For many people, sustainability is a political issue, one that depends on whether you are on the left or right, whether you believe in big government or free-market enterprise. President Obama was recently forced by Republicans to decide on the fate of the Keystone XL pipeline in a law extending payroll tax cuts. Environmental advocates have already threatened to withdraw support if the pipeline goes through. Ron Paul suggested that the EPA was the third government agency Rick Perry was looking to cut.
And the issue, of course, extends beyond North America: Here in the Netherlands, populist politician Geert Wilders questioned whether Queen Beatrix had secretly joined the “Green and leftwing” party after her annual Christmas message focused on more care for people and planet.
But sustainability is much more than a hot button political issue.
Let’s face the facts. Climate change is accepted by the vast majority of scientists (and recently even former climate change skeptics!) and a growing body of academic literature. Even those who don’t believe in climate change know that the world is facing an unprecedented resource challenge. We are faced with a growing world population that will likely hit 9 billion by 2050. Middle class growth in populous countries such as China and India requires a higher level of consumption—whether in cars, clothing, or food. At the same time, there is an ever-present and even growing gap between rich and poor, not just in developing countries but also in North America and Europe.
Sustainability and investment
In an ideal world, sustainability would be just a part of doing business in a market economy. This means paying attention to people, planet, and profit. Historically, many businesses attempted this. An early proponent of attention for non-financial matters was automaker Henry Ford. Instead of paying out special dividends to his shareholders, he proposed putting “the greatest share of [Ford’s] profits” back into the business to benefit his employees, further reduce the price of cars, and make mobility available to more Americans. However, two major shareholders, the Dodge Brothers, wanted to continue these special dividends and took him to court in 1919. Dodge vs. Ford Motor Co. determined that a corporation is organized primarily for profit of shareholders, and laid the foundation for decades of corporate fixation on shareholder wealth maximization.
This shareholder wealth maximization continues today, and is arguably one of the leading causes for the global credit crunch in 2008 and the ensuing recession that continues today. There are, however, a growing number of responsible investors who find sustainability performance just as important as financial performance. They understand that companies need to be challenged on their social and environmental performance.
They do this by benchmarking companies’ performance in comparison to their sector peers or international guidelines like the UN Global Compact or the OECD Guidelines. After all, gross violations continue to occur. One recent well-publicized example is Dutch-English oil and gas company, Shell, that has, for decades, significantly contributed to the environmental and social degradation of the Niger Delta. Had sustainability been more of a priority in its operations, it would not be necessary for Shell to spend hundreds of millions of dollars now cleaning up, as it recently announced following the publication of a damning UNEP report.
More importantly, had this environmental degradation not occurred, there would be much less social unrest. It is the height of irony that Nigerians have taken to the streets to protest higher imported gasoline prices while their country exports so much crude oil. At the same time, companies are in a very powerful position to effect positive change. When a globally operating company like Unilever announces that it intends to halve CO2 emissions, water use, and waste while doubling its turnover in 2020, real change can occur.
One organization raising awareness for sustainability among corporations is my employer, the VBDO (Dutch Association of Investors for Sustainable Development). As organization, we believe that the most effective way to contribute to sustainable development and meet the challenges mentioned earlier is by addressing the capital markets. The global flow of capital can be directed in a manner that brings about desired developments, ensuring a society that meets current needs without compromising future generations’ needs. For the past sixteen years, the VBDO has engaged with publicly traded companies, mostly in the Netherlands. This engagement with companies is centred around the Annual General Meetings (AGM), where all shareholders are able to pose questions to the executive board and vote on agenda items and shareholder proposals. This engagement is frequently followed up during the course of the year with other meetings.
This engagement is surprisingly effective, considering that the VBDO generally holds two or three shares and therefore cannot be counted as one of the majority shareholders. There are several keys to success. The first, most important factor is continuity. Corporations know that we will be present at their AGMs each and every year, drawing attention to sustainability. Second, careful preparation by providing the comments and questions to the company keeps the relationship with the company on good terms and also guarantees that the questions will be discussed by the executive board. Finally, we compliment improvements and always strive to provide constructive criticism.
One example that shows this success is the issue of sustainable remuneration. Already back in 2006, the VBDO believed that the variable remuneration (bonus) for the executive board should not only include financial incentives, but also sustainability criteria. When it voted against the bonus proposal at the Philips AGM in 2006, the CEO dismissed this by stating that there are at least a hundred other criteria that could be used for the bonus. Not to be discouraged, the VBDO published a handbook in 2010 detailing how this could be done, and in 2011 eighteen Dutch publicly traded companies explicitly linked a portion of the executive bonus to sustainability targets, with a further seventeen indicating that sustainability plays some kind of role in executive compensation.
In fact, our experience is that corporations are increasingly willing to enter into a dialogue with us and appreciate the attention that is being paid to the topic of sustainability. We are even regularly approached by the sustainability division of a company before the AGM with suggestions for questions that we can pose to the executive boards so that they are able to push the agenda further.
Christians and responsible investment
Christian investors share many common traits with responsible investors. Concern for the poor and environmental stewardship are central tenets of the Christian faith. In fact, the first responsible investors were Quakers who excluded investments in the slave trade. There are a number of responsible investment and engagement initiatives led by various Christian groups. After the CEO of Goldman Sachs claimed to be doing God’s work, nuns from the Sisters of St. Francis paid the company a visit, interested to hear how Goldman Sachs went about doing this work.
Christian Brothers Investment Services, a Catholic investment company, has been leading in engaging oil and gas company BP and has worked hard to raise awareness among companies about human trafficking. The Interfaith Center on Corporate Responsibility is a US-based organization actively engaging companies. The United Methodist Church has a Socially Responsible Investment Task Force. Meritas is a joint venture of various Mennonite organizations that offers responsible investment products, and is also active in shareholder engagement.
Yet on the whole, it feels as if the Christian voice in responsible investment and engagement is faint. This begs the question: Are we Christians taking sustainability seriously? Or do we still view sustainability as a political topic, something for Greenies and left-wing Pinkos, as one member of my church put it? Or worse, do we believe that attention for the environment is a false religion, something called “environmentalism”?
We need a new generation of Christians to let their voices be heard in the sphere of free markets. Companies are not sovereign in their sphere. In fact, their sphere is subservient to the needs of people and planet.
(In Canada, good resources on the topic of responsible investment is the Social Investment Organisation [SIO] and the Shareholder Association for Research and Education [SHARE].)