Testifying for responsible investment in Boston

Zevin Asset Management calls for divestment from private prison companies, fossil fuels, defense companies

Last week, I joined neighbors, activists, and more than 130 citizens calling on Boston’s city council to divest public funds from risky companies like private prison operators, weapons makers, and fossil fuel companies.

[View a video of my public testimony.]

The Boston City Council hearing — which included our allies such as Corrections Accountability Project, College Bound Dorchester, Mass Peace Action, Muslim Justice League, Boston Ujima Project, and other leading socially responsible investing (SRI) firms — proposed strategies for responsible re-investment in local initiatives that meet residents’ most urgent needs.

It also produced several key pieces of information. The headline is that Boston’s cash funds and pension plan have indirect stakes in private prison companies and gunmakers. And, to a much greater extent, the city is invested in risky fossil fuel companies.

Just before the hearing, in response to our campaign for responsible investment, the City’s staff announced that they will carve out $150 million for SRI and shareholder advocacy. However, there is no plan for Boston’s remaining $6 billion and no commitment to regular reporting on investments.

Pat Miguel Tomaino (left) testified on a panel of socially responsible investing experts.

And, despite calls from councilors, the City of Boston is still refusing to divest from the most harmful corporations. Zevin Asset Management will stay engaged with activists and city leaders to press for responsible divestment and implementation of a commonsense SRI policy that will align Boston’s public finances with its public values.

In my public testimony, printed below, I stressed two key points that define our own approach to socially responsible investing. Number 1: SRI does not hurt performance. Number 2: in fact, addressing key environmental and social issues improves long-term risk management while creating positive impact.

Read my full testimony below, and contact me (pat@zevin.com) to get involved.


Testimony to the Boston City Council

By

Pat Miguel Tomaino, Director of Socially Responsible Investing

Zevin Asset Management LLC

February 28, 2019

Good afternoon,

My name is Pat Miguel Tomaino. I am the Director of Socially Responsible Investing (SRI) at Zevin Asset Management, a socially responsible investing firm based here in Boston.

Zevin Asset Management invests approximately $500 million on behalf of institutional clients and families who trust us to deliver superior returns and create positive social and environmental impact with their money.

To build socially responsible stock portfolios, we routinely exclude companies in harmful industries, such as companies that profit substantially from incarceration and immigration detention, firearms and weapons of war, and tobacco products.

We also help many of our clients avoid investing in fossil fuel companies, which are contributing to catastrophic climate change, handicapping and spreading misinformation about climate solutions, and, as a result, fundamentally mismanaging future business risks.

I am here today to tell the City Council that such strategies — including exclusion screens — are fundamental to socially responsible investment practice, as it is now implemented by a diverse range of investors now managing approximately $12 trillion, according to a recent analysis. That’s about 1 in 4 dollars invested globally (https://www.ussif.org/trends).

These strategies should be adopted by the City of Boston in a much-needed initiative for socially responsible investment and reinvestment.

I want to encourage the City Council as you embark on this process and reassure you in two ways.

Number 1: You should know that socially responsible investment and excluding harmful, risky industries do not hurt portfolio performance.

Most SRI screens do not materially constrain the universe of investment options. Where there are constraints, a skilled investment advisor can manage limitations by creatively finding needed exposure (investing in alternative sectors or sub-sectors) and also by seizing opportunities to invest in attractive, socially responsible companies.

The results are clear:

  • An RBC study comparing the performance of screened SRI indices with conventional indices found that socially responsible investing does not result in lower investment returns. RBC said: “This is an important finding because it provides support to individual investors and trustees of institutional funds that they can pursue a program of socially responsible investing with the expectation that investment returns will be similar to traditional investment options.” (http://funds.rbcgam.com/_assets-custom/pdf/RBC-GAM-does-SRI-hurt-investment-returns.pdf)
  • A TIAA analysis of leading SRI equity indices in 2017 found no statistical difference in returns compared to broad market benchmarks, which, to them, suggested no systematic performance penalty for SRI. (https://www.tiaa.org/public/pdf/ri_delivering_competitive_performance.pdf)

Number 2: SRI can improve performance and risk management in investment portfolios.

This is what the City of New York cited when it decided to divest from private prison companies last year. New York’s decision was motivated by conviction: to align public funds with the city’s public values. In a New York Times op-ed City Comptroller Scott Stringer wrote, quite rightly, that the prison industry “has turned human suffering into a billion-dollar business.” For example, a British security company called G4S has big corrections and U.S. border patrol contracts and a history of human rights issues — but it is widely held in institutional investing portfolios (http://investigate.afsc.org/company/g4s).

Here is what Stringer also said: private incarceration companies like G4S, in addition to being morally suspect, fail a basic risk assessment. Divesting from the industry means decreasing risk in investment portfolios. New York is right. Private prison stocks swung wildly between the Obama and Trump administrations, and future legal changes would bring more volatility and risk.

More generally, it is clear that SRI screening can reduce long-term risks in portfolios. A 2015 Oxford University study found that responsible business practices are linked to better financial performance (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2508281). In the same year, a meta-study of sustainable investment practices found a positive or neutral effect on investment performance ninety percent of the time (https://paxworld.com/esg-and-financial-performance-aggregated-evidence/).

That is because, in my experience and in the view of Zevin Asset Management, environmental and social risks have a measurable effect on a company’s market value, as well as its reputation. Companies have seen their revenues and profits decline, for instance, after worker safety incidents, waste or pollution spills, weather-related supply-chain disruptions, and similar incidents — which especially impact companies in harmful sectors. Environmental and social issues have harmed brands, which can account for much of a company’s market value. Investors also rightly question whether companies are positioned to succeed in the face of risks stemming from long-term trends such as climate change and water scarcity.

As I have said, major pension funds, asset managers, foundations and other institutions like the City of Boston are putting all of these insights into action. They have already begun to implement socially responsible investment strategies, divest from harmful industries like private prisons and fossil fuels, re-invest in regenerative assets, and reap the attendant benefits.

I commend Boston for trying to follow suit and beginning this important process.

Thank you.


Disclosures:

  1. Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.
  2. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.
  3. This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
  4. Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Zevin Asset Management’s clients may or may not hold the securities discussed in their portfolios. Zevin Asset Management makes no representations that any of the securities discussed have been or will be profitable.