How values-aligned investing, proxy voting, and storytelling can move the needle on sustainability issues
What we now refer to as values-based, sustainable, or socially responsible investing in the United States is believed to have originated in the 1700s, when the Quakers forbade their members from participating in the slave trade, and other religious leaders urged their followers not to invest in alcohol, tobacco, weapons, or gambling (often referred to as “sin stocks”). The movement has evolved over the years to include a focus on environmental, social, and governance (ESG) issues. While ESG has become highly politicized, it’s actually just another term to describe sustainable investing, and it allows investors to wield a tremendous amount of power as they use their capital allocation to influence corporate behavior.
Unleashing the power of capital for good by making investments in companies that proactively manage their social and environmental impact can move the needle on some of the most pressing sustainability issues of our time.
Value-driven investing — which is the allocation of capital to align with the world you want to see — is one way to make the world a better place. Proxy voting and storytelling can also be powerful tools in making substantial positive impacts.
Values-aligned investing is deeply personal — and each generation and demographic has its own priorities. For instance, members of Generation Z are more open than older Americans to bold proposals to give up fossil fuels and cease the production of gasoline-powered cars. And more Black and Hispanic Americans say their communities are experiencing environmental problems than white Americans — aligning with reports detailing higher environmental hazards where they live.
Data can help align values between seemingly disparate groups, as it allows them to visualize the intersections between a broad set of risks. For example, Peter Klein, a wealth advisor at ALINE Wealth Management, used the Ethic Platform to help a multigenerational family discover they shared strong interests in racial and environmental justice. Once aligned, the family was able to build an investment portfolio that honored their shared values.
Interested in racial, gender, or environmental justice? Or healthy forests and rivers for hunting or fishing? Or how workers are treated in the workplace? Data can unlock specificities that sit between the intersections of these interests to show shared values — for multigenerational families or institutional investors, for advisory firms, or for companies.
Investors can use more than the power of their capital to make a positive impact. They can use their vote. In publicly-traded companies, shareholders can weigh in on issues brought forward for a vote at annual general meetings as well as proposed ballot items to vote on.
As a complement to a thoughtful values-aligned investment strategy, proxy voting is another mechanism through which shareholders can voice their preferences on matters related to the issues they most care about. It provides a formal communication channel between corporate management and shareholders. Unlike divesting, holding on to shares gives investors a seat at the table.
Engaged shareholders can then use that seat to press companies on their plans to reduce greenhouse gas emissions, efforts to promote diversity and inclusion, disclosure of political spending, and other issues they care about. And they’re doing just that.
Shareholders are increasingly using their voice to surface social and environmental improvements to recommend to companies. For example, Ethic currently uses ISS as a proxy advisor to conduct research on companies and markets. The advisor helps us to determine how to vote based on its Socially Responsible Investing (SRI) framework and then submit votes on our behalf. This voting can make a profound impact. In 2022 Caterpillar, a large equipment manufacturing company, adopted a resolution connected to climate change after over 15,000 Ethic shares were voted in favor. As a result of this resolution, in 2023, Caterpillar will, in addition to other actions, provide its first-ever public disclosure of estimated Scope 3 greenhouse gas (GHG) emissions data using the Greenhouse Gas Protocol.
During the 2022 proxy season, investors filed a record 215 climate-related shareholder resolutions — with agreements negotiated on 103 — while the number of human rights-related resolutions rose to 26 (up from 15 the previous year).
In addition to proxy and values-aligned investing, storytelling can play an important role in helping not only financial advisors, but also the media understand how investors’ actions can shape corporate behavior for good.
This is particularly true with complex or abstract ideas and in the face of uncertainty — all of which are characteristics of investing and the financial markets. It’s very difficult to get investors to care about an issue if they are only given abstract data and statistics. Attach thousands of data points to a human experience though, and you’ve created a relationship through empathy.
Storytelling can also play a role in explaining to investors how issues are interconnected. Climate change might be viewed by many people strictly as an environmental concern, for instance, but flooding and other impacts of climate change disproportionately affect low-income communities and people of color. Stories of people or cultures displaced by climate change can powerfully illustrate how the issue intersects with racial justice — and help investors take meaningful action.
Let’s look at corporate governance, for example. In 2020, several senior leaders, including the chief executive at mining corporation Rio Tinto resigned following an outcry from shareholders and the public after the company blew up a 46,000-year-old Aboriginal cave system in Australia as part of an iron ore exploration project.
In another example of how storytelling can expose malfeasance, in 2021, Boeing agreed to pay over $2.5 billion related to fraudulent conduct, including concealing information from the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG), after two tragic crashes of its 737 MAX airplanes. In addition to the settlement, Boeing agreed to pay $237.5 million to resolve a lawsuit from shareholders who alleged the company’s board of directors had neglected to monitor safety.
Both of these cases are examples of how storytelling can expose risks to companies, their boards, and leaders by highlighting the emotional human-centric stories that data represent. If, however, companies were to adopt a sustainable investment approach, they’d be able to use data and research to numerically assess product risk.
For more than three centuries, American investors have understood that they could use their capital to affect change. While today’s investors have more tools, including data, at their disposal, the goal hasn’t changed: Build a new model of sustainable investing while solving some of the most urgent issues of our time.