Hoo boy…the circus is coming to town. Paris is hosting the Conference of Parties (COP21) in December, that is, and the Big Top of big-government solutions to climate-change claims will, of course, include shareholder activists, many of them dressing up their progressive “sustainability” agendas with lots of churchy talk.
These activists are closely linked in a broad religious and secular campaign that in fact reduces shareholder value in support of “social justice” and other such ideological abstractions. For example, the Interfaith Center on Corporate Responsibility includes Boston Common Asset Management, LLC among its roster of Associate Members. According to its website,
Boston Common Asset Management is an experienced investment manager and leader in global sustainability initiatives. The firm’s unique investment process enhances conventional investment analysis with its proprietary Environmental, Social, and Governance (ESG) framework. The firm’s overall goal is to preserve and build capital by constructing diversified portfolios of high quality, sustainable stocks, with a keen focus on valuation, and to thereby outperform not only over a market cycle, but to achieve this with greater consistency and less volatility than market benchmarks.
Readers, please, feel free to scoff. It was impossible for your writer to refrain from chortling himself, and his bathrobe is still moist from the coffee snorted, in the manner of the late Danny Thomas, down the front. For those not in on the joke (here’s a clue for you all: I boldfaced the punch line above), I give you this, from an essay by BCAM’s Lauren Compere published Wednesday at the Huffington Post:
In little over a month 196 world leaders will gather in Paris at the COP21 climate summit attempting to set a framework to keep the world within a two degree temperature cap — a limit which experts believe would prevent the worst impacts of climate change.
If we are to de-carbonise the global economy it is a massive undertaking that will require both the reallocation of resources and a technological revolution, and the funding requirements for such an undertaking are immense. For example, 55 countries have submitted their plans for mitigation and adaptation projects ahead of COP21, and the price tag for these projects is approaching US$5 trillion, which is about the same as the combined annual GDPs of Canada and Germany. While the IPCC [Intergovernmental Panel on Climate Change] estimates that the energy sector alone needs an additional investment of up to US$900 billion if average global temperatures are to be capped at two degrees.
For the private sector — especially the banking sector, meeting these funding needs is a huge challenge, but also a huge opportunity. That opportunity is to support the transition to a low carbon economy by investing in and financing renewable energy and energy efficiency projects and technology.
During the last year my firm Boston Common Asset Management, with support from 80 institutional Investors who collectively manage near US$500 billion in assets, have conducted a research project to assess 61 of the world’s largest banks on their practices and long-term approaches to climate risk. The findings of this project, released last week, show a disconcerting lack of strategic or long-term approach to climate risk by our leading banks — and this means that many of the opportunities linked to climate change mitigation and adaptation, are not currently being grasped. For example, our research revealed that less than half the banks adequately assess the carbon risk of their lending and underwriting activities or conduct climate related stress tests. While fewer still disclose how they define clean-tech or clean energy.
The limited disclosure on climate exposure and lack of long term strategic planning by banks is worrying. This is because once climate change becomes a defining issue for financial stability it will probably be too late. As Mark Carney, the Governor of the Bank of England noted earlier this month, there is still time to act, but the window of opportunity is both finite and shrinking. The risks to financial stability can be minimized if the transition towards a low carbon economy begins early.
Wipe the tears of laughter from your eyes, dear readers. Realization of BCAM’s climate change actions would be far more tragic than funny for businesses of all sizes and types and would result, naturally, in lower returns for shareholders and, most probably, massive job losses for working folk. In other words, BCAM’s supposedly benign agenda masks sinister consequences, including destruction of wealth and income for investors and employees. What was all that ruckus about “sustainability”?
Here’s a dose of reality for Ms. Compere: “Stop it. You’re harming both your investors and the companies in which you invest.” Publicly held companies already are on the ropes, and your actions are hastening their demise. The Oct. 24 issue of The Economist explains:
The rise of big financial institutions (that hold about 70% of the value of America’s stockmarkets) has further weakened the link between the people who nominally own companies and the companies themselves. Fund managers have to deal with an ever-growing group of intermediaries, from regulators to their own employees, and each layer has its own interests to serve and rents to extract. No wonder fund managers usually fail to monitor individual companies.
Lastly, a public listing has become onerous. Regulations have multiplied since the Enron scandal of 2001-02 and the financial crisis of 2007-08. Although markets sometimes look to the long term, many managers feel that their jobs depend upon producing good short-term results, quarter after quarter.
All this, exacerbated by shareholder activists such as BCAM and ICCR filing nuisance resolutions, burden companies financially. Following activists’ agendas is but another nail in the coffin for public companies, which – diminished in stature and profitability – means fewer companies in which to invest and lower returns for shareholders investing in the remaining companies.
Conflicting interests, short-termism and regulation all impose costs. That is a problem at a time when public companies are struggling to squeeze profits out of their operations. In the past 30 years profits in the S&P 500 index of big American companies have grown by 8% a year. Now, for the second quarter in a row, they are expected to fall, by about 5%. The number of companies listed on America’s stock exchanges has fallen by half since 1996, partly because of consolidation, but also because talented managers would sooner stay private.
It is no accident that other corporate organisations are on the rise. Family companies have a new lease of life. Business people are experimenting with “hybrids” that tap into public markets while remaining closely held. Astute investors like Jorge Paulo Lemann, of 3G Capital, specialise in buying public companies and running them like private ones, with lean staffing and a focus on the long term.
Got that? Corporations are on the rise with built-in workarounds for activist busybodies. That’s something to mull over when you pour a fresh cuppa Joe. However, the sustainability and social justice crowd will continue in their attempts to kill the corporate geese that have laid golden eggs for so many investing families over the past three decades. More’s the pity.