From campus protests to your retirement fund, how divesting from fossil fuels and investing in ESGs work

Unity College students protest endowment investments in companies working in fossil fuel.

Student activism on college campuses has spurred broad, popular discussion of serious issues for decades. When I was in college, the student activist movement across the country was to band our efforts together to pressure an end to apartheid, the South African government-sanctioned racism and legal segregation.  Nelson Mandela and Stephen Biko were our heroes as we held campus sit-ins and built tent cities as a way to pressure our schools to divest their endowment investments from companies doing business with South Africa. Eventually, after many ugly years of violence in South Africa, and heroism by risk takers in that country, in 1991 the legislature there dismantled apartheid for good.

Today’s campus cause is divesting from fossil fuels funds. The argument is that burning fossil fuels is contributing to climate change, damaging our environment, displacing and impoverishing indigenous peoples, and no corporation ought to profit from that. As students sponsor rallies from coast to coast, so far three schools – Unity College in Maine, Sterling College in Vermont and Hampshire College in Massachusetts – have announced their endowment divestiture from 200 fossil fuel companies as listed by the advocacy group 360.org.

Universities are just one (important) lever in the growing climate change movement. Concerned institutional and individual investors are increasingly proactive, seeking what’s known as “ESG” funds.  ESG stands for Environment, Social and Governance. Whether investing a 401K or public pension, the quality of the portfolios take into account all three. For instance, corporate attention and care for the environment covers individual company performance from emissions and pollution reduction to updated reporting; social responsibility spans both in the workplace (e.g. diversity, safety, human rights) and in the community (corporate giving and community relations), and governance measures executive compensation, board accountability and shareholder rights.

But, we’re talking about investing. How do ESGs perform? The latest research shows how ESG leads to superior returns over time. Now one of the most influential institutional investors is setting out to find out. CalPERS, the California Public Employees Retirement System, set a sustainability standard for its investments in 2011 and is now kicking off a study to measure long-term returns.

Michael Simmons, Managing Director at Partner at Simmons Wilkes Investment Advisors in Portland, Maine says his firm recently embraced “sustainable investing.” For them, sustainable investing incorporates ESG factors in a proactive, as opposed to exclusionary way.  “Studies have shown that companies with high ESG ratings have a lower cost of capital, and at least over the longer term, tend to outperform,” Mr. Simmons says.

But it still is up to the advisor to set the  framework. “ESG is now becoming a tool used in many mutual funds and other investment products,” he continues. “At this point there are no real agreed upon standards and different investment companies define these criteria in slightly different ways.  The shared goal however, is to find the best of breed companies in all sectors that are continuously striving to improve themselves across these three factors.”

Financial Advisors and Wealth Managers like Mr. Simmons’ firm are now putting together investment portfolios that are largely sustainable in nature. Because of this, they are introducing more clients, both individuals and businesses, to the idea of sustainable investing.  So, for those of us long out of college,  we are empowered every day to vote on social policy and corporate behavior  with our own portfolios.

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christengraham

About christengraham

President of Giving Strong, Inc. Christen advises businesses, foundations and families for how to make a greater social impact.