I am an advocate of responsible investing. I view my role, or the role of my industry, as essential if there is to be a future. Over these next few minutes, I hope to give each of you my own sense of urgency.
Here’s what I see: On the one side is the real world, a world of trade, of people, and of purpose. On the other side is a world of finance, of money, of money making. The pivot joint, that would be investors, either responsible or irresponsible. The world of trade might be represented by the economies of nations. The combined gross domestic product of the European Union, the United States, Canada, Japan and China is $34 trillion. That’s the world of trade, of people. Then there’s the fast money world, just one small piece of finance. But it publishes numbers. Two weeks ago, the International Swaps and Derivatives Association reported that the outstanding nominal value of swaps and derivatives at the end of June stood at $283.2 trillion. That is just a corner of the world of finance. $34 trillion verses $283 trillion; guess where the power lies, the real world or the money world. We must infiltrate the world of finance and use it for good.
Injustice and degradation continues in this world, much of it caused by financial greed. Greed which ultimately benefits investors. Investors, those who create the greed context do not meet those who suffer the consequences.
Remember that capitalism in its current “large multi-national corporation” format is not the only means available to us for providing ourselves with sustenance and comfort. The somewhat informal street markets of South America, Africa and Asia have no CEO, no shareholders, no reporting structure, and yet provide people with both a means of livelihood and goods to live better.
But human nature is expansive and we want more. We want it all. We want an automobile. We want this automobile to have strong tires. We want this automobile to have power, probably a battery. We want this automobile to have seats, covered with something sturdy and easy to keep clean. Automobiles are expensive and complicated and thus require loans to buy them and tremendous manufacturing companies to build them. Investors and lenders help fund the business in exchange for profits, and thus we want a capital system that protects these investors and lenders. Finally, we want a legal system to hold all these pieces together. The desire for goods creates many systems.
The result? In Harbel, Liberia rubber tree tappers work under a quota. They tap 650 trees visiting each tree twice each day. They also clean taps, apply pesticides, and carry heavy buckets of latex to collection points up to a mile away. Their pay is $3.19 a day and to meet their quotas would take the average adult 21 hours. So the workers bring their children along to do the work, and we get our tires and Firestone makes a profit for its shareholders.
Meanwhile, in La Oroya, Peru the lead smelter has three times been exempted from environmental laws. Each time the company threatened bankruptcy and the deadline met by all other smelters in Peru has been delayed. Children in the valley suffer 400 times too much lead in their systems. They will never be well, they and their children. And we have our lead batteries, and Doe Run makes a profit for its shareholders.
And, as we saw yesterday, in the Niger Delta, gas flares burn 24 hours a day, seven days a week creating a cocktail of toxins that seeps into the soil and water. Cancer, respiratory illnesses, and civil unrest are the result. Un-armed negotiators from the neighborhood met with management. But they were held captive after the third day of meetings. Two where killed and one was tortured. And we have our plastic cushions, and ChevronTexaco makes a profit for its shareholders.
In Tokyo, Japan, the lenders resell consumer loans to collection services. These services take out a life insurance policy on the borrower and then begin harassing the family, friends, and associates of this unfortunate. In 2005, 3,650 suicides resulted. And we get our functioning capital system and Aiful Corp., ACOM, and Promise Company makes a profit for shareholders.
In March 2003, in Colorado, in the U.S.A., Moises Carranza-Reyes was picked up for being Mexican. He is sent to the Colorado Park County Prison, a prison of the new U.S. model. One that “stands on its own” making money, not costing money. The dozens of detainees shared two toilets in the unheated cell block (March in Colorado is killing cold). The toilets had backed up days earlier and infection flourished. By the time he left for the hospital, Moises had pneumonia and sepsis. His arms and legs were gangrene; one leg had to be amputated. And we got our legal protections and the prison made a profit.
No, I do not believe investments are neutral. The above examples are awful results of a profit-hungry world. They represent a complete breakdown in not only the government and the judiciary, but in simple humanity. All of this is fueling our investment profits.
We in the field of Responsible Investing respond in three basic ways:
First off, we select companies to invest in based on a comprehensive stakeholder analysis. This enables people to start a discussion about what kind of a world we want – and what the companies we invest in must deliver --so that together we can create that kind of a world. By demanding research on corporate accountability, social investors have unleashed the power of information. In order to fix what is broken, you must first learn of it.
The standards we apply are in the booklet on the tables outside. They relate to the company’s stakeholders. With this information we reshape the way the world thinks about corporations and their role in our lives. Why social screening? For three basic reasons:
Ethical values: As socially responsible investors, we do not wish to profit from products and practices that undermine human dignity or harm the environment. We do, but we try harder to avoid obvious conflict.
Financial value: By applying social and environmental standards to our portfolios, we reduce our exposure to risks while favoring companies that display positive corporate cultures. I’m not saying it’s a magic bullet, but it is a nuanced advantage.
Social impact: The research necessary to apply these standards has helped to redefine what it means to be a successful corporation and has encouraged the disclosure needed to hold corporations responsible for their actions. When investors need data, companies provide it.
In short, setting standards, screening, what your portfolio will purchase is not only a way to align your investments with your values – it is also a way to advance corporate social responsibility. For these reasons, I consider screening to be by far the most strategic and powerful tool in my tool box. But, I have others.
The second basic aspect of socially responsible investing is becoming an active shareholder. As equity investors, we own these companies – it’s our responsibility to make sure they do the right thing.
Domini takes an active role with the corporations in its portfolios, raising a broad range of social, environmental, and corporate governance issues with management. These efforts have produced important successes. We, in America, have formal guaranteed access and we use it. We’ve won agreements to provide environmental reports, increase use of recycling, monitor their suppliers’ compliance with basic human rights standards, and a host of others.
Activist investors play a critical role in holding corporations accountable. We can often provide a seat at the table for nongovernmental organizations and other community representatives.
By exercising our responsibilities as owners, we can change corporate policies – and we have. We view these issues as matters of right and wrong. And, we use our voice to make life a little better for a few people.
And, I have another tool. The third basic aspect of socially responsible investing is what we call community investing. It is a strategy for redirecting capital to people who need it the most – thereby empowering people to help themselves. Community investing recognizes that a healthy and vibrant economy must be built from the bottom up. You heard a bit about it yesterday.
Yes, you can invest for your future, while also providing economic opportunity to those who have been left behind.
A strong, vibrant marketplace requires strong, vibrant communities. Domini offers two ways to help support communities across the country.
The Domini Social Bond Fund invests in bonds and other securities that help residents of underserved urban and rural communities to start their own businesses and buy their own homes.
The Domini Money Market Account places 100% of its funds with ShoreBank, the first bank in the US to commit to rebuilding distressed communities. This means you know that your deposit will be used to expand ShoreBank’s commitment to lending in underserved communities.
Our investors help low-income individuals and institutions finance first-time home purchases, create daycare centers, refurbish houses of worship, and start up and expand family businesses. In addition, they support institutions that provide valuable training and empowerment to those who have not previously dealt with mainstream financial institutions.
That is a brief summary of how Socially Responsible Investors try to help.
Remember my simple opening stories of Peru, Nigeria and the U.S. Why are our simple needs conspiring to create such horrific human degradation? At first glance, the reasons seem so benign, even high minded. But they are real deterrents to building a better world and they must be addressed.
Problem number one: There’s the supposedly pragmatic attitude that this is just a phase. Witness the fact, proven throughout history, that capitalism raises populations out of poverty. After all, jolly old England had its share of sweatshops and that country is mighty fine now. These things work themselves out. But can they today? I would challenge that. England had a society within which unions could form. There was a relatively educated public and relatively benign leadership that lived close at hand to the victim, not continents away. And there were not the weapons and corruption rampant in today’s world. Liberia and Libya and Peru do not enjoy these pre-conditions. Until and unless Firestone and Chevron and Doe Run demand a better life for those workers, it cannot occur.
Next problem: There’s the supposed truth that investments are neutral vehicles. Furthermore, I owe it to my kids to invest for the maximum return. I didn’t tell that Denver prison to save money by omitting toilet repair. Someone (else) should have been watching. But I did pick my fund investment for maximum return and the fund manager knows it and goes for it. When the fund’s manager visits Bridgestone Corporation, the parent company of Firestone, they ask management how it is improving profits, and management has an answer. They can talk for hours on productivity improvements and favorable environments for their sourcing of raw materials. But they don’t admit to one key strategy: slavery. Investment are not neutral. They are immoral or they are moral.
Next problem: There’s the ridiculous belief on the part of fiduciaries that making money in the portfolio is their only responsibility. Fiduciaries cling to this belief even when making money costs their beneficiaries more than it earns. Consider Cintas, which rents out uniforms and washes a lot of clothes. Suppose Cintas’s CEO raises a bundle of money for George W. Bush’s re-election and within months the Environmental Protection Agency loosens the clean up requirements for laundry facilities. Analysts calculate savings of $283 million a year and say buy. And I, the solid fiduciary, do so that my beneficiaries can make money. I don’t even contemplate the fact that the dirty lakes and rivers are causing cancer, and the cancer is raising healthcare costs for my beneficiaries, and this is costing the beneficiary far more than the profit they each receives from owning Cintas. Fiduciary responsibility needs to be clarified. It needs to mean net benefit after all costs.
And another problem: There’s modern portfolio theory. Diversification is good. So jump in. Buy anything. Buy hedge funds, commodity pools, commercial real estate; hell, you forgot pork bellies. And if you think corporations could be more transparent, you’ll love how well these asset classes report out to you. Further, there’s no opportunity for dialogue. So the fiduciaries for my own church can say that we support paying a living wage on the one hand, while investing in these things on the other. The commercial real estate my church owns can make better profits by holding down costs. So building management companies hire immigrant women to clean at night (unsafe), without benefits, and at minimum wage. When Janitors for Justice tried to unionize the workforce at Carlysle, the church was with them, but the investment team of the church was not. The investment team did not enter into dialogue. It did not divest. It stepped up funding. With church money, Carlysle bought more buildings and spread the abuse using those new funds.
Where does it end? People only need one kidney. I’m thinking I can create a new asset class while giving an option to all those illegals we worry about across the puddle. They can stay if they give me a kidney. I’ll package it as a human body parts allocation, get pension funds to see it’s a here-to-fore unrecognized asset class, and get all the big bucks into it. That’s the magic of diversification. It doesn’t ask you to be anything but new. What a win/win.
You probably understand that I think that there is a problem with the miracle of modern capitalism. But I also believe that many steps, important steps, can be simple to undertake.
Let’s begin at once. Can we reform accounting? There’s a problem with the U.S. accounting system. It was designed to protect investors. It was not designed to inform taxpayers. So we count and celebrate the profit improvements in the Corrections Corporation of America (CCA) which runs for-profit jails while we do not tell society that the company lobbies for more reasons to jail people. We celebrate the profit at Yum! Restaurants, but do not attempt to count the cost of obesity to our society. We enjoy the profit at Tyson (chicken), but not the cost of a 58% jump in deaths resulting from antibiotic-resistant diseases. Full cost accounting must become law.
But, when it comes to solutions, the people in this room offer great hope. We represent disciplines the world needs.
Many of us present promote local and sustainable sourcing, slow food, organic and traditional agriculture, and alternatives to traditional healthcare, energy and lifestyles. This is definitely part of the solution and the world looks to us for leadership. Can we help the planet to rethink consumption?
Many of us in the room back the calls for greater transparency and it is essential that we continue to do so. Corporate social responsibility work has been the vanguard of transparency, from which comes data, then knowledge, then action. Can we encourage increased disclosure, in part to celebrate and in part to name and blame, but mostly because without data there can be no accountability.
Models of responsible business, many of us non-businesses, like those in this room, demonstrate that business can be profitable enough without crossing the line. There is a global growth of new businesses, founded on values of responsibility. It gives new models, essential to progress, to the world. The first step to recovery is hope. These models exude hope.
We in the field of socially responsible investing create the demand for corporate social responsibility reporting and can create financing for the proponents of our ideals. SRI investors stand at the juncture of the real world and the game of money. We strive to hold financial systems accountable for the results they create. And around the world the disenfranchised look to us. We must bring finance back to its founding purpose -- that of providing people with the goods and services they need: food, clothing, healthcare, shelter and comfort.
We in this room work in partnership with NGO’s around the world. We work in the city and on Wall Street. We rely on and support the faith-based organizations struggling for peace and justice. We must continue to work together to be recognized as the force for positive social change that we are. There is evil and injustice in the world. But it wears a grandfather’s face. It calls itself a fiduciary, profitable quarterly report. It poses as a friendly financial advisor, one who understands your personal dreams and who works night and day to help you to achieve them. We in this room cannot do everything, but unless we are involved, unless we can harness the power of the financial services industry to work for human dignity and a clean planet, finance will work against those goals and cost us a future.