Investors asked to choose firms with environmental and social values
Imagine, at the age of 25 – when most people are starting their first careers – you are appointed a UN spokesperson, you write and release your memoir to critical acclaim and you began to travel all over the world to tell your tale as a child soldier. This is the life Ishmael Beah leads.
It’s also a far cry from the life he lived more than a decade ago when volunteers and aid workers, working with UNICEF, plucked Beah from the rain forests of Sierra Leone after seven years of fighting as a one of thousands of child soldiers in that country. (He had been abducted and brainwashed into participating in the bloody, feudal wars in 1991 when he was only 13).
Now, at age 30, Beah is sharing his message of hope and inspiration to just about anyone who will listen.
And people are listening.
More and more investors are turning to assets and companies that comply with environmental, social and governance (ESG) values, rather than simply socking away their savings in any investment vehicle. According to the Social Investment Forum (SIF), this has prompted socially responsible investment (SRI) assets to increase more than 18 per cent from 2005 to 2007.
In the same time frame, the broader universe of professionally managed assets increased less than three per cent.
Last month, a coalition of socially responsible investors, led by SIF, responded to a report submitted to the UN by Prof. John Ruggie, director of the Sharmin and Bijan Mossavar Rahmani Center for Business and Government at Harvard University, on the “fundamental challenge” for business “to narrow and ultimately bridge the gaps in relation to human rights.”
These investors wrote: “We believe that significant and urgent work must be undertaken by companies to scrutinize their own operations to minimize the possibility of complicity in human-rights abuses. We also believe that greater disclosure of corporate information related to human-rights policy and performance will enable investors to correlate the financial performance of companies with prudent management of human-rights-related risks in general and to assess the possibility of human-rights-related corporate liability in particular.”
Lauren Compere, director of shareholder advocacy for Boston Common Asset Management, a full-service, employee-owned social investment firm, and one of the letter’s signers also wrote: “We believe that socially responsible investors have played and continue to play a critical role in identifying early warnings signs for companies related to human rights and potential reputational risks through their social screening and shareholder advocacy work.”
Advocacy work is what saved his life, explained Beah as he spoke to 8,000 Million Dollar Roundtable (MDRT) delegates last month, on the last day of their eighth annual five-day conference, held in Toronto this year.
The MDRT is an international, independent association of more than 35,000 life insurance and financial services professionals from 476 companies in 76 nations and territories.
Beah patiently and calmly told of his ordeal as a child soldier, and reminded the audience – many of whom sat quietly, almost motionless, as the young man spoke – that his story was not unique. He explained how rebels captured young Sierra Leoneans, like himself, and forced them to kill their families, their neighbours and strangers in a bloody initiation rite.
“If you questioned [these rebels] you were shot on the spot,” explained Beah. “So you believed. You believed completely. And when that didn’t work, you used drugs and watched movies like Rambo: First Blood, so that the violence became more romantic and you no longer felt different; through these [and other methods] the violence became normalized.”
All of these loyalty and shame techniques were used so that the rebels could control the diamond fields of Sierra Leone.
According to SIF, ESG investment assets increased from $639 billion in 1995 to $2.71 trillion in 2007 – an increase of more than 324 per cent.
Still, there is resistance – a reaction Beah is keenly aware of, given his boyhood nightmares.
“When the UN workers came to rescue us, and told us to put down our guns, we felt that for a second time we were losing our family – so we fought,” recalled Beah. “We beat and stabbed the very people that were trying to help. What was powerful, though, is that these very people that we beat and stabbed, would return from the hospital. They told us it wasn’t our fault; they didn’t give up on us. That perseverance, despite our resistance, was eventually what prompted us to open up.”
Despite numerous UN and independent reports that incorporating ESG into a company’s fiduciary responsibility is good for the bottom line, many corporations and mutual fund companies are resisting.
This resistance came to a brink last year when a proposal to screen out investments that conflict with human-rights standards was launched by U.S. shareholders against Fidelity.
Fidelity fought the move by attempting to block the proxy. Its argument was that its primary responsibility was its fiduciary duty to all shareholders – not to police the companies in which it invested.
In January, the proxy-block battle reached the Securities and Exchange Commission (SEC), which ruled that Fidelity could not block shareholders from launching and, subsequently voting, on proposals that would require boards and managers to screen out investments that were deemed to be tied to human-rights violations, such as genocide.
While the proxy did not pass, Fidelity’s C-suite executives, as well as industry pundits, were shocked to see that, despite defeat, the shareholder resolution garnered support from about 25 per cent of the shares in each of the four targeted funds – a substantial number given that Fidelity opposed the initiative and that shareholder resolutions, especially those dealing with social issues, usually fail.
“For a long time institutional money managers were concerned with fiduciary duty and would only look at this in terms of maximizing profits,” explains Sucheta Rajagopal, LLB and CFP at Hampton Securities in Toronto.
“These investors never looked at environmental, social and governance (ESG) factors. Then the UN decided to create the principles of responsible investing (in 2006) and commissioned the Freshfield report. This report concluded that taking ESG factors into consideration was not in violation of a manager’s fiduciary responsibility. To this extent, the report showed that ESG can and does impact stock prices and must be taken into consideration.”
Speaking to a the MDRT crowd, Beah expressed his gratitude for all the workers and volunteers who cared enough to try. He went on to challenge all investors and financial professionals to also try – to find the hope, to tell the whole story, to contextualize the situation and to find a solution.
“When we tell a story of war, we sensationalize the story,” Beah explains. “Without that human face, there is no context, no hope. But if my experience has taught me anything it’s that the human spirit is strong enough to find hope in the hopeless. That is our challenge.”
Originally published in Business Edge on July 11, 2008