Why Faith Groups Have Historically Practiced Sustainable and Responsible Investing

Why Faith Groups Have Historically Practiced Sustainable and Responsible Investing

The full statement can be found on ICCR’s website.

Religious organizations steward their organizational finances and the investments managed on behalf of their constituents and beneficiaries in alignment with the beliefs, teachings, and values of their respective faiths. Many religious organizations develop investment guidelines, which include strategies such as screens to exclude industries that they believe cause injury to society, shareholder engagement with portfolio companies to mitigate environmental and social harm, and investing in companies or projects that are making a direct and positive impact.  This practice, known as faith-consistent investing, is one form of what today is commonly referred to as sustainable and responsible investing. Faith-consistent investing is a fundamental right protected under the First Amendment, which guarantees both free speech and religious freedom, and ensures that investors are able to make their investment decisions in accordance with their beliefs.

The Interfaith Center on Corporate Responsibility (ICCR) is a coalition of over 300 faith and values institutional investors who, for more than 50 years, have been leaders in faith-consistent and sustainable investing. Our genesis as an organization is grounded in the advocacy of multiple faith groups to address the racist apartheid regime in South Africa. Faith-consistent investing leads religious investors to assess how corporate policies and practices may adversely impact the health of people and the planet, which has a direct impact on the long-term performance of their portfolios.

Faith-based investor engagements with portfolio companies, through dialogue and the filing of shareholder proposals, are a natural extension of these beliefs and are central to both our duties as trusted fiduciaries seeking competitive returns and our responsibilities as faithful stewards supporting the fundamental values of our religious traditions. For this reason, we are concerned about any attempts by legislators or policymakers to interfere with investors’ fundamental freedom to make investment choices and/or engage with portfolio companies in alignment with their investment philosophies and institutional values. This includes letters received from the House Judiciary Committee in 2024 by several of ICCR’s faith-based members requesting informational disclosures under the pretense of exploring violations of antitrust laws.

While each faith institution has its own set of priority issues that it addresses through its respective ministries and advocacy work, there are many issues where faith investors’ interests converge. Actions to mitigate the climate crisis ravaging our planet, to uphold human rights, including the fair treatment of workers, and to ensure equitable and affordable access to healthcare are just a few examples of priority issues of common concern among many faiths.  The 2016 Edinburgh Finance Declaration is one example of the world’s leading faiths articulating their shared values. We believe that companies that adopt forward-looking policies and practices to mitigate environmental and social risks are well-positioned for long-term financial success and value creation. Conversely, companies that ignore these risks may endanger the performance of the capital we are called to steward, and impose enduring external costs on society, the economy, and the planet that sustains us. Over the past 50+ years, ICCR member engagements with corporations on these issues have resulted in improved conditions for various stakeholders, including workers, customers, communities, and shareholders. For instance, most of the world’s faiths emphasize stewardship of the planet, care for creation, and moral responsibility toward the environment, which makes them deeply concerned about the climate crisis. Faith investors working in climate-vulnerable communities witness firsthand how climate change adversely affects these areas. Without the adoption of meaningful climate mitigation and adaptation measures, extreme poverty and inequality, risks to land, food and water security, forced migration and geopolitical conflict, along with global health risks, will all intensify. Consequently, faith investors often align with other like-minded investors to tackle climate risk and advocate for a reduction of GHG emissions from our portfolio companies. Faith-based investors actively promote worker justice, which includes workplace health and safety protections, the provision of a living wage, and the freedom to associate and engage in collective bargaining. Faith-based investors have advocated for health equity, engaging with the world’s largest healthcare companies to ensure that medicines and healthcare services are affordable and accessible reaching those most in need.

Importantly, while we often cooperate in investor spaces around strategies to spur corporate action, we make independent investment decisions to provide risk-adjusted returns to our individual constituents and beneficiaries in line with our respective faith beliefs. The U.S. Constitution provides that “Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof,” and the First Amendment protects the religious liberty that is foundational to this great nation. This ban against government interference in faith-consistent practices is essential when considering all aspects of the life and work of religious institutions, including their investment decisions.  It preserves their autonomy to invest their organizational assets and the pensions of their millions of beneficiaries in a manner consistent with their religious beliefs.  In recognition of the constitutional limits of entanglement between the federal government and religious institutions, Congress included a Church plan exemption in the Employee Retirement Income Security Act of 1974 (ERISA).

We want to reiterate our belief that companies committed to addressing their impacts on society and the environment are better positioned for financial success over the long term. For this reason and because our faith calls us to do so, we will continue to invest and engage with our portfolio companies to realize that goal.

Governance Proposals

Governance proposals and the role of individual investors

Governance engagements seek to ensure that a well-functioning board can effectively oversee the interests of shareholders. For example, proposals to increase the independence of the audit or risk committee have the potential to reduce accounting fraud risk. Likewise, engagements to increase the holding period of equity-based pay reduce management incentives to manipulate short-term earnings.

Governance shareholder proposals can also increase investors’ ability to engage with companies. It has been shown that it is more costly for investors to engage with companies with entrenched managers.14 The entrenchment of management is principally measured and affected by the corporate governance infrastructure including whether the company has characteristics such as:

• Staggered boards ƒ  

• Limits to shareholder by-law amendments

• Supermajority requirements for mergers ƒ  

• Supermajority requirements for charter amendments ƒ  

• Poison pills ƒ  

• Golden parachutes

Shareholder proposals that improve corporate governance structures on these aspects are frequently part of an overall strategy by investors to provide a better balance of power between investors and a company’s management and board.

What is a Shareholder Proposal?

Shareholders—as owners of a company—have a legal right to offer proposals to appear on the corporate proxy statement to be voted upon at a company’s annual shareholders meeting. Corporations are required to hold these annual meetings in order for shareholders to vote
on matters related to the corporation such as auditor ratification, election of directors, and executive compensation. The Securities and Exchange Commission (SEC) requires public companies to file an announcement ahead of the annual meeting including its items of business called the proxy statement.4 SEC Rule 14a-8 allows shareholders to submit statements of up to 500 words (“shareholder proposals”) to be included in the company’s proxy statement.

The proxy statement is therefore the vehicle by which investors are informed of proposals by other investors. SEC Rule 14a-8 defines a shareholder proposal as a specific request from the shareholder - a “recommendation or requirement that the company and/or its board of directors take action, which you intend to present at a meeting of the company’s shareholders.” The SEC states that the proposal “should state as clearly as possible the course of action” that the shareholder believes the company should follow.

“Shareholder proposals are a crucial tool for investors to engage with their companies. Engagement covers a host of strategies investors use to obtain additional information and influence the policies and practices of their portfolio companies on governance and sustainable value creation.”

Some shareholder proposals seek changes in governance infrastructure, for example, requesting that the CEO and the board chair be separate people to increase the independence of the board and its ability to oversee the company on behalf of shareholders. Or they might request a change in voting standards to allow proposals to be passed by a vote of a simple majority rather than a larger voting threshold of supermajority, thus creating a better balance of power between the company and its investors. Other proposals may address environmental or social challenges facing the company—issues that may also be the subject of a wider social or political debate, but which nonetheless have a potential financial impact on the company or the larger economy on which returns depend.

For example, a proposal may request the disclosure of the company’s assessment of its operations, policies and practices designed to mitigate environmental, regulatory or liability risks associated with its mining operations. In another instance, a proposal may request
that a company report as to its timeline and plan for how it expects to transition to meet its stated objective of net zero greenhouse gas emissions. Some of these proposals might be described as “social or political proposals,” but they must nonetheless be relevant to the company’s business according to SEC rules and comply with more than a dozen strict SEC rules for acceptable proposals and filings.

Most shareholder proposals are non-binding. Non-binding proposals give companies the flexibility to address shareholder concerns without displacing the traditional role of the board of directors to oversee the operations of the company.

Investors Overwhelmingly Oppose SEC’s Move to Restrict Shareholder Rights

MEDIA CONTACTS:
Timothy Smith, Boston Trust Walden, TSmith@bostontrustwalden.com, (617) 726-7155

Susana McDermott, Interfaith Center on Corporate Responsibility, smcdermott@iccr.org, (212) 870-2938

Investors Overwhelmingly Oppose SEC’s Move to Restrict Shareholder Rights
Investor comments filed with agency say the SEC’s proposals would harm investors

WASHINGTON, DC (Feb. 5, 2020) – As of Monday’s deadline for public comments on the SEC’s proposed restriction on shareholder rights, a broad group of investors has weighed in strongly against the SEC’s proposal to limit shareholders’ rights to file proposals for shareholders to consider and vote on at annual shareholders meetings.

Commenters opposing the new restrictions on shareholder rights include large investment funds, pension funds, religious institutions, foundations, investment managers, university endowments, individual investors and the SEC’s own Investor Advisory Committee.  These investor letters describe in detail the immense benefits from many important ideas that originated with shareholder proposals that would not have been allowed if the SEC’s new restrictions had been in effect.

Many of these investors also criticized the SEC’s companion proposal to require independent proxy advisors to clear their advice with the subject companies before providing it to their investor clients. These investors lamented that corporate involvement in proxy advice will jeopardize the independence and reliability of a critical resource for investors to hold management accountable for delivering long-term shareholder value.

“Investors’ comments on the SEC proposals staunchly defended their rights to continue to file and vote on shareholder proposals, as well as to continue to obtain independent proxy voting advice,” said Sanford Lewis, Director of the Shareholder Rights Group.  “The current changes, proposed by SEC Chair Jay Clayton and adopted on a 3-2 party-line vote, were not asked for by any investors.  They are the result of an intense, multi-year lobbying campaign funded by corporate trade associations led by the Chamber and the Business Roundtable.”

As of the February 3 deadline, more than 14,000 comment letters have been filed and listed on the SEC’s website on the SEC’s proposed amendments to restrict shareholder proposals, including from more than 31 asset managers, 7 pension funds, 73 faith-based groups, 60 prominent scholars, 9 state or local government officials, 2 unions and several thousand individual investors.  Numerous investor groups also filed letters opposing the SEC proposals, including:

●      the Council of Institutional Investors (a nonprofit, nonpartisan association of U.S. public, corporate and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management of approximately $4 trillion),

●      US SIF: The Forum for Sustainable and Responsible Investment (with members comprised of investment management and advisory firms, mutual fund companies, asset owners, research firms, financial planners, advisors and broker-dealers, represent more than $3 trillion in assets under management or advisement),

●      the Interfaith Center on Corporate Responsibility (a coalition of more than 300 faith-based institutional investors collectively representing more than $500 billion in invested capital),

●      the U.N. Principles of Responsible Investing (an international network of 2,800 investor signatories that manage more than $90 trillion in assets, including more than 500 U.S. signatories managing more than $45 trillion in assets),

●      the Shareholder Rights Group (an association of investors formed in 2016 to strengthen and support shareowners’ rights to engage with public companies on governance and long-term value creation).

Comments were also filed by several civil society groups, including Public Citizen, Green America, Oxfam and the Thirty Percent Coalition.  More than 500 individual investors filed their own comment letters, and 13,000 additional individuals weighed in through petitions organized by As You Sow, Public Citizen and the Friends of the Earth.

Tim Smith of Boston Trust Walden, a member of the Shareholder Rights Group, stated, “We have seen an outpouring of investor opposition to these new restrictive rules coming from a significant cross-section of investors.  The SEC’s role is to be the investor’s advocate, protecting investor interests.  The message from these comments is clear that the SEC should put aside these two proposals that reflect a disturbing anti-investor bias.”

Since the 1940s, shareholder proposals have been a critical tool for investors to raise issues of concern at annual shareholders meetings and hold corporate CEOs and boards accountable to their owners.  Proposals allow shareholders to speak to, inform and test the waters on an issue with their fellow shareholders.  Over the last 50-plus years, shareholder resolutions have spurred numerous changes in corporate governance, policy and disclosure.

The investor comments filed in opposition to the SEC’s proposal reflect deep research, analysis and experience, and reveal serious flaws in the SEC’s analysis and economic justification.

The Shareholder Rights Group (SRG) is distributing this information on behalf of its members as well as numerous other investment organizations affected by the rulemaking proposals. 

Read excerpts from comments.

For more information visit www.investorrightsforum.com.

S&P Global Market Intelligence: SEC proposed rule would have blocked 614 ESG resolutions since 2010, data shows

Author: Esther Whieldon

Since 2010 more than 600 environmental, social and governance-related resolutions likely would have never advanced under a newly proposed rule by the U.S. Securities and Exchange Commission, according to data the Sustainable Investments Institute shared with S&P Global Market Intelligence.

The SEC in November 2019 proposed to increase the amount of support a shareholder resolution required to be reconsidered in the years following an initial vote. Rather than resolutions needing at least 3% support the first year, 6% the second year, and 10% the third and subsequent years after an initial vote to be reconsidered, the SEC would raise those thresholds to 5%, 15% and 25%, respectively. The agency estimated the changes would cut the number of shareholder proposals by 7%.

While the rule has yet to be finalized, the Sustainable Investments Institute, or Si2, compiled a database of ESG resolutions voted on from the beginning of 2010 through Nov. 18, 2019. Si2 found that 614 ESG-related resolutions, or about 30%, of the 2,019 proposals voted on at company annual meetings over that period would not have been eligible for resubmission. That total is almost three times the number of resolutions — 206 resolutions — that could have failed existing threshold requirements over that time, according to Market Intelligence's analysis of the data.

Of the 614 potentially impacted resolutions, political activity, climate change and human rights issues would have taken the biggest hit.

Companies are coming under increased pressure from investors to disclose how ESG risks could impact their bottom line, and they are addressing those risks and opportunities. But groups such as the U.S. Chamber of Commerce and Business Roundtable have pushed for reforms to the shareholder resolution process.

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Shareholder Proposals at Monsanto Were Warning of Troubles Ahead for Bayer's Acquisition

In 2016, shareholder John Harrington, the president of Harrington Investments Inc., filed a proposal at Monsanto regarding health risks from the company’s flagship weedkiller Roundup. The proposal noted “an increasing number of independent studies assessing the toxicity of glyphosate, the active ingredient in Roundup, associate it with cancer, birth defects, kidney disease, and hormone disruption, causing world-wide concern about its safety”. The proposal requested a report assessing the effectiveness and risks associated with the company’s policy responses … to the impact of recent reclassification of glyphosate as “probably carcinogenic,” and quantifying potential material, financial risks or operational impacts on the Company in the event that proposed bans and restrictions are enacted.

On its 2016 vote, the proposal received 5.3% voting support. Refiled in 2017, it still only received 5.5% support. Yet, this relatively small group of shareholders proved to be prescient in identifying a material issue.

Only two months after Monsanto was acquired by the German pharmaceutical company Bayer in June 2018, a jury granted a $289 million award in a suit alleging public health threats and cancer of a plaintiff caused by Roundup. This news sliced billions of dollars from Bayer’s valuation. Bayer’s market capitalization has descended steeply in the following months, from $99.1 billion as of August 10, 2018 (the date of the jury verdict), to $64.8 billion as of November 20, 2018 and after losing another jury verdict, $56.2 billion by May 24, 2019.

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