by Chris Meyer

Engaging Environmental Issues Through Shareholder Advocacy

How shareholder advocacy can make a difference

Editor’s note: This article was originally published on the Praxis Mutual Funds website and is reprinted with permission. 

Earth Day occurs April 22, as it has since its founding in 1970. Some credit Earth Day’s establishment as the beginning of the modern environmental movement. As a child, I remember attending school assemblies commemorating Earth Day. Speakers stressed the key environmental themes of the era such as “reduce, reuse, and recycle.” There was an emphasis on activities like picking up litter and planting trees, which we sometimes participated in during school.

My family also had our own environmental practices, such as recycling and planting thousands of trees on my grandparents’ property, which was barren from strip mining done decades before. Our church had a Creation Care Sunday that coincided with Earth Day and highlighted larger-scale problems and emphasized our role as stewards of the natural world.

These experiences contributed to my increasing understanding of the fragility of the Earth and the enormity of our environmental challenges. My interest in finance and public policy blossomed as I began to see systemic change as the best way to mitigate damage and encourage a more sustainable trajectory.

I joined Praxis Mutual Funds® nearly 15 years ago, at a time when “make Earth Day every day” had become the mantra. I’ve been privileged to work on environmental issues through shareholder advocacy, using the rights of stock ownership to promote corporate change. The future of our planet is top of mind in my work, whether the subject is the climate crisis, environmental justice, or toxic chemicals. However, moving from one seemingly intractable problem to another can become exhausting.

This Earth Day, I’m taking a step back to reflect on some of the achievements and positive developments in corporate environmental policy since I began my career, through the lens of shareholder advocacy. Here are a few examples of the progress I’ve witnessed:

ESG materiality
It’s hard to believe that a short time ago, it was an uphill battle to convince many companies and investors that environmental, social, and governance factors were material and worthy of consideration. Now, nearly all large-cap companies produce significant sustainability or corporate responsibility reports and routinely integrate ESG issues such as climate change and human rights risks into their core business operations.

Shareholder resolutions
When I began at Praxis, the goal of filing a shareholder proposal on environmental or social issues was to achieve a meeting with the company, or at least to get a mid-single-digit percentage of the vote to satisfy resubmission thresholds for the following year. Not only do proposals now generally receive a much larger share of the tally – and even an occasional majority vote – they often spur companies to make substantial policy changes. And proposals can make a difference even if they don’t end up on the ballot; about half of the resolutions Praxis has filed in the past five years were withdrawn by the shareholders because of negotiated agreements with the company.

Emissions targets
Climate consciousness has spiked in the past decade. Where it was once a struggle to get corporate recognition of the existence of climate change, companies now are going far beyond acknowledging the climate crisis and setting ambitious targets for emissions reductions, even in lieu of public policy mandates. For example, most of the electric utilities Praxis has engaged have made net zero carbon emissions commitments by 2050 or earlier, and all have set major emissions reduction targets. Shareholder dialogues are now largely focused on the practical, incremental steps needed to achieve these climate goals as quickly as possible. This is true progress.

Productive dialogues
Perhaps the most important development in corporate engagement has been the willingness of companies to invest real time and effort in speaking with shareholders on environmental and social issues. When I started in this field, we felt lucky to gain an audience with the general counsel and head of investor relations, let alone anyone relevant to the issue at hand. As companies have become more accustomed to speaking with shareholders – and shareholder concerns have regularly proven to be prescient – they increasingly see dialogue and relationship-building as valuable and mutually beneficial. This bodes well for shareholders and stakeholders who seek sustainable corporate change.

Despite the fundamental progress that companies have made, there’s no question that the quest for sustainability has so far fallen short, as witnessed in publications such as the latest Intergovernmental Panel on Climate Change reports. If the Earth becomes uninhabitable, frankly, nothing else matters. At the same time, however, it’s fair (and healthy) to take stock of what has been achieved in the recent past. For me, this progress offers a basis for hope on this Earth Day. Perhaps it can provide hope and encouragement for you too.

About Praxis Mutual Funds

Founded in 1994, Praxis Mutual Funds is a leading faith-based, socially responsible family of mutual funds designed to help people and groups integrate their finances with their values. Praxis is the mutual fund family of Everence Financial, a comprehensive faith-based financial services organization helping individuals, organizations and congregations. To learn more, visit praxismutualfunds.com and everence.com, or call 800-348-7468.

Consider the fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus and summary prospectus contain this and other information. Call 800-977-2947 or visit praxismutualfunds.com for a prospectus, which you should read carefully before you invest. Praxis Mutual Funds are advised by Everence Capital Management and distributed through Foreside Financial Services, LLC, member FINRA. Investment products offered are not FDIC insured, may lose value, and have no bank guarantee.

Author

Chris Meyer, Manager of Stewardship Investing Advocacy and Research.

Chris joined Praxis in 2006. He leads the company’s work in corporate engagement and supports its investment screening and proxy voting functions. He has led shareholder dialogues on many pertinent issues such as climate change, toxic chemicals, child slave labor, and predatory credit card practices with multinational companies. Connect with Chris on LinkedIn.

[Photo by Singkham from Pexels]

Article originally posted here by GIIN

by GIIN

To achieve a future where impact considerations are integrated into all investment decisions, the GIIN is working with diverse communities to mobilize more capital for impact investing. The faith-based investing community is one of those with whom the GIIN has been deepening ties.

Examples of faith-based investors leading responsible investing initiatives date back centuries, and by expanding into impact investing, these investors have an opportunity to achieve measurable, evidence-backed impact that aligns with the values of these diverse faiths. Given the vast wealth held by faith-based investors, activating their assets toward impact can lead to substantive contributions to global development agendas, such as the UN Sustainable Development Goals (SDGs) and Paris Climate Agreement.

Engaging Faith-Based Investors in Impact Investing outlines key insights from interactions with the faith-based investing community along with proposed engagement strategies that could be assumed by field-building organizations—like the GIIN and others—to support faith-based investors on their impact investing journey.

Read his whole report here on the GIIN website!

Engaging Faith-Based Investors in Impact Investing

by Pete Ochs

From a Christian perspective, what is the purpose of business?  From the top business schools to the renowned economists of our day, the conventional wisdom is that the purpose of business is to maximize shareholder value. While this paradigm has brought many of the world’s poor out of extreme poverty, capitalism, without values, has created a voracious appetite of personal ambition that can extinguish the very good it fosters.  One must simply look at the likes of Enron, the tech bubble, the financial crisis of 2008, and quotes by well-known socialist politicians calling capitalism “unsustainable” and “irredeemable” (Burke 2019). Capitalism is a system that nurtures economic success, but in and of itself lacks the principles that make it virtuous.

The purpose of business must be answered with the cross in mind. The redemptive purpose of business is to be a catalyst for flourishing.  Flourishing, the economist Anne Bradley explains, is “God’s Kingdom on earth.” It’s us living in God’s abundance, “as an image bearer of our creator.” Flourishing means becoming everything we were created to be.  Flourishing is what the Old Testament calls a blessed life, shalom.  Shalom, or human flourishing, was fully manifested for a brief period in human history. This period was after the creation of man but before man chose to be his own moral authority. Genesis 2:15-18 lays out this flourishing scenario for us.

“The Lord God took the man and put him in the Garden of Eden to work it and take care of it. And the Lord God commanded the man, ‘You are free to eat from any tree in the garden; but you must not eat from the tree of the knowledge of good and evil, for when you eat of it you will surely die.’ The Lord God said ‘It is not good for the man to be alone. I will make a helper suitable for him.’”

This passage lays out three essential elements required for flourishing: material provision, authentic relationships, and a purpose for living.

The first is material provision. God placed man in the garden to work it and take care of it (verse 15). And the result of work is material provision – food, clothing, and shelter. These physical necessities of life we call “economic capital.”

The second is relationships. Seeing that it was not good for the man to be alone, God created a helper (verse 18). We were created to live in community, to live with deep, authentic relationships with our fellow man.  It happens when like-minded people pursue the common good. This we call “social capital.”

The third element is a strong purpose for living, a Moral Code, without which man cannot peacefully and successfully live in a free and open society. In verses 16 and 17 God defines the difference between knowing good and evil which is essential if we are to flourish.  The complexities of living in community with market-driven economic transactions, interdependent relationships, private property, and competing interests cannot be beneficially managed without a rule of law, a Moral Code, a Purpose for living for something greater than yourself. This is called “spiritual capital.”

Over the last twenty years our company, Capital III, has come to fully embrace this triple bottom line approach to business. The philosophy or business model that we employ to ensure that our company creates economic, social, and spiritual capital is called Enterprise Stewardship.

Enterprise Stewardship

An enterprise is “a business venture, especially one requiring boldness and energy.” Stewardship is “the trusted management and protection of another’s property.” It then follows that “Enterprise Stewardship” is “managing with boldness and energy the business ventures God has entrusted to us.”

When a business is operating with these principles in mind, the business can be a catalyst for flourishing and the common good. This redeemed enterprise is operating at the intersection of economic, social, and spiritual capital creation. The most thrilling part of embracing this concept of Enterprise Stewardship is that it gives each of us a significant part in solving the world’s greatest problem: the poverty that is simultaneously economic, social, and spiritual.

Economic Capital

Economic capital is the material benefit derived from the stewardship of our LIFE (Labor, Influence, Financial resources, Expertise). It is the result of work that creates wealth that when accumulated results in capital.  The major question surrounding economic capital is this.

How should we as business people, allocate the economic capital (wealth accumulation) created by our businesses?  More specifically, how much should we retain to grow the business?  Should we maximize the bottom line or maximize the benefit to our employees?  How much should be allocated for dividends to the shareholders?  What is an appropriate ROI?  How much of our business profits should be invested in Social and Spiritual capital?  How much should we invest in job creation?  How much is enough?

The answers to these questions are not easy or straightforward, but they are questions we must address if we are to fulfill our role as stewards.  As we do this, we must remember that the primary purpose of economic capital creation is to foster the enjoyment and fulfillment of work itself, not to focus solely on the outcome, profit.   Our work is worship but we should not worship our work.  “So I saw that there is nothing better for a person than to enjoy their work, because that is their lot. For who can bring them to see what will happen after them?” (Ecclesiastes 3:22).

Social Capital

Social capital is comprised of the mutual benefits (economic, relational, emotional, political, spiritual, etc.) derived by a group of like-minded people pursuing a common cause. The key driver is relationships with the vision to promote the common good.

Social capital demands mutual trust, common beliefs, and shared rules. In one sense, it’s all the things economic capital can’t buy. Social capital manifests itself in the form of safe communities, good race relations, happy employees, an unpolluted environment, fine art, great music, patriotism, unified families, bipartisan politics, and a genuine love for our fellow human beings.

Social capital is created when we obey the Great Commandment; “Love your neighbor as we love ourselves” (Matt.22:39).  This then begs the next great capital allocation question.

How do we love our employees as we love ourselves?  Or in other words, how do we promote the common good in our businesses?  How do we help our employees become all that God wants them to become?  Do we truly offer the best benefits and pay?  Are we a place where relationships reign supreme?  Are we the best place to work?  Will our employees wholeheartedly agree that we live up to the values and virtues we espouse? Are we willing to spend the economic capital necessary to create social capital?

Social capital creation is essential if we are to live out the Great Commandment and love our neighbors (employees) as we love ourselves.

Spiritual Capital

Spiritual capital defines the moral code by which we live and ultimately is the purpose for living.  It defines our why. For those of us who are Christians, it requires our whole-hearted allegiance to living faithful lives devoted to growing in our personal relationship to Jesus Christ and obedience to His Word.

Spiritual capital is essential because it lays down the rules by which we create economic and social capital.  Capitalism without a moral code results in greed.  Capitalism with God, results in generosity.  Government without a moral code results in totalitarianism.  Government with God, results in political freedom.   When God is taken out of our culture it creates a moral vacuum that must be filled.   Most often this vacuum is filled with GOVERNMENT (rules and regulations) instead of GOD (self-governance) often leading to a loss of religious, political, and economic freedom.   If Spiritual capital is essential for flourishing, here then is the question for those of us in business.

How do we, using the platform of business, take part in living out the Great Commission?  How do we winsomely share the love of Jesus with our team members?  How do we create a spirit of comradery without establishing a quid pro quo?  How to we honor God in all we do?  How do we publicly profess the name of Jesus to all we encounter?

Spiritual capital creation should be our answer to sharing the Great Commission.

How then should we do business?

You cannot have a redeemed business, enterprise stewardship, without having a redeemed steward as the leader.  Over the years we have come to embrace the four P’s that are essential for a successful business.  These are Principles, People, Products, and Profit.  Without all four fully functioning in a cohesive manner, the enterprise will not attain its potential impact for good.  Consequently, we have developed our values around the four critical components of business and they are reflected below:

Principles – Honor God

People – Serve People

Product – Pursue Excellence

Profit – Steward Capital

The most effective tool we use in our business is simply to ask these four questions whenever we have a major business decision.

1. Will the initiative Honor God?

2. Will it allow us to truly Serve People?

3. Can we do it with Excellence?

4. Are we being good stewards by making this decision (investment)?

The enterprise is operated and evaluated according to the four P’s (Principles, People, Product, and Profit) which are governed by our four values (Honor God, Serve People, Pursue Excellence, and Steward Capital).

How then do we lead and evaluate the steward(s)?  We do this by associating a character trait to each of our four values.   We call these character traits the four C’s.  And their corresponding value is shown below.

Honor God – Character

Serve People – Connection

Pursue Excellence – Competence

Steward Capital – Commitment

If one is to be a faithful steward they must be a person of Character (they Honor God), they should exercise the gift of Connection (they Serve People), they should be Competent in their respective talent (they Pursue Excellence), and they are Committed to managing well the resources at their disposal (they Steward Capital).

SUMMARY

Enterprise Stewardship is a tool to be used to redeem business.  It can have great impact as a catalyst for economic, social, and spiritual capital creation.  But business cannot be redeemed without a redeemed steward who will commit to Honoring God, Serving People, Pursuing Excellence, and Stewarding Capital as they live as stewards with great Character, Connection, Competence, and Commitment.  Below is a graphic representing the Enterprise Stewardship model.

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Citations:

Bradley, A. (2015, July 2). Flourishing. [Institute for Faith, Work & Economics]. Retrieved from https://tifwe.org/flourishing/

Burke, M. (2019, March 10). Ocasio-Cortez: ‘Capitalism is irredeemable’ Retrieved March 24, 2019, from https://thehill.com/homenews/house/433394-ocasio-cortez-capitalism-is-irredeemable

by Benjamin J. Bailey

In my experience, most values- and ESG-oriented investors are generally familiar with the concept of shareholder advocacy, in which stock owners seek to influence company policies and practices.

Multiple fund families and other institutional owners often will come together and speak as one voice, raising the likelihood that a company’s management team and board of directors will listen and take action.

Fewer investors focused on values and environmental, social and governance factors consider the potential to elicit corporate change on the fixed-income side of their portfolio. Those who are aware of this potential may not know the role of green and other positive-impact bonds to further corporate progress.

And indeed, we see the purchase of positive-impact bonds as a primary avenue to affect real-world change. But in addition to purchases themselves, we regularly find other opportunities to pursue change by engaging with companies about fixed-income offerings. In these conversations, we ask additional questions that can spur change.

In fact, at Praxis we use the term “company engagement” as a broad way to refer to both shareholder advocacy and fixed-income engagement. To us, this recognizes the opportunity and responsibility to seek opportunities to engage with companies – regardless of the asset class in question.

Following are three examples of what company engagement can look like on the fixed-income side of the portfolio:

• Prompting companies to raise the quality and consistency of their ESG data disclosures.

  There are many ESG data providers, among which MSCI and Sustainalytics are leaders. When talking with company representatives before a new bond issuance or on company calls, we’ll often ask about the company’s ESG score or about interactions with ESG data providers. Sometimes, management will tell us the ESG data is wrong. When that’s the case, it’s often also true that the company hasn’t had meaningful interaction with the ESG data provider. MSCI tracks the frequency of interactions with each company. We encourage the company to interact with the largest ESG data providers to ensure their data is accurate. The result will be better data available to all ESG-oriented investors across asset classes. Here’s some very good news: Compared to five years ago, companies are far more cognizant of their ESG ratings, and they generally talk about their multiple interactions with the ESG rating agencies. The fact that less of this prodding is needed reflects its success.

• Asking about social factors.

  “Social bonds” are a growing component of the positive-impact bond space. Rather than just emphasizing green projects, social bonds relate to projects that promote positive impacts on employees, local communities or other people-related contexts. Companies like to highlight their social endeavors – whether related to a specific social bond or just general company policies – and this gives us an opportunity to ask questions. We may compliment a social factor strength – and ask tough questions about past controversies or current weaknesses.

• Raising concerns about greenwashing.

  “Voting with our dollars” – and avoiding certain issuances – is the main way we address bond issuances that, by our analysis, are labeled as “green” but aren’t convincingly so. An example was a bond issued to fund the purchase a second company that was a leader in using recycled materials within its main product … but the product itself was hardly green. We did not purchase the bond. We have also asked questions of investment bankers about green bond concerns. It’s been interesting to hear that they, too, are sometimes uncomfortable with labeling. We believe that as we and other institutional buyers express hesitation, bonds will improve and standards will be raised.

Many investors and clients haven’t even thought about the opportunity of fixed-income engagement. They may be pleased to hear that in our experience with engagement on the fixed-income side of the portfolio, companies listen and improvements can occur.

Article originally posted and shared with permission by Praxis Mutual Funds®. Praxis is dedicated to stewardship investing — a philosophy of financial decision-making that balances social and financial considerations and is motivated and informed by faith convictions. Through a suite of equity index funds and an actively managed Impact Bond fund, Praxis seeks to help investors make real-world impact.