 of the 116th Congress, aka the Green New Deal, and an accompanying article, “Small Steps & Giant Leaps” where we make the market case for the Deal. The GND is a statement of direction and purpose to pull the country back from the brink in societal and environmental terms, but is not in itself legislation destined for law. If it never finds its way out of the starting gate, it is still an effective roadmap for communities and markets to mitigate risk and create the next several decades of economic opportunity while improving health and wealth for all. And, the greed motive is entirely in line with the objectives of the Green New Deal. There is a great deal of money to be made by investors that recognize the decadal opportunities it describes.