Is Finance Changing the World?

Blog January 18, 2018

We hear it all of the time. Climate change. Stronger, more frequent storms and droughts.  Gender diversity on boards. Addiction to opioids, tobacco, gambling, and our smart phones….

Many governments, NGOs and individuals are tackling climate change, but investment behemoths are now challenging corporations to act more responsibly, too.

Three recent examples:

1. Blackrock

Larry Fink is the founder and CEO of Blackrock, the world’s largest investor, managing over $6 trillion in investments through 401(k) plans, ETF’s and mutual funds. He wrote a letter to major corporations telling them that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.  In a reaction to what Fink described as seeing “many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.”

Part of Fink’s argument rests on the changing mood of the country regarding social responsibility. Moreover, he contends that if a company doesn’t engage with the community and have a sense of purpose, it will ultimately lose the license to operate from key stakeholders.” [i]

2. Jana Partners and CalSTRS

Jana Partners LLC and the California State Teachers’ Retirement System collectively control $2 billion worth of Apple shares.  Together they wrote an open letter to Apple that the company must offer more choices and tools to help children fight addiction to its devices, including establishing a committee of experts, including child development experts, and enhancing parents’ options to protect their children’s health when using mobile devices.

In fact, numerous studies have proven that smartphones and social media can have negative effects on children’s mental and physical health, including distractions during school, a decreased ability of students to focus on educational tasks, and higher risks of suicide and depression, therefore, these institutions believe that it’s time to act.[ii]

 3. New York’s five public pension funds

These pension funds manage $189 billion assets, and wield power, and they announced that divestment from holdings in 190 fossil fuel companies within five years and a lawsuit against the world’s biggest oil companies, including: BP, Chevron, ConocoPhillips, Exxon Mobil, and Royal Dutch Shell.

New York needs to fund $20+ billion for building coastal protections, mitigating risks with building resiliency programs to combat rising sea levels, stronger storms and hotter temperatures, and health costs related to these effects of climate change.  They are suing some of the world’s biggest polluters for the billions of dollars they say New York will have to spend to protect the city from the effects of climate change.[iii]

Are the Times Really a Changin’?

While sovereign wealth funds like Norges and government-run pension or superannuation funds like those in Australia have made statements and divestments based on sustainability issues in the past, we hope to see other institutions follow suit across the globe. It remains to be seen whether or not these financial institutions will put their money where their mouths are, but we’re optimistic about the trend.   According to the Asset Owner Snapshot from the United Nations Principles of Responsible Investment, or the PRI, 68% of asset owners do encourage improved responsible investment practices with existing investment managers, but only 19% have or would move assets to those with better integration.

It’s unlikely that Bob Dylan was thinking about financial institutions would be actively trying to take the lead on issues like climate change or gender diversity on corporate boards when he wrote “Oh the times, they are a changin’,” but it looks like a new breed of activist might realize the power that finance has to change the world we live in if the plans to act on the warnings come to fruition.

[i] https://www.nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html

[ii] http://money.cnn.com/2018/01/08/investing/apple-investor-pressure-children/index.html

[iii] http://www.independent.co.uk/news/world/americas/us-politics/new-york-sue-fossil-fuel-companies-global-warming-divestment-a8152711.html

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