Values-Alignment: A Provocation (Part II)

“And, to me, that last point is the salient one: while the act of divesting is primarily personal/moral/philosophical, the statement it makes is primarily political. This leap from personal to political is where, in my mind, most impact investors fall short. For, as I wrote in my last blog, the debate on climate change in this country is being fought within the beltway… even as the consequences of climate change are being felt on coastlines and farmlands.”

Just a few days ago, I blogged about values the impact quotient in values-aligning portfolios. The next day, Stanford announced that its endowment would henceforth eliminate coal exposure from all of its investments. And this morning, a somewhat confrontational New York Times Op-Ed by Professor Ivo Welch (Why Divestment Fails) argued that screening one’s portfolio has basically zero effect on corporate behavior.

In that my blog straddled both extremes – on one hand that screening portfolios has no demonstrated influence on corporate behavior, and on the other that values-aligning (particularly for an impact investor) is mission critical – I thought this might be a sign from the Blog Gods that I needed to dig into the issue a bit more thoroughly. And regardless if I am credited with prescience or simply blessed with good luck, these timely decisions by Stanford and the NYTimes gives me the excuse opportunity to do so.

(And for those readers who were eagerly anticipating the post I indicated would be next – 40 Shades of Grey: why values-aligning can be so damn hard to do well – you’ll just have to exercise patience.)

To set the stage, I want to emphasize that while the subject of this post is about divestment from companies that extract coal, the broader context is about catalyzing change – both financial and political – with one’s public securities holdings. As such, I’ll do my best to stay at 60,000 feet, but will dive into the fossil fuel debate for illustrative purposes. With that in mind, let’s pull a few quotes from Professor Welch’s Op-Ed. In no particular order:

  • “Individual divestments, either as economic or symbolic pressure, have never succeeded in getting companies or countries to change.”
  • “But didn’t a similar boycott force South Africa in the 1980s to abandon apartheid? Unfortunately not. We looked hard for evidence linking boycotts and sanctions to the value of the South Africa’s currency, stock market and economy. Nothing.”
  • “In the case of fossil fuels… the moral choice is much less clear than it was with apartheid. Energy is an area with no obvious solutions. Apartheid had no place in a civilized world. Fossil-fuel companies are supplying a market demand, one that for the time being cannot be met by other fuel sources. Divestment won’t change that calculus.”
  • “True, stating that the impact of economic sanctions was low is not the same as stating that the isolation of the apartheid regime had no effect. The wide ostracism may well have weighed on President F. W. de Klerk’s mind. But it was not the economic effect of the boycott that forced him to the table.”

KochVsSteyerNow let’s scrape a few quotes from the press release that announced Stanford’s decision (as an aside, this release is a must read for anyone who wants to understand how an institution like Stanford evaluates decisions like this, what their frame of reference is, how to interpret their mission and what they think the likely consequence may be. And, while you’re at it, you should also read – with respect and attention – Stanford’s Statement on Investment Responsibility. While it was crafted in 1971, it could serve as a working model for the investment policy statement of any aspiring impact investor today. And it is worth pointing out that Stanford’s logo includes a green tree. Hmmmmmm.):

  • “The university’s review has concluded that coal is one of the most carbon-intensive methods of energy generation and that other sources can be readily substituted for it. Moving away from coal in the investment context is a small, but constructive, step while work continues, at Stanford and elsewhere, to develop broadly viable sustainable energy solutions for the future.”
  • “Fossil Free Stanford catalyzed an important discussion, and the university has pursued a careful, research-based evaluation of the issues,” said Steven A. Denning, chairman of the Stanford Board of Trustees. “We believe this action provides leadership on a critical matter facing our world and is an appropriate application of the university’s investment responsibility policy.”
  • “This is a considered approach that is consistent with our institutional values and acknowledges the critical sustainability challenges facing our planet.”
  • “In the investment context, in addition to the action on coal, Stanford’s existing proxy voting guidelines adopted earlier by the Board of Trustees mandate that the university vote “yes” on proxy resolutions asking companies to adopt sustainability principles, reduce greenhouse gas emissions and increase the energy efficiency of their operations.”

What fascinates me about these two samples from the debate on fossil fuel divestment is that, while they disagree on the action, they agree on the meaning. Both effectively admit that the decision to divest is moral more than it is economic. Stanford even goes to far as to suggest that it is an issue at the heart of what it means to be a university, both in terms of leadership and values promotion. Both agree that alternatives to existing policy must be used and pursued. Both agree, more implicitly than explicitly, that proxy voting plays a crucial piece in catalyzing change. And both state – one factually and one tacitly – that the economic consequence of divesting is immaterial compared to the political statement.

And, to me, that last point is the salient one: while the act of divesting is primarily personal/moral/philosophical, the statement it makes is primarily political. This leap from personal to political is where, in my mind, most impact investors fall short. For, as I wrote in my last blog, the debate on climate change in this country is being fought within the beltway… even as the consequences of climate change are being felt on coastlines and farmlands.

So, I’ll reiterate my main points from my last post:

  • Values-aligning one’s portfolio is a critical step for any impact investor, for a range of reasons, but…
  • Without simultaneously engaging firms like As You Sow and Proxy Impact to serve as the transmission mechanism between your values and the political statement you want (and need) to make, the alignment is an empty, if satisfying, gesture. Therefore…
  • We need to challenge those institutions whose very existence is dedicated to the great challenges we face to become more engaged, to take more risks, to work to influence the public debate, and to put their capital to work in support of their mission!

And to all of those impact investors who have yet to screen their public securities portfolios, and have yet to engage proactively at the nexus of your values and your capital… the time has come to step up. If you can’t find comfort in the notion that the Stanford Endowment is standing right beside you, you should examine your commitment to the notion that you are an impact investor!