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October 08, 2011

SRI in the Rockies: Public Policy as a Strategic Tool for Sustainable Investment
    by Robert Kropp

Leading voices for shareowner action discuss public policy engagement at this year's SRI in the Rockies conference.

SocialFunds.com -- The second of the six Principles for Responsible Investment (PRI) commits institutional investors to active ownership, by exercising their proxy voting rights, engaging with companies, and participating in the development of policies and regulations. At this year's SRI in the Rockies, held earlier this week in New Orleans, a panel of experienced shareowner activists held forth on the practice of public policy engagement.

Moderating the discussion was Tim Smith, Senior Vice President of Walden Asset Management, who has focused much of his recent engagement with companies on the issue of political lobbying by the US Chamber of Commerce. Last year, when the Chamber filed a lawsuit challenging the authority of the Environmental Protection Agency (EPA) to issue regulations relating to climate change, Walden led a coalition that wrote to companies serving on the Chamber board, urging them to evaluate "the significant risks posed" by the Chamber's policy objectives and partisanship.

More recently, Walden and Calvert Investments wrote to companies serving on the boards of the Chamber and the National Association of Manufacturers, urging them to tell the organizations to "retreat to a neutral corner."

"The Chamber is hugely active in lobbying on positions, and unfortunately says it speaks for the whole business community. That is hardly the truth," Smith said at the conference. 'You'll remember that in the last election they had over $75 million to put into the election process. Its goal was to defeat every member of Congress who voted for health care reform."

But as part of the financial community, Smith continued, sustainable investors can have influence over policy decisions made in Washington. As an example, he said, "Ceres has often made the comment that when they go to Washington and talk to members of Congress, the voice of investors is understood and respected a great deal."

Lisa Woll, CEO of US SIF: The Forum for Sustainable and Responsible Investment, seconded Smith's observation on the influence of sustainable investors, saying, "Too often, the only financial sector professionals that Congress hears from are representatives from groups such as the Business Roundtable."

'The SRI community often brings a distinctly different voice in the sense of priorities," Woll continued. "This was absolutely true on the financial reform bill; US SIF and the Council of Institutional Investors (CII) were for the most part the only investment and financial professional-related fields that were actually pro-reform."

Woll provided attendees with handouts listing the organization's policy priorities, which include the funding of the Securities and Exchange Commission (SEC) the Commodities Futures Trading Commission (CFTC), and the Community Development Financial Institutions (CDFI) Fund; the formation of the Consumer Protection Financial Bureau (CFPB); a sustainable investment option for federal employees; and EPA's authority to regulate greenhouse gas (GHG) emissions.

"Policies developed in DC can impact SRI professionals, their business and their clients, both positively and negatively by impacting market conditions," Woll said. "Our community investment members will tell you quite clearly that the predatory lending crisis certainly has affected their clients, their work, and their ability to lend in low- and moderate-income communities across the United States."

"Public policy is a critical tool for making macro-level systemic change," she continued. "We could spend the next 40 years getting companies to have better carbon footprints and doing less damage to the climate, or we could get a bill that addresses it."

"To maximize success we should use a coordinated and collaborative approach," she added.

Louis Coppola, Senior Vice President of the Governance & Accountability Institute, said, "We're in a corporate, financial, and economic crisis, and possibly in a double-dip recession. The relationship between business and society is changing."

"We also have a sustainability crisis," Coppola continued. "One of the most important public policy issues to get behind is mandatory corporate ESG (environmental, social, and corporate governance) disclosure. If we had that in place it could help stop both the economic crisis and the sustainability crisis."

Coppola also praised the work on behalf of corporate reporting done by stock exchanges internationally, noting that many now mandate sustainability reporting by listed companies.

Sanford Lewis, an attorney whose Strategic Counsel on Corporate Accountability supports sustainable investors in their efforts to improve corporate social responsibility, spoke of insights gained while working on the Investor Environmental Health Network's (IEHN) campaign for improved disclosure by companies engaged in hydraulic fracturing.

In large part due to the efforts of IEHN and Green Century Capital Management, which together coordinated shareowner proposals addressing hydraulic fracturing that gained an average 40% of support this year, the SEC has asked companies to provide it with detailed information on chemicals used in the process and steps they are taking to mitigate environmental risks.

"Some of the public policy goals that I seek for investors include access to information, getting disclosure on the risks and opportunities that particular companies have, and enabling shareowners to file resolutions," Lewis said. "Leveling the playing field so that if a company is engaged in the risk reduction measures that we want them to, they are not disadvantaged in the marketplace, and providing incentives to companies to do good things like adopting green chemistry."

However, Lewis continued, "The view of the SEC in terms of shareowner advocacy is that until a public policy issue is basically a front-page issue, it may not be right from the SEC's standpoint to do a shareowner proposal on it. This is a huge problem, where they will treat issues as ordinary business if they haven't seen the issue in the news."

Several of the panelists mentioned the role of the Global Reporting Initiative (GRI) in developing industry-specific key performance indicators (KPIs) and advancing the acceptance of integrated reporting.

Lewis said, "In the long term GRI serves as the de facto standard of what sustainability and disclosure look like. Eventually regulators will adopt it as a reference."

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