I must admit I was unprepared to write this post. I had fully expected the Climate Science Special Report – Fourth National Climate Assessment to get buried. At best I was expecting it to be edited to de-fact it and bury the lede on climate change. RIS had gone as far as archiving the draft version of the report that was circulating earlier this year to post now in lieu of a final report, or to draw attention to where the science got trumped by politics and faith-based conclusions in a revised report. Just in the last couple weeks, the EPA benched its own scientists, Autumn Oczkowski, Rose Martin and Emily Schumchenia at a major workshop in Rhode Island where they were featured presenters of their own work. There really was no reason to believe the climate report would reach the daylight.
Is there any hope in the death of the Clean Power Plan?
The veneer is cracking. In more and more corporate and industry settings, we have moved past the incontrovertible regarding fossil fuels and climate change. This morning, Steve Inskeep of NPR interviewed Jeff Holmstead, partner at Bracewell LLP, who represented the American Coalition for Clean Coal Electricity in litigation regarding the Clean Power Plan. At one time Mr. Holmstead was a deputy administrator in the EPA under President George W. Bush. He may have grown up in Boulder, CO, but he is clearly not a champion of liberal doctrine on industry and climate.
It is profound if we can collectively move beyond debating causality and consequences and discuss the mechanisms of commerce and law to address the environmental and societal risks. If we can pit solutions based on markets against solutions based on regulation rather than arguing the climate change premise, there is hope because we are all at least acknowledging and then talking about solving the same problem.
Inskeep: “Just to be clear and get this on the record, because the President has, at different times, called climate change a Chinese hoax — does your industry group accept the science that climate change is real, significantly caused by people… dangerous enough to respond to?”
Holmstead: “Yes. I think that most everybody in the industry does accept that fact and the real question is what’s the best way to go about resolving it. And that’s really what this proposal yesterday is all about.”
The full interview can be heard here:
Men behaving badly
The disrespect, diminishment and abuse of women in the workplace is cultural. In a corporate environment culture starts at the top. It slowly seems to be getting rooted out of certain industries, but in others, like tech, private finance and entertainment, it is still endemic. We need to have the pay parity conversation, but that should not be a substitute for or a higher priority than human decency.
From an ESG perspective this is every stakeholder’s responsibility regardless of role, gender, political or religious affiliation. The first step is to stop being apologists. Then it is time to effect change. And, from an investor’s point of view, this should not only become a priority when it hurts a business’ value. Changing a culture of discrimination and abuse of any sort is always a priority. Do it because it is the right thing and bank a little psychic alpha as compensation. The economic returns will take care of themselves.
The New York Times presented two op-ed’s from women at the opposite ends of the political spectrum that, no surprise, arrive in the same place. NYT is behind a paywall, but if you are not a subscriber, it is still worth spending two of your ten freebies for the month on this editorial by Lena Dunham and this editorial by Gretchen Carlson.
Does this need to be discussed again?
How many people need to be shot by how many gunmen with semi-automatic and automatic weapons before there is, dare we say, supply chain accountability? After today’s mass-shooting in Las Vegas, where the casualty count as of this writing is still rising, there will be talk of mental health care, better venue security, good guys with guns vs. bad guys with guns, and even background checks and gun licenses. It will inevitably devolve into a 2nd Amendment debate rather than looking at how every citizen’s rights can be honored, including certain unalienable rights including life, liberty and the pursuit of happiness, something just deprived of hundreds of individuals in Nevada by one man.
The argument that a well regulated militia requires high-powered repeating weaponry is specious. The 2nd Amendment does not specify the nature of the arms to be kept. Where should the line be drawn? RPGs? Bombs? Why is the US military venerated without reserve when we are arguing about who sits and stands for the National Anthem but not trustworthy enough to defend the populace such that individuals and groups need to arm themselves similarly?
As with so many societal and environmental issues, government and regulation is one avenue of address. Commerce is another. These weapons are made by for-profit corporations, public and private. It is possible to accept that the manufacture of these weapons is legitimate and necessary for law enforcement and the military and not absolve these companies of responsibility for inappropriate distribution and use. I cannot sell a mutual fund without a background check, a license, extensive documentation and disclosure, and an examination of suitability for the purchaser. Much of the burden for this falls to the manufacturers (the fund sponsors) and the rest on the sales organizations (broker/dealers). The worst that can happen is the investment goes to zero. The client and the public still walk away, frustrated yes, but very alive.
Various stakeholders must increase pressure on these weapons manufacturers to restrict and control distribution. Just because something is legal does not mean it must be done. Self-regulate. Make a decision as a company that your product is suitable only for use by trained professionals in military and law enforcement scenarios. Control your distribution channels. Do not sell the weapons and do not sell the ammunition outside of these professionals. Terminate distribution agreements with any merchant that violates company rules. Do it because you care about your company, your employees, your communities and your customers.
Further Consolidation in ESG Land
It was announced yesterday that Pax World Management, LLC, one of the venerable names in the SRI and ESG market, has entered into an agreement to be acquired by Impax Asset Management Group plc. The press release with initial details can be found here.
It is our continuing belief at RIS that this is not unique or an aberration but in fact a further expression of the forces at work in the industry as ESG and impact move toward center stage. Whereas this used to be a cloistered market that provided safe space for modestly sized asset management boutiques to operate unmolested, the mainstream move we are experiencing is bringing in some of the largest players in the asset management industry into the frame. In what is (finally) a viable market for ESG, competition is now driven by Porter’s five forces, and so scale and reach, diversity and deep pockets matter more than ever before.
In the “traditional” asset management marketplace, there have always been small boutiques players with unique value propositions, and the same will hold as the ESG marketplace takes on the attributes of, or really merges with, the traditional marketplace. But, the real asset growth comes from scale players, or boutiques that become scale players. We expect to see more activity like Impax/Pax, Trillium/Portfolio 21 and Eaton Vance/Calvert in the coming months and years, which in our view is as evidentiary as anything that ESG and impact are no longer at the fringe and powerful and seasoned market forces will be driving asset growth going forward.
When CEOs Divest
This has been such an extraordinary Summer in terms of markets, governments and business there has been too much about which to write. But, something inevitably comes along that stands out as distinctive and worthy of note.
Charlottesville, VA, this past weekend was the focal point for expressions of some of the ugliest thoughts, images and behaviors that fester in America. These rights have been tested before in our history, and my own recollections immediately returned to Skokie, IL, in 1977 and 1978, when the National Socialist Party of America sought to stage a neo-Nazi rally in a heavily Jewish suburb of Chicago. 40 years later we are still trying to sort out whether this type of activity is constitutionally protected. But, from the perspective of a socially or environmentally aware investor, the question is rarely “can you?”; It is “should you?”.
RAISE the roof on food safety
Chipotle Mexican Grill (CMG) has had it rough (not to mention some of its more unfortunate patrons). There is clearly market fatigue over food-safety scandals with their retail outlets. After a spate of issues in the last couple years that severely damaged their reputation Chipotle went through some significant practice changes to try to ensure a cleaner, more consistent and safer food supply chain from sourcing to preparation. After years of emphasizing local prep in their business model they started to move toward the more traditional central kitchen model embraced across the fast food industry, and sought a best-in-class approach to food safety practices.
But, this blog is not about the cleanliness of the supply chain, locally sourced ingredients, or some of the other more obvious ESG issues that could be raised about a fast food chain. In fact, Chipotle stands up fairly well on many of these metrics. This is about the human capital. And this is not only about CMG.
Feel the heat
Our latest addition to the library is an article discussing the Department of Labor and the Fiduciary Rule as it pertains to whether financial institutions sustainably practice what they preach. As an industry we collectively need to do more to inhabit the values that we espouse and even demand of the companies in which investments are made. Shared responsibility and consumer protections are very common factors in corporate ESG analysis. Time for a look in the mirror. Take a stroll through our Library for more.
The end valuation does not justify the means
It is one thing to have a corporate culture based on asking forgiveness rather than permission, and another having a toxic corporate culture seemingly devoid of respect for people and even the rule of law. One is brash and entrepreneurial, and the other exploitive and abusive. If ride-hailing were gold and silver (which, to the shareholders, it is to the tune of $70 billion), the headlines Uber has been generating could just as easily have applied to the California Gold Rush. How much progress has there really been since 1848?
Continue reading “The end valuation does not justify the means”
Pittsburgh, not Paris
Plenty of ink has been spilled already on the implications of a US retreat from the commitments under the Paris Agreement, and politicians from both sides of the aisle have had plenty to say for and against the move. The best we can recommend is to read the agreement itself and draw your own conclusions about its viability and advisability.
In terms of leadership in the US, we are finding cooperation on the climate in some unexpected places, although with only limited real impact so far. You can find a list of strange bedfellows in the Climate Solutions Caucus, a bipartisan Congressional group that “…will serve as an organization to educate members on economically-viable options to reduce climate risk and protect our nation’s economy, security, infrastructure, agriculture, water supply and public safety”. If you are a constituent or a business leader, call your Congressperson and express your support for at the very minimum working from a common set of facts and understanding.