At Hesperian, we recognize that a growing number of investors are pursuing nonfinancial objectives in addition to the traditional goal of generating strong financial results. These nonfinancial objectives can be very personal: aligning your portfolio with your values. In this case, personalized investment screens (emphasis on personalized) may make sense. But you could be more audacious and want to support change agents improving the sustainability of our economic system, increasing fairness and justice in society, or even influencing public policy. When it comes to those objectives, screening isn’t effective, it’s just easy. Real impact investing is hard work. Admittedly, there hasn’t been much past success. That’s changing, though. It’s time to expand our idea of what’s possible.
The Prospects for Change
The actions we know could move the needle—voting for sustainability initiatives or trying to persuade corporations to change—are underutilized (by far). But we’re still living in a world in which most shareholder votes fail.1 And in the past at least, you’d have been hard-pressed to find shining-beacon examples that prove corporate engagement can drive big results either. Considering that, it’s easy to get discouraged and dismiss impact investing as a pipe dream.
Recent successes, however, should lead us to expand our idea of what’s possible. And these successes are not one-off events. They are part of a discernable positive trend of more votes passing, more investor participation in the system, more corporations choosing to transform instead of just publishing glossy sustainability reports, and more investment companies deciding to seek real-world change versus manipulating portfolios to score well on some ratings system. We now believe investors can sponsor or support meaningful impact efforts—if they invest with a different kind of firm. Here’s a sample of things that have inspired us:
“Reenergizing Exxon”
A hedge fund run by Engine No. 1, a young investment firm based in San Francisco, ran a largely successful campaign that added three of their preferred directors to ExxonMobil’s board. This was a huge coup given they owned less than 0.02% of the stock. They did it by putting up millions of dollars of their own money to fund the effort and by building a coalition of institutional investors in support of it.
Exxon is a stock that sustainability funds typically screen out as a matter of course. They’d never think to purposefully own it. But Engine No. 1 pointed out that Exxon is the fifth-largest source of greenhouse gas emissions in the world. (See Engine No. 1’s presentation to the Climate Action 100+ Group.) If their activism can reduce this by only a small amount, by convincing Exxon to scale back its production growth, they can possibly make a much bigger impact on the climate challenge than if they were to do conventional things such as investing in the carbon solutions sector, which is fledgling, small, and risky since no one knows what technology will win out. The fact that their thesis on Exxon made economic sense too bought them friends not necessarily motivated by impact, enabling them to succeed here. Sometimes you catch more flies with honey, as they say.
A Net-Zero General Electric (GE)
In another example, last year, As You Sow, a nonprofit shareholder advocacy organization (and one we support with an annual donation), won a huge climate commitment from GE. Previously, GE’s net-zero plans dealt only with emissions their operations generate (called Scope 1 and 2), not the emissions from the use of their products (or Scope 3). Scope 3 is usually the bulk of any company’s carbon footprint, so making a commitment that excludes Scope 3 doesn’t mean much. As You Sow’s resolution, brought on behalf of shareholder Amalgamated Bank, proposed that GE expand its 2050 net-zero commitment to include Scope 3.
In rare fashion, GE’s board sided with the resolution, which eventually garnered 98% support. And GE was a company that a fund manager we know well told us had doubled-down on carbon-intensive business since the Trump administration came into office. Yet As You Sow’s grassroots efforts delivered results. We hope GE follows up its commitment with action. GE hasn’t done much yet; a climate pledge is just talk. It will be up to us investors to hold them accountable.
Come Make a Difference With Us
Our takeaway from these events is that it’s possible to make changes even at the companies most sustainable investors have given up on. Effective impact investors are optimistic, passionate, dedicated, and dream big while remaining practical-minded. They understand they might have to hold their nose and own shares they’d rather not own to have a voice or a seat at the table. They understand they might have to subordinate righteous indignation (appropriate in many cases) to the language of finance to persuade corporate management teams to come along. They might have to rely on their emotional intelligence versus their financial intelligence to build the investor coalitions necessary to succeed. And most importantly, they know they must move beyond investment screens and subjective scoring systems to make substantial changes happen.
We encourage you to expand your idea of what’s possible with your portfolio. Look at how you’re invested and what the management teams at the funds and companies you own are doing on your behalf. If you don’t like what you see or want to do more but don’t know where to start, contact us. There are no guarantees about what we might achieve together. But at least we true impact investors will be able to say we’re trying to make a difference.
Eric R. Figueroa, CFP®
I am a Folsom, CA, fee-only wealth manager serving the Greater Sacramento area, California Gold Country, and the nation virtually. I offer financial planning and investment management, specializing in impact investing and personalized values-based investing.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
1 Engine No. 1’s “Active Ownership in Action,” November 2021.