Here are the most common questions about Socially Responsible Investing answered by the Investment Committee (IC) and the Socially Responsible Investment Committee (SRIC).
1) What’s the difference between divestment and negative screening? Divestment is the act of publicly and intentionally selling shares of a company as a part of a vocal movement due to a desire to reprimand the for their behavior. To be effective, it requires a coalition of divesting investors and widespread media coverage. The goal is to publicize a crisis with the hope of delegitimizing the perpetrators of the crisis.
Negative screening is the removal of companies that are rated as poor performers on Environment, Social or Governance behaviors. It does not include a public reprimand or require a coalition or movement to be effectively implemented.
2) Are there certain kinds of companies the UU Common Endowment Fund (UUCEF) will never hold? For our directly managed investments, we do not hold any companies that derive more than 5% of their revenue from the manufacture/sale of tobacco or weapons, or any companies whose operations support the government of Sudan. The UUA CEF also invests in many pooled vehicles, (in which investments are comingled with those of other investors). These comingled funds may not screen out all of the above-mentioned investments, but are necessary to give us exposure to certain asset classes and allow us to meet our return goals, given the relatively small size of the endowment. For pooled vehicles, we seek whenever possible to hire managers who have demonstrated competence in responsible investment.
3) What about companies that are bad for workers or the environment? There are broad-based social and environmental screens in place in two areas of our endowment. First, the separately managed accounts where we directly hold US stocks exclude any company ranked in the lowest 5% of its peer by social research firm Sustainalytics, as well as companies facing severe social, environmental, or governance controversies. Secondly, some of the asset managers we employ, such as Boston Common Asset Management, are dedicated SRI firms that build their own social and environmental criteria into stock selection.
4) How much of the UUCEF is subject to some kind of SRI screen? Between our direct holdings and our managers who apply social and environmental screens to their holdings, 57% of the portfolio of our endowment is subject to social and environmental screening. An additional 13% of our portfolio is managed by GMO, an asset management firm led by Jeremy Grantham, who is one of the most outspoken advocates in the financial industry on the subject of climate change. While the GMO managers do not espouse a formal SRI screening process, Grantham has declared that his funds will avoid oil sands investments. Thus, if GMO is included, 70% of the portfolio is subject to some form of screening.
5) What is your position on fossil fuel divestment? The SRIC unanimously supports the 2014 General Assembly Business Resolution on Fossil Fuel Divestment. See here for a more detailed response. In collaboration with research firm Sustainalytics, we currently apply especially stringent social and environmental screens to our direct energy holdings, ensuring that we invest only in best-in-class energy companies. (We screen all our direct holdings to eliminate the worst actors in each industry, but the energy-sector standards are even more rigorous.) When we invest in pooled vehicles, we question managers about their approach to climate risk and carbon valuation, and prefer those with a more climate-friendly approach. (The results of the survey we recently did on this ran to 19 pages, with serious, thoughtful responses from all managers. I do not know of another institutional investor who has conducted a survey of this level of rigor.) As a result, compared to benchmarks, the Unitarian Universalist Common Endowment Fund is already underweight in energy, with only 2.9% of the fund currently in companies on the Carbon Tracker 200 list of the largest fossil fuel companies by reserves. This number has declined since last year, and compares to about 9% for market benchmarks.
6) What other issues are you working on through shareholder advocacy? The UUA has been a leader in advocating the adoption of employment policies that protect workers from discrimination on the basis of gender identity, as well as sexual orientation. In response to resolutions we have filed at several major US employers, over 3 million workers have gained this kind of nondiscrimination protection over the last few years. In 2014, the UUA led filings for shareholder resolutions on:
- Climate change at seven companies in our portfolio;
- Sexual orientation/gender identity non-discrimination at two companies in our portfolio;
- Political spending/lobbying disclosure at five companies in our portfolio;
- Separation of the Chairman and CEO positions at Chevron; and,
- Human rights at Dow Chemical.
The UUA has consistently voted their shares in support of environmental, social justice, and governance resolutions other coalition partners have filed. For more about this, visit: Shareholder Advocacy.
7) What are our investments doing to decrease poverty and discrimination? The UUA has pledged up to 1% of its total investments to support Community Development Financial Institutions, which provide access to capital and financial services for underserved people, including low-income communities and communities of color. Part of this set-aside is a matching program for investments in CDFI’s by UUA congregations. Currently twenty-four CDFI’s have received investments, including a community development credit union in Jackson, MS, a community loan fund that provides affordable credit to Native Americans in South Dakota, an association that support the development of healthy rural communities in Louisiana, and a low-interest lender to developers of affordable housing in the Washington DC area. For more information, see the Community Investing and the UU Common Endowment Fund Q&A (PDF) with Marva Williams, member, Socially Responsible Investing Committee.