Socially Responsible Investing

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Recently, I read a fairly long article in the November 2015 Atlantic by James Fallows about Al Gore's investment ideas and practices. Gore now devotes much of his time to Generation Investment Management, a socially responsible investment firm that has seen spectacular results:

The most sweeping way to describe this undertaking is as a demonstration of a new version of capitalism, one that will shift the incentives of financial and business operations to reduce the environmental, social, political, and long-term economic damage being caused by unsustainable commercial excesses. What this means in practical terms is that Gore and his Generation colleagues have done the theoretically impossible: Over the past decade, they have made more money, in the Darwinian competition of international finance, by applying an environmentally conscious model of “sustainable” investing than have most fund managers who were guided by a straight-ahead pursuit of profit at any environmental or social price. 

...according to Mercer ["a prominent London-based analytical firm"], the average return for Generation’s global-equity fund, in which nearly all its assets are invested, was 12.1 percent a year, or more than 500 basis points above the MSCI index’s growth rate. Of the more than 200 global-equity managers in the survey, Generation’s 10-year average ranked as No. 2. In addition to being nearly the highest-returning fund, Generation’s global-equity fund was among the least volatile.

Moreover, beyond this evidence of real-world success, Fallows references some convincing academic research that strongly supports the notion that businesses should embrace ESG policies, meaning that they should account for environmental, social and governance effects of what they do. Sometimes, as Fallows notes, these businesses embrace the so-called "triple bottom line" (pictured above).*

A 2014 study (subsequently updated) by economists at Oxford, collaborating with the investment firm Arabesque, surveyed nearly 200 academic studies, books, industry reports, and newspaper articles about ESG. Fallows summarizes some of their findings:

The Oxford-Arabesque report found overwhelming evidence that “it is in the best economic interest for corporate managers and investors to incorporate sustainability considerations into decision-making processes.” According to the study, the advantages include more stable (and less volatile) revenues, significantly lower cost of capital, higher profits, and better share-price performance.

Fallows also mentions some prominent bankers and investors who now criticize firms and investors who focus too narrowly on short-term profit statements rather than long-term issues like sustainability. For example, Fallows mentions a series of speeches by Andrew Haldane (one example here), the Bank of England's chief economist, and a March 2014 open letter to other CEOs by Laurence Fink, Chair and CEO of BlackRock. This is from Fink's letter:

...the companies we invest in should similarly be focused on achieving sustainable returns over the longer term. Good corporate governance is critical to that goal. That is why, two years ago, I wrote to the CEOs of the companies in which BlackRock held significant investments on behalf of our clients urging them to engage with us on issues of corporate governance. While important work remains to be done, good progress has been made on company-shareholder engagement. I write today re-iterating our call for engagement with a particular focus on companies’ strategies to drive longer term growth.

As Fallows describes it, BlackRock is the world's largest asset management firm, managing about $5 Trillion. Fink told Fallows that he favors SRI in order to change business behavior:

“I truly believe we need to have inclusive capitalism, progressive capitalism”—a system that can be “stronger, more resilient, more equitable, and better able to deliver the sustainable growth the world needs.” Fink said that countless pressures, from hyper-fast automated trading to the frenzied tone of cable-news coverage, were steering managers toward destructively shortsighted behavior. “We decided that we needed to be a countervailing voice, to say that as your largest shareholder, we’re going to raise expectations about how you behave.”

Perhaps investor demands for sustainable profits will encourage a market shift towards more socially responsible practices all-around?


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*Here's a link to one of my favorite businesses that overtly emphasizes the triple bottom line in its operations.


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UofL 8th in ACC in Sustainability Performance

After posting about UofL's ACC ranking on various sustainability measures, I received excellent feedback from Justin Mog, the hard-working and productive Assistant to the Provost for Sustainability Initiatives.

Justin advised me to focus on STARS scores, which he described as "the most comprehensive and transparent ranking system available."

In my May 30 blog post, I failed to note that each school with a STARS rating receives a numerical score valid for three years. I previously linked to this page, which reveals the specific score by clicking on the submission dates. The numerical scores are linked to the gold-silver-bronze rating that I used simply to lump schools by category.

STARS rating point value cut-offs:

85 for Platinum
65 for Gold
45 for Silver
25 for Bronze

These are ACC school rankings based on the institutions' most recent STARS reports (and scores):

Rank      School                          STARS Score                      Date of Score
1. Virginia Tech                      71.02                                     10/15/14
2. Duke                                    70.54                                     10/18/13
3. UNC - Chapel Hill              70.01                                     4/18/14
4. Notre Dane                          68.52                                     10/15/14
5. Virginia                               65.04                                     5/29/15
6. Georgia Tech                       Gold (expired)                      5/15/12                              
7. Florida State                        61.36                                     1/30/15
8. UofL                                    58.29                                     2/6/13
9. Wake Forest                        Silver (expired)                     5/9/12

No data
North Carolina State                       Reporter (expired)          4/5/12
Clemson
Boston College
U of Miami
U of Pittsburgh
Syracuse U

In a future post, I hope to note some areas where UofL has not generated as many points as it might. Since I'm the chair of the Administration, Finance and Outreach committee (to be renamed Planning and Administration in the fall), I know without any additional research that UofL could receive GOLD status if it created a socially responsible investment committee, created a student socially responsible investment fund, and invested more of its resources in a socially responsible manner. 

Sustainability in the Atlantic Coast Conference

How does the University of Louisville rate in terms of sustainability initiatives compared to the other 14 institutions of higher learning in the Atlantic Coast Conference? I have often reported on sustainability measures at Louisville, but have rarely attempted to place those efforts in a comparative context.

The question is difficult to answer because the available recent ratings of university performance tend to rely upon self-reported data and not every school provides information to every organization. Moreover, the rankings sometimes disagree. Looking at the ratings from the Princeton Review, Sierra Club, the Association for the Advancement of Sustainability in Higher Education (AASHE), and the Sustainable Endowments Institute (oldest data), Louisville appears to rank between 7th and 12th in the ACC.

Based on data from all four rating services, Georgia Tech and North Carolina are the sustainability leaders in the ACC, though Duke is also among the very top universities by this measure.

The AASHE ratings in particular signal that Notre Dame, Virginia, and Virginia Tech also seem to be at least slightly ahead of Louisville on adopting sustainability measures.

Louisville is mid- to lower-tier in the conference with Boston College, Clemson, Florida State, North Carolina State, and Syracuse. Again, by these measures, Louisville likely ranks between 7th and 12th in the ACC. While Louisville is no lower than 10th in any of the specific rating services, the ambiguous and missing data confound any attempt to be certain of this.

The only schools that seem to be rated clearly below Louisville by multiple services are Miami, Pittsburgh and Wake Forest. Those schools have the most work to do.

I used this data and apologize for any errors:

Princeton Review Green Colleges (top 50 ranked)
23. Georgia Tech
31. North Carolina

Sierra Club Cools Schools 2014 (173 schools ranked)
10. Georgia Tech
15. North Carolina
23. Duke
71. Louisville
97. Pittsburgh

STARS ranking (AASHE)

Gold
Duke (new filing reported)
Georgia Tech (score expired)
North Carolina
Notre Dame
Virginia
Virginia Tech

Silver
Florida State
Louisville
Wake Forest (score expired)

Reporter
North Carolina State (score expired)

No data
Clemson
Boston College
Miami
Pittsburgh
Syracuse

Sustainable Endowments Institute
College Sustainability Report Card 2011 (suspended ratings)
Georgia Tech A-
North Carolina A-

Clemson B+
Duke B+
North Carolina State B+
Notre Dame B+

Boston College B
Louisville B
Syracuse B
Virginia B

Miami B-
Pittsburgh B-
Wake Forest B-

Florida State C

Virginia Tech NO DATA


NOTE: I have merely listed schools alphabetically when letter grades or category assignments (gold/silver) are used by the rating services.

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Local Climate Action

Very soon, the University of Louisville will be announcing some terrific news. As it recently reported to the American College & Universities Presidents' Climate Commitment, from 2006 to 2013, University greenhouse gas "emissions have dropped over 27% from 246,929 to 178,679 metric tons."

The official goal is climate neutrality by 2050. However, the reported reductions have already enabled the University to meet its original goal of reducing emissions 20% by 2020. Back in 2007, this blog was noting the great distance the University needed to travel. We haven't arrived at the final destination, but there's much to celebrate. Particularly in a coal state.

The lion's share of the credit for this success likely goes to the recently retired Vice President for Business Affairs, Larry Owsley, though a lot of people have worked with Justin Mog, the University's Sustainability Coordinator, to make this possible. As previously reported, I've been involved in local efforts to reduce greenhouse gas emissions for much of the past decade. For the past five years, most of my contributions have been at the University level.

The original Green Energy pledge seems to have disappeared, but a relatively new effort by students offers some suggested individual actions (see above image).


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Sustainability at UofL

For many years now, I've been involved with sustainability initiatives for the University of Louisville. Back in 2007, for example, I became a university member of a Utility Regulations, Policies and Procedures Subcommittee of the Climate Change Committee working under the Partnership for a Green City. We produced a Climate Action Report in 2009 for the city of Louisville.

I was also listed as a member of the Education and Outreach Subcommittee, but I honestly didn't attend many of their meetings. The Education group included many individuals who had already worked with the Honors program to develop a number of new classes on campus. I taught on Honors seminar on "The Geopolitics of Climate Change" in fall 2007 and then used that class to reorient my regular Political Science course on Global Ecopolitics.

While serving as Acting Department Chair in 2007-2008, I joined with Barbara Burns (chair of Psychology at the time) and a number of other interested faculty and staff at UofL to form the A&S "Green Team." We met regularly to discuss initiatives that are now often taken for granted at the University: a vastly improved recycling program, energy conservation measures, a free bike program, etc. We talked a great deal about behavioral programs, but limited resources precluded implementation of many of them. Still, we helped conduct multiple programs on climate change, promoted simple energy conservation measures, audited energy use in 700 A&S offices, created a model green dorm room, etc. The Green Team's “12 by 12” energy conservation plan aimed at reducing energy use by 12% in 2012 from a 2006 baseline.

Most importantly, under the leadership of Barb Burns, Russ Barnett, Joy Hart, and other members of the A&S community, the group helped pressure the University to create a Sustainability Council. Barb Burns was the first chair of that group and I succeeded her as head of the "Green Team" in 2009. The A&S group continued to meet for about a year or so, but it quickly became apparent that the need for the group had been largely met by the Sustainability Council. University-wide budget cuts forced A&S into some difficult budget cuts and the Green Team suffered for it.

In any case, virtually the entire leadership group for the Green Team became members of the Sustainability Council. I was named to the Sustainability Council and its Administration, Finance, and Outreach Committee in 2009 -- a group that I have chaired since fall 2012. In a related development, I served next on the Provost's Ad Hoc committee on Socially Responsible Investing. We produced a document recommending a number of specific changes in the University's money management, but the followup has been slow in coming.

This January, however, the Operations Committee reported some of the University's major successes:

A long-term project to save energy at UofL is outpacing its original goals, according to a progress report released last week. Belknap Campus fuel use dropped 48 percent while electricity and water use dropped 27 and 31 percent, respectively, from their annual usage before the project started...

The reported energy savings is from 2011, the first full year after workers installed more efficient lighting; updated heating, cooling and ventilation systems; and found ways to cut water consumption in 71 campus buildings and outdoor areas. The overall reduction in energy use has trimmed the greenhouse gas emissions emitted on Belknap Campus by an annual 53 million pounds — an amount equal to removing 4,400 cars from the road for a year, Siemens officials said.

Though those documented gains are attributed almost exclusively to a service contract with Siemens Industries, at least some of those energy savings should be credited to behavioral initiatives promoted by the A&S Green Team. Of course, there is room for more to be done. The University aims to reduce greenhouse gas emissions by 20% by 2020 and wants to be carbon-neutral by 2050.



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Applying Skinner's Behavior Modification

As I've sometimes mentioned, I've been serving on the University's Sustainability Council for some years. Throughout that time, the group has often discussed the prospects for influencing behavioral change in the students, staff, faculty and administrators.

The June 2012 Atlantic Monthly had a piece by David H. Freedman about "Skinnerian" behavior modification. Freedman demonstrates that psychologist B.F. Skinner's ideas have earned a bad reputation over the years, but they potentially offer a good deal for the modern world. Many people fail to understand that "Skinner sought to shape only consciously chosen, directly observable behavior, and only with rewards."

Readers of this blog might want to check out the lengthy article as it is filled with interesting anecdotes and explanation.

I found the following paragraphs to be especially useful as they suggest practical application of Skinnerian thinking to address contemporary problems related to sustainability and health:

At Palo Alto’s storied University Coffee Cafe, I recently found myself sitting next to a young fellow named Yoav Lurie, who turned out to be running a Boulder-based company called Simple Energy, which uses Facebook as a social-reinforcement tool for conserving energy by tracking, sharing, and reinforcing certain behaviors. The product, like many of its competitors in the booming field of energy-related apps, is sponsored by large utility companies incentivized to reduce their reliance on conventional power sources.

Government agencies are in a similar position to benefit. I was speaking with a manager at the U.S. Department of Transportation about public transit when he mentioned that the agency is testing an app that provides local travelers with various transportation options for specific trips and that could gently reinforce decisions to use public transit by pointing out the extra calories commuters would burn by walking to the station and the carbon they’d avoid emitting by leaving their cars at home.

Once we reconvene, I'll bring this to the attention of some others on the Council.


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Is LEED misleading?

Photo credit = University of Louisville.
Pictured: Center for Predictive Medicine, LEED building


The September/October 2011 Mother Jones has a short article challenging the notion that LEED-certified buildings use less energy. University of Louisville, along with many other institutions, have embraced Leadership in Energy and Environmental Design certification from the US Green Building Council as a key means by which to achieve sustainability in their operation practices. If LEED is a fraud, then that's a huge story.

You can get electronic access to the MJ piece by providing your email address, but here's a key excerpt for those who want to be saved the trouble:

According to 2008 study commissioned by USGBC, LEED buildings are 25 to 30% more energy-efficient than conventional ones. But when Gifford looked at the study, he found that it had compared the meaning of one group of buildings to the median of another-what seemed to him a classic apples-to-oranges mistake. He got some of the data and calculated that LEED buildings actually used 29% more energy. “Going to so much trouble and expense to end up with buildings that use more energy than comparable buildings is not only a tragedy, it is also a fraud,” he wrote in a trade magazine. The USGBC stood by its numbers.

Henry Gifford is identified in the piece as a NY energy efficiency consultant.

An Oberlin College physicist, John Scofield, is also quoted in the article -- and he does not think much of LEED certification either: "This is like requiring people to wear copper bracelets for arthritis!" Another blogger, Erich Vieth, has poked around at Scofield's website and helpfully provides a link to the academic work by Scofield backing this claim.

When I return to the Sustainability Council after my sabbatical, I'll be asking about this.


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Sodexo

The French transnational company Sodexo contracts with the University of Louisville to provide food and food services to students and others who dine in various campus facilities.

According to a troubling piece by David Moberg in The American Prospect, Sodexo's global reach is truly vast, as it "employs 380,000 workers in 80 countries." That global reach can make it difficult to keep an eye on the company's behavior around the world:

Sodexo, which says that it "has always recognized and respected trade union rights," is fighting [Marcia] Snell's attempt [at Ohio State University] to organize a branch of the Service Employees International Union (SEIU). Human Rights Watch concluded that the company's U.S. operations had frequently violated the same international labor standards it observes in Europe...

French Sodexo union leaders Jean-Michel Dupire and Gerard Bodard say that after visiting Columbus [Ohio, home of Ohio State] last spring, they were shocked by differences between the lives of Americans like Snell and French Sodexo workers -- and the difference between Sodexo's self-image and reality. In France, anyone can easily join a union, and everyone in the food services is under union contracts. Most French Sodexo workers earn the minimum wage (about $12 an hour), but they have comprehensive public health insurance, a much more generous public pension, full work weeks, and six weeks paid vacation.

Moberg documents that Sodexo pays the Ohio State employee he profiles closer to $9 per hour. Moreover, she cannot afford the company's health care plan and did not receive any vacation days until this year -- after working 10 years with the company.

As a member of the University of Louisville's Sustainability Council, I've been involved in many meetings that discussed Sodexo's food purchasing decisions. Generally, the Council has encouraged "buy local" initiatives, supported a campus garden, promoted a Health Science Campus farmer's market, etc. Along those lines, Sodexo has been praised for partnering with another company to "bring on a line of natural and organic [food] products."

For obvious reasons, Sodexo's policies and practices pertinent to sustainability are primarily evaluated by the Operations Committee of the Council. However, it seems clear that the Administration, Finance & Outreach Committee should also monitor a company like Sodexo since the group "works to ensure that the University of Louisville... Compensates our employees fairly, provides for their basic needs, and treats them with dignity."

According to Moberg, the SEIU wants Sodexo to sign a concrete and global "compact that will guarantee unions' unimpeded right to organize Sodexo workers." Competing union UNITE HERE also favors a compact, but it wants to preserve the right of workers to organize under all unions equally -- so as not to privilege SEIU.

Could the Sustainability Council support these union efforts?

By law, Kentucky is a "union shop" state, but it is a target of "right to work" supporters who believe their arguments resonate among citizens of the Bluegrass. The AAUP does not have an especially strong presence on the U of L campus. The webpage still has a flashing "new" icon to promote a local conference that was held in April 2006. And, of course, Sodexo employees are not University employees.

In sum, I'm going to bring this up with some colleagues, but am not confident that it will go very far.


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Bike to Work Month

May is Bike to Work Month and various groups in Louisville are promoting it. At University of Louisville, I've joined fellow Sustainability Council members as part of a group challenge on the Greenlight website.

It will be difficult for me to accumulate miles as I do not actually go into the office all that often in May. The semester ends prior to the Kentucky Derby. My grading is finished and I'm working on the Grawemeyer entries for 2011 and some writing and research projects.

May 21 is Bike to Work Day if you want to join in the festivities.


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The Ecological Costs of Low Prices

This is from Jefferson Decker's review of Nelson Lichtenstein's The Retail Revolution: How Wal-Mart Created a Brave New World of Business in The Nation on October 5:

Today, Wal-Mart's world buying headquarters is in Shenzhen, a bustling industrial city along the Pearl River Delta in Guangdong Province. In 1979 the Chinese government designated Shenzhen a "special economic zone" with low corporate taxes and few environmental regulations. Guangdong now produces a third of China's exports, 10 percent of which end up on a Wal-Mart shelf somewhere in the United States.

While I've previously mentioned the large economic bond between Wal-Mart and China, the numbers still surprise me.

This particular quote emphasizes the way that Wal-Mart, like many other businesses, manages to evade environmental standards imposed in the United States (and in other affluent western nations).

Shenzhen is a very large city these days, with over 10 million residents. The people there are relatively wealthy as the per capita GDP exceeds US $8500 -- one fruit of 20% growth rates for 20 years.

However, the UNEP's 2007 report Shenzhen Environment Outlook emphasized the growing environmental burden of unsustainable development. Under the "business as usual" model, which the report calls "Scenario A," disaster looms in the next two decades (p. 157 of Chapter V):

In a short term, the economy will retain a fast growth pace but in a long run the resources and energy can hardly meet the demand of the influx of population and surging industrial development, and water and land resources are in tight supply. Massive sea filling projects have great impacts on coastal ecology and urban expansion has reached the extremity. Pollutant discharge is more than doubled and serious pollution is threatening urban ecology. As the impact of resource depletion and environmental destruction loom large, the economy falls into recession after experiencing fast speed development. Various contradictions emerge as a result. In a word, Scenario A presents a picture of a deteriorating society.

This is a very high cost of "Always Low Prices."


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Real Food Challenge

This year, I'm heading up the Arts & Sciences "Green Team," which has mostly focused on energy conservation issues in the two previous academic years. Last week, however, I had a conversation with a colleague who emphasized the importance of buying (and eating) locally-grown food. We had just concluded a meeting that featured delicious food grown and prepared locally.

Later that same evening, I read Anna Lappé's piece in September 21 issue of The Nation on student efforts on campuses nationwide to change food purchasing for their dining halls. The campaign is called the Real Food Challenge. Lappé:

The concept is simple, really. Students, some who pay as much as $100,000, or more, for four years at a private college, should have a say in what grub their schools serve--and that food should reflect shared values of fairness and sustainability. The Real Food Challenge provides an organizing tool to empower students to persuade their schools to make the move. Schools that join the challenge pledge to shift at least 20 percent of school food to "real food"--sustainably raised, grown with fairness, and from local and regional farms--by 2020.

Unfortunately, Louisville doesn't have dining halls in dorms. Instead, students purchase food from vendors based in locations scattered throughout the campus.

Most are chains: Papa Johns, Wendy's, Subway, Einstein Bagels, etc.

Apparently, hundreds of schools have embraced the challenge. I'd like to see University of Louisville and other schools in the region meet the standard.


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Sustainability Report Card

In the College Sustainability Report Card, produced by the Sustainable Endowments Institute, the University of Louisville received a C+.

U of L did fairly well (B) on transportation, partly because of the free bus and shuttle service for students. Campus vehicles also use some alternative fuels.

The university did very poorly (D) for the "Green Buildings" category and for the lack of shareholder engagement in university endowment investments.

For Climate Change & Energy, the grade was C:

The university has gone to great lengths to improve energy efficiency across campus. New chillers and air handlers in the central plant save $150,000 per year. In addition, several boilers and HVAC systems have been replaced or upgraded. Energy audits have also been performed. However, there has been no formal commitment to reduce emissions or to purchase energy from renewable sources.

Under the rubric of the Partnership for a Green City, I'm a new member of multiple committees that will try to improve this score in the future.


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