Mindy Lubber of CERES and Matt Patsky of Trillium Asset Management
Welcome to the fourth of GreenMoney’s new Icons Series, in which we invite Socially Responsible Investment & Business leaders to interview others who have also assumed SRI and CSR leadership. This issue features Mindy Lubber, President of CERES, the leading U.S. coalition of investors and environmental leaders working to improve corporate environmental, social and governance practices interviewing Matt Patsky, CEO and senior portfolio manager of Trillium Asset Management, a well-respected independent investment firm founded by Joan Bavaria in 1982.
Both Mindy and Matt have been motivating leaders for many years and continue to help us to make money and make a difference.
Here is what Mindy wants to know from Matt…
MINDY: What are your top priorities for company engagement to improve their environmental, social and governance (ESG) performance in the 2011 proxy season and why?
MATT: We engage with companies by means of dialogue, correspondence, meetings and shareholder resolutions. A quick indication of our priorities comes from a glance at the list of the 24 shareholder proposals that we are filing or co-filing this year. Several themes are dominant, one of which is the need to hasten our economy’s transition from fossil fuels to clean and renewable sources of energy. We’re doing that with proposals at oil, gas and electric power companies addressing the climate impacts of their products (more about that in answer to last question.) A related resolution at Anadarko Petroleum addresses the environmental health risks from the hydraulic fracturing technology used to extract natural gas. Natural gas has a huge bridging role to play as we wean ourselves away from coal and oil, but for that to happen, gas drillers are going to have to regain the public’s trust about hydraulic fracturing, which has been linked to contaminated water supplies. Other environmental health issues we are working on include encouraging companies to eliminate the chemical BPA from their packaging (Dentsply, Coca-Cola), and to share more information with communities that live in the shadow of manufacturing facilities (PPG, ConocoPhillips).
Another major priority for us is the preservation of net neutrality, which affects all Americans and their ability to access the content they want online, especially as more people rely on wireless and mobile devices for access. It’s very important to our democracy and the vitality of our economy that wireless Internet Service Providers like AT&T and Verizon not determine what content we can access or services we can use. As the director of Open MIC, a nonprofit we founded to work on new media issues from a shareholder perspective, said, net neutrality is “the free speech issue of the 21st century.”
Without a free and open Internet, moving forward on a number of ESG issues will be difficult. The same can be said of our country’s need to rein in corporate political contributions, rather than to open the door for their expansion as the January 2010 Citizen’s United Supreme Court decision did. Through shareholder resolutions and dialogue, we are educating companies to the risks of political spending (such as consumer backlash) and calling on them to be transparent and accountable in this arena. We have filed multiple resolutions this year addressing political spending, at Target, State Street, Best Buy, 3M, Pentair, Ford and Halliburton, and co-filed a related resolution at IBM that addresses their membership on the US Chamber of Commerce’s board of directors. The Chamber is taking advantage of every loophole in the system to funnel corporate payments into political activity that is not required to be disclosed to shareholders. We think that’s wrong.
MINDY: What would you say to convince a traditional asset manager, like Fidelity or Vanguard, that they should vote their proxies in favor of climate and sustainability-related shareholder resolutions?
MATT: We can already see the impacts of climate change on a wide swath of business sectors – farming, insurance, freight and many others. Supply chains are being disrupted, commodity prices are being impacted, water scarcity is emerging as a serious problem and energy supplies are being questioned. Along with these risks we also see opportunities to create production efficiencies and reduce energy costs.
The answers depend on the particular challenges and opportunities faced by individual sectors and specific firms. For example food processors, commodity companies and food service firms are particularly vulnerable to changes in rainfall patterns – one of the most direct and powerful expressions of climate change. The risk of those changes can mean higher prices and lower quality crops that these companies depend on. As one food company reported in its 10-K, commodity costs “may fluctuate widely due to government policy and regulation, weather conditions, climate change or other unforeseen circumstances.”
Similarly, GlaxoSmithKline reported this year that their operations in the United States and Australia saw threats to their production due to precipitation changes resulting in water rationing. For homebuilders, changing weather patterns and/or extreme weather events may impact construction cycles and delivery times. Equally important are the regulatory changes that may come in response to climate change. Building codes and land use laws are the most obvious regulations ripe for change.
In contrast to these examples, financial services companies are presented with great opportunities because a shift to a low carbon economy requires significant amounts of financing. For these reasons we think a large institutional investor that is seeking to maximize risk-adjusted returns cannot ignore climate change. As Kevin Parker, the global head of Deutsche Asset Management said “climate change is probably the single biggest global investment trend of my lifetime and we would not be serving our clients well if we did not focus our energy on it.”
MINDY: How do you articulate the business case for responsible investing in sustainable companies, clean energy and green projects in terms of likelihood of generating superior returns?
MATT: We believe that focusing on sustainable companies allows us to identify companies that are leaders in higher growth sectors. The easiest way to articulate the business case would be to look at the investment performance of our Sustainable Opportunities strategy. We developed this strategy in 2008 in response to clients that wanted to invest in the most sustainable companies. Sustainable Opportunities seeks to invest in companies that are sustainability leaders and that are highly responsive to the global challenges of climate change, water scarcity, resource constraints, wealth disparity, disease and conflict.
MINDY: What trends have you noted in socially responsible investing over the past decade? Has the economic downturn been a critical factor in recent years?
MATT: Over the past 10 years or so we have seen the steady growth and development of shareholder engagement, ESG data integration, public policy advocacy, and community investing. More and larger shareholders are taking the opportunity to engage directly with companies seriously. Whether motivated by evidence that it is an effective tool in their quest for appropriate risk-adjusted returns or a set of ethical values, we see investors taking their concerns to companies in greater numbers. And this work has been supported and instigated by a number of entities with international reach such as the Investor Network on Climate Risk, the UN Principles for Responsible Investment, the Carbon Disclosure Project as well as many of the long established US organizations such as the Social Investment Forum and the Interfaith Center on Corporate Responsibility.
We have also seen dramatic developments in the availability and use of ESG data. Examples of investors using ESG data are a regular feature in the press as are reports about the new players entering the data provider market. This interest in ESG data was recognized last year when the SEC issued climate risk interpretive guidance.
I also think the SRI community has begun to find its voice in Washington D.C. Through the rigorous and disciplined effort of the Social Investment Forum, our community was able to participate effectively and influence the debate surrounding Dodd-Frank. And while the law should have been much stronger, Trillium and our colleagues were able to make an impression with legislators and secure and bolster important provisions of the law.
Finally, the growth in Impact Investing over the past few years reflects the tremendous interest in the Slow Money/Slow Food movement. Investors are becoming better educated about the high social impact choices that are available to them locally and globally.
MINDY: Please give an example of when you’ve divested from a company because you were unable to move them to address sustainability challenges or because you feared they were not taking risks seriously enough.
MATT: One example that comes to mind is Eli Lilly. Leading up to the third quarter of 2008 we had growing serious concerns about its toxic emissions, marketing practices, and safety record even though the company had an A rating from Innovest. Then came the news that it was purchasing rGBH (bovine growth hormone) from Monsanto. Earlier in the year, Wal-Mart, Starbucks, Kroger, Deans Foods, Publix and Kraft had all announced that they were going to source all their milk from dairy processors that had rBGH-free cows. And for more than a decade the European Union had rejected imports of meat derived from hormone-treated cattle. Similarly, the American Nurses Association had stated that they supported state laws and policies that aim to reduce rBGH.
We saw this as blatant disregard for environmental and social risks, and sold our position. It was really the last straw, which demonstrated that the company was not going to address its sustainability challenges and was exposing itself to far too many risks. And if you look at share price, we think that in the last two-plus years the correctness of our decision has been confirmed.
MINDY: With climate legislation on hold for at least the next 2 years, what is your strategy moving forward for engaging with companies on climate-related risks?
MATT: We need to be focused on the long term and be persistent; we’ve been filing resolutions at a handful of hard-core fossil fuel-dependent companies for many years. We’ve got resolutions at ConocoPhillips and ExxonMobil addressing their investments in the Canadian oil sands, which are such a long-term misuse of resources and such a blow to efforts to the regional environment, the boreal forest ecosystem, and efforts to reduce greenhouse gas emissions. We also withdrew a resolution recently at Royal Bank of Canada, which has general lending relationships with many of the biggest companies in the oil sands. After much discussion, we’re mostly pleased with their new, more stringent policies for assessing any specific project’s impacts on the environment and directly affected communities, which in Canada, often means First Nations tribes.
At Dominion Resources, we’ve filed a resolution that asks the company to report to shareholders on the financial risks that stem from the company’s reliance on coal-fired electricity, given among other pressures, pending EPA regulations on CO2 and other water and waste emissions.
And as you know, Mindy, we’ve signed on enthusiastically to a number of Ceres-organized letters to public and quasi-public entities that articulate the business case for urgent action against climate change. All of us have to keep up this steady drumbeat to break the political stalemate we face.
