In late 2018, Chief Investment Officer Magazine announced the winners of their 2018 Industry Innovation Awards. The award in the ESG (Environmental, Social, and Governance) category was given to the Sierra Club Foundation (SCF), led by Executive Director Dan Chu. (Sierra Club Foundation, a 501(c)(3) tax-exempt public charity, is the fiscal sponsor of the Sierra Club’s charitable environmental programs.)
The laudatory write-up begins, “The Sierra Club Foundation is one of the few investors that has a complete $100 million portfolio of public equities invested in ESG and fossil-free funds.” It is admirable that SCF has so closely aligned its portfolio with its mission, and fortunate that its performance compares favorably to its benchmark. In doing so, however, SCF has taken other steps to avoid a common pitfall of mission-aligned investors, as well as many foundations, endowments, and family offices generally: SCF has maintained, and extended, its ability to use its shareholder voice.
Besides ensuring that its investments match the mission and values of the Sierra Club, SCF achieved other goals in its fossil-free portfolio transition. For one, it took donor intent seriously. And, while fossil fuel divestment has little economic effect without support from a large swath of institutional investors, its indirect effects on political and moral discourse are valuable.
A regular criticism of fossil fuel divestment is that it surrenders any possible impact of shareholder engagement with fossil fuel companies. After all, one can no longer submit or vote on shareholder resolutions — nor vote in board of directors elections — of companies whose stock has been divested. In addition, many fossil fuel companies meet with responsible shareholders to discuss their concerns. In divesting, one thus loses leverage to foster change. But SCF has shown how to have the cake and eat it too.
SCF’s shift began in 2010. From 2011 through 2017, unscreened investments were reduced from about half of the stock and bond portfolio’s value to almost zero. Proceeds were re-deployed into fossil-fuel-free/low carbon equity and fixed income investments as well as emerging clean energy managers and program impact funds. In 2013, SCF established a shareholder advocacy fund at Trillium Asset Management to hold a small number of fossil fuel company stocks for shareholder engagement. Prior to Chu’s hiring, SCF used this tool to sponsor and co-sponsor shareholder resolutions when advocates requested it, to sign on to investor letters initiated by others, and to provide direct access to company executives. In this phase, SCF helped the community of advocates, but didn’t use its own voice.
Chu was named Executive Director in 2016 and began a more activist program. The Foundation changed banks, yanking its substantial assets away from Union Bank, a subsidiary of the Japanese behemoth MUFG, which funds the Dakota Access Pipeline. The funds were re-deposited with the socially conscious Amalgamated Bank. At the same time, Sierra Club urged its 3.5 million members to move their own money out of banks that lend to the fossil fuel sector.
In 2017, SCF ramped up its shareholder advocacy efforts. The Foundation, already a member of Ceres, joined the Interfaith Center on Corporate Responsibility (ICCR) and UN PRI. They also submitted public comments to the Sustainability Accounting Standards Board, advocating for financially material environmental and social disclosure from public companies.
In May 2018, in response to the Trump Administration’s push to open the Arctic National Wildlife Refuge to oil leasing, SCF spearheaded an investor letter, sent to over 100 fossil fuel companies and banks, asking them to refrain from funding oil development in the Refuge. SCF levered its memberships in its investor coalitions to generate sign-on support. While the Foundation’s goal was to recruit investors representing a trillion dollars in assets under management, the final tally was more than two and a half trillion.
The summer and fall of 2018 saw a series of engagement meetings between SCF and over 20 of the fossil fuel funders addressed by the investor letter. Some were attended by leaders of the Alaskan Indigenous groups who depend on the Arctic Refuge for survival. In addition, SCF purchased a minor amount of stock in both BP and SAExploration Holdings (SAEX), a small energy services business bidding to start seismic testing in the Refuge that winter. SCF could now attend shareholder meetings with BP, and claim a seat at the table should a meeting with SAEX ever occur.
Finally, SCF used its advocacy portfolio to file its own climate-related shareholder resolution with Chevron. In addition, the Foundation provided support to the shareholder advocacy non-profit As You Sow in order to file other climate resolutions at J.P. Morgan and Wells Fargo. In turn, the Sierra Club itself also helped out by holding rallies at the annual shareholder meetings of several banks and creating an online campaign to influence BlackRock, “the world’s biggest owner of fossil fuel companies.” The “BlackRock’s Big Problem” campaign has generated 27,000 individual messages asking CEO Larry Fink to “walk the talk on climate action.”
SCF’s shareholder engagement has already reaped results. Earlier this year, Barclays and National Australia Bank each announced that they would no longer consider any Arctic oil–related lending. Further announcements are expected, as the spring brings another round of annual shareholder meetings.
SCF’s example is replicable whether your organization has divested, intends to divest, or has determined that it can’t. Joining a shareholder coalition is the first step. This amplifies your voice and gives you a seat at a much larger table. An advocacy portfolio is another important feature, and is easy to fund because the amounts of stock required for impact are minuscule. Don’t be afraid to engage with the managements and boards of your holdings, either. Foundations, endowments, and family offices all have financial advisers who can help you to engage or can engage on your behalf. But be aware that there is a wide range of capability in this regard, so make sure that your adviser is a competent engager, or find one who is.
Your organization may not be able to match Sierra Club’s millions of members, but all organizations have a donor and membership base that can be mobilized to pressure companies and other investors. While we are all accustomed to the idea of writing to our elected officials, very few of us consider contacting the investor-relations staff of companies in which we own stock. And how many of us even ask the hard questions of our own money managers? The very rarity of these practices amplifies their impact.
Several platforms to enable communication between your base and their investments and investment advisers have recently been created, among them Shareholder Democracy Network, Say, and YourStake (full disclosure: a co-founder of both YourStake and Real Impact Tracker is a family member).
The beauty of using your shareholder voice is that it need not entail any significant portfolio shift. If you can’t get agreement on a major divestment, fine. You can still use your financial assets for positive impact. If you have divested but are concerned that you have lost the capability for further impact, don’t worry. Simple steps, like those taken by SCF, can restore that capability.
All shareholders, even those with small holdings, have a powerful voice if they unite. Join with your fellows, mobilize your base, open your throats and sing!
Photo by Clem Onojeghuo on Unsplash