By Heidi Soumerai, CFA
From the Winter 2014 Edition of Values
Financial growth. Social and environmental impact. As the calendar turns to 2015, Walden Asset Management will celebrate 40 years of helping our clients achieve these dual objectives.
Today the investment world is abuzz with a relatively new concept called “impact investing,” an approach described as leveraging capital to solve social and environmental challenges while simultaneously generating financial profit. Some associate impact investing with specialized vehicles that finance community economic development or beneficial products and services directly. We think the term applies as well to the work and history of Walden.
- In 1982 Walden helped launch the nation’s first mutual fund with South African divestment screens. Three years later we served as the principal defense witness in the landmark case against the Baltimore city pension system, successfully arguing that divestment criteria do not adversely affect investment performance. The late Nelson Mandela, the revered first president in post-apartheid South Africa, spoke of the importance of the divestment campaign in helping to dismantle apartheid.
- In 1987 Walden filed the first shareholder resolution on behalf of any mutual fund, at the laundry service company Angelica for refusing to bargain in good faith with its labor union. We asked Angelica’s board of directors to establish a special committee to study and report on management-labor relations. The resolution was withdrawn when the union, then known as the Amalgamated Clothing and Textile Workers Union, successfully negotiated a union contract, telling us, “Without your help… I doubt we would have ever gotten a contract.”
- In 1991 Walden launched our Small Cap Innovations investment strategy, focusing on investments in companies with products that often have environmental or social benefits, such as resource conservation, waste reduction, improved health care, or services for underserved markets.
- In 1993 we joined New York City Employees’ Retirement System and the Women’s Division of the Board of Global Ministries of the United Methodist Church in suing the Securities and Exchange Commission for allowing Cracker Barrel Old Country Stores to omit a shareholder proposal prohibiting discrimination on the basis of sexual orientation. At the time, Cracker Barrel restaurants had a policy prohibiting the employment of lesbian and gay individuals. Though subsequently overturned, the initial ruling favored our position that the SEC could not arbitrarily change its policy on the exclusion of shareholder proposals. Today, similar shareholder proposals garner significant investor support.
Even the simple practice of voting proxies can elicit change. Walden routinely votes against director nominees at companies with boards of directors composed exclusively of white men, and often communicates how and why we voted the way we did. In 1994 the chairman of Echo Bay Mines wrote Walden about the company’s addition of a woman director: “Now I won’t give you all the credit for adding a woman director to Echo Bay (our first), but your activism for a good cause was a significant stimulus to get us to move. Echo Bay will be a better company for it. Thank you for your involvement.”
Fast forward to the present day. Walden is working to better define and measure our impact, particularly in the realm of company engagement initiatives, by tracking meaningful progress with respect to company policies, practices, or transparency (see the related IE2 Initiative). We understand that changing corporate behavior is almost always incremental. In that sense, being a long-term investor is essential. While the adoption of more sustainable polices or business practices are clear signs of corporate progress, Walden’s engagement work also aims to increase disclosure on single issues, such as lobbying and climate change, or through comprehensive sustainability reporting. Transparency serves two goals: It enables investors and other stakeholders to more accurately assess opportunities and risks and it strengthens public accountability. Both are important precursors to further corporate change.
Recent examples of Walden’s engagement initiatives and public policy activities that contribute to positive environmental and social outcomes include companies that have:
- Adopted or improved greenhouse gas emissions reduction goals, including several with robust, time-bound targets that are consistent with the recommendations of the leading scientific authority on climate change, the Intergovernmental Panel on Climate Change.
- Taken actions or made public statements in support of effective policy solutions to climate change, such as promoting renewable energy or ending ties to organizations that thwart such policies (e.g., the American Legislative Exchange Council, or ALEC).
- Demonstrated a commitment to board diversity though the addition of directors who are women or people of color, as well as in corporate governance documents that guide the director nomination process.
- Amended and posted equal employment opportunity policies that prohibit discrimination based on sexual orientation and gender identity or expression.
- Instituted best practice corporate governance policies such as annual elections of all directors and majority voting provisions, contributing to greater director accountability.
- Expanded public disclosure of corporate policies and practices related to political spending and lobbying activities, management of climate change risk, and overall business sustainability.
While Walden believes that our work on behalf of clients often plays a significant role in the positive outcomes we observe, we know our work goes hand-in-hand with others’. Progress is frequently made possible through the hard work of, and collaboration with, similarly concerned investors, as well as other active stakeholders seeking to influence corporate behavior. And sometimes our input and encouragement supports corporate leaders who are already on the path to more sustainable business practices.
Since Walden opened for business in 1975 our industry has evolved through a cornucopia of labels and confounding acronyms: Socially Responsible Investing (SRI); mission-related investing; ethical investing; Sustainable and Responsible Investing (the new SRI); environmental, social, and governance (ESG) investing; and now, impact investing. Some investors offer nuanced descriptions of how these, or other labels, are unique or even superior investment disciplines. To some degree, these are all fair descriptors. What matters of course is not the label, but the intention and the results.
Our practice has evolved over the four decades, but the basic premise of what Walden does has remained constant: We invest money for financial growth as well as social and environmental impact.