Time to Put Your Money Where Your Mouth Is

Whether you think investing is for you or not, the fact is that you probably already are an investor. If you have a pension or a 401K, your hard-earned money is currently being invested for you by your pension fund. The pension fund buys a portfolio of shares in listed companies in diverse industries on your behalf to spread the risk. However, do you know what companies they invest in? Do the investments align with your values? Maybe it is time to find out.

You are relying on that money to grow and to be available for your retirement so it is important that your pension fund is investing in companies that will stand the test of time. Furthermore, you may want to consider if those companies align with you on a moral or ethical level, as well. A key risk for all major multinationals to consider now is climate change, both for ethical and sustainability purposes. And to ensure the survival of the planet and their business!

As consumers become more and more concerned about diversity, inclusion, the environment, and long-term sustainability, companies who respond to that demand will be supported and are more likely to survive the challenges ahead. Companies who hide their heads in the sand and deny that consumers want to see women and people of color represented on boards; deny that climate change is a factor that could affect their future growth while wildfires rage in California and islands disappear into the Pacific; and deny that consumers care about supply chains are likely to suffer the same fate as the dinosaurs.

In a recent interview Jane Fonda referred to NASA’s research that says we have ten years to reduce fossil fuel consumption by 50% to limit global warming to 1.5C but the important thing is that we have 10 years to do something about it but we must act now! 

There is a revolution underway in moving the focus from shareholder capitalism to stakeholder capitalism (workers, communities, the environment, etc.). In a sign of the times and of how important this issue has become, we need only look to the actions of hedge funds and asset managers.

Asset Managers such as Blackrock, Vanguard, and Storebrand manage trillions in assets and are charged with growing those assets by their customers. These funds are actively divesting from fossil fuels and focusing their investment strategies on ESG goals. Research has shown that ESG funds have performed better than normal funds over the last year and funds led by women have outperformed funds led by men alone. 

Pension funds or "institutional investors" as they are often called in financial jargon are coming under increased pressure to hold the companies they invest in accountable. They can do this because they often have large shareholdings in multinationals. This means that how they choose to vote at annual general meetings can have serious implications for the management of the company.

One way that investors can make a tangible change is by voting against the proposals for appointments or reappointments of CEOs or other senior executives and against proposals for executive pay if they are not happy with how the management is performing. They can also put their money where their mouth is by moving their money. The New York State Pension Fund did exactly that in July 2020 divesting from 22 coal companies. 

A group of investors that manage $47tril in assets have demanded that the world’s biggest corporate polluters back strategies to reach net-zero emissions and promising to hold them accountable to the public. Climate Action 100+ is supported by 518 institutional investor organizations around the world is taking steps to force business leaders to explain what steps they are taking to help reach the goals of the 2015 Paris Agreement. They have written to 161 companies which are responsible for 80% of global industrial greenhouse gas emissions to put pressure on them to set goals for reducing emissions with the goal of limiting global warming to 1.5C of pre-industrial levels.  And the strategy is working. Last week BHP,  a huge mining company, promised to reduce emissions from its operations by over 30% in the next decade after sustained pressure from activist shareholders. “ 

According to Client Earth—a law firm that uses the power of the law to protect life on earth—understanding how your pension contributes to the current climate crisis and considering how your contributions can be the solution to change is one of the single most impactful things you do. 

Countries are beginning to take action on climate change into their own hands in response to demands from their citizens. New Zealand has this week become the first country in the world to require businesses and particularly financial institutions that are investing vast sums of money to report on climate. New Zealand’s Minister for Climate Change referred to one CEO telling him that is daughter no longer wanted to have children because of climate change. He asked “What do I say to her?” New Zealand is taking the approach that what gets measured gets managed and if business knows how climate change will impact them they can take action. Australia, Canada, Japan, France and the UK are working towards similar legislation. 

In the wake of the coronavirus pandemic, there is a renewed focus on environmental, social, and good governance at multinationals. Funds that invest in companies that meet the criteria have performed better than normal funds. The largest asset managers in the world are responding to demand and creating more ESG funds.

One of the most successful investors of our time Paul Tudor Jones launched JUST Capital to help companies and corporations operate in a more just fashion by using the public's input to define what criteria are used for justice in corporate behavior. It ranks 1000 US companies (the JUST Index) by standards such as paying living wage jobs, making healthy products, and helping to not harm the environment. The aim is to give the American public a voice so that over time capital will be driven towards the more just companies to prosper. With increased wealth and profits has to come greater social corporate responsibility.

Storebrand, a major Norwegian investor worth $90bn has dumped its stocks in some of the world's biggest oil and mining companies responsible for lobbying against climate action. It has said that lobbying against climate solutions is unacceptable and has confirmed that it will sell its shares in Exxon, Chevron, and Rio Tinto due to their lobbying activities, which aim to prevent environmental laws coming into force. Exxon and Chevron have been lobbying the European Union to delay laws that will penalize pension funds that invest in fossil fuels companies. According to Saugestad:

“Climate Change is one of the greatest risks facing humanity and lobbying activities which undermine action to solve this crisis are simply unacceptable. “

Storebrand, a Norwegian financial services company, has also divested from companies tied to the Dakota Access Pipeline, saying divestment is a last resort and it only decided to divest after attempts to influence the project failed. The Seattle City Council voted this year not to renew Wells Fargo's contract due to the bank's involvement with the pipeline as well. Lots of these changes are as a result of people pressure and business is responding!

In an illustration of how much power funds and institutional investors have,  the oil companies are responding to this pressure. BP's CEO is seeking to convince investors to push into renewables as he recognizes the future of the company relies on less oil. With such a vast global reach and highly skilled workforce of engineers, he argues that the pivot should be possible.

If you're asking yourself this question, now, you should know that the answer is absolutely yes. Besides supporting local businesses and investing our money in the local economy (supporting jobs and our community) there are also options to invest and obtain a return for yourself and the world in the process.

Due to apps like Robinhood, its has never been easier to become an investor. There are many options for us to get involved in this movement by investing but also by making sustainable investments that will produce a return. With interest rates at record lows, investing in equities that returned 10% on average over the last 100 years may be a good alternative to grow our money. It also forces us to think about which companies we want to own and what those companies stand for. A good place to start might be an exchange-traded index that focuses on ESG.

As the great conservationist Jane Goodall said in a recent interview, “Every single day, all of us, we make an impact on the planet And we can choose the kind of impact we make.” Even the simplest of purchases can make a difference. “Did it harm the environment when it was made? Is it cheap because of child labour.” 

It is great to see the business world is finally recognising the urgency and importance of perspectives such as Jane Goodall’s as illustrated by Just Capital. “Investors need to be responsible and proactive in accelerating the green transition. We are not passive actors awaiting the pending systemic harm that climate change will unleash on ecosystems, societies and economies,” according to Mr. Saugestad of Storebrand. This is also due to consumer and investor pressure. 

Companies, hedge funds, assets managers are being forced to put their money where their mouth is by people pressure and we should too.