It’s been 20 years since you were involved with the launch of Robeco’s first SI fund. How much do you think has changed in sustainable investing over that time?
“It’s hard to argue that SI is not now mainstream when some of the world’s largest financial institutions are not only offering a product in this space, but are claiming this space as their future. On the other hand, the sustainability field has not come together to the point at which I would consider mainstreaming to be complete. For that, the data set that financial institutions rely upon needs to be universally available. We have figures for earnings, market cap, cash flows, and so on, but currently we have to fill in the blanks on sustainability. Furthermore, data around the world varies. Until these obstacles are overcome, I don’t think we can reach complete mainstreaming.”
What do you think are the main challenges regarding the full adoption of SI? What would be your top five impediments?
“There are two primary barriers: the continuing idea that using sustainable investing costs performance, and what I would call now confusion, particularly about what standards to apply when we use screens. Then there is that there is a school of thought that says, ‘There is a better way to do this’, such as charities, but I think this is an extremely naïve approach.” “Fourth, there is the person who still says: ‘I care about these things, but I cannot let it interfere with my primary directive, which is to allow these people to retire in dignity’. They’re making assumptions that are wrong: to retire with dignity requires more than money. And fifth, one emerging trend that bothers me is single-issue funds. If you are only concerned about solar power, animal rights or being a vegetarian, that’s a different goal from people and the planet.”
I do not believe that the right use of capitalism is to disseminate a harmful product as widely and as cheaply as possible
There has been some soul-searching over this supposed ‘fiduciary duty’ to make a profit. What’s your take on where the industry is going?
“This has always been a difficult issue. There is a school of thought that you need to get the ‘best’ weapons companies and the ‘best’ tobacco companies for your portfolios, but my own feeling is that this goes back to the right use of capitalism. I do not believe that the right use of capitalism is to disseminate a harmful product as widely and as cheaply as possible.”
How is the growing awareness of global warming shaping the SI agenda?
“We’ve seen the devastating results of climate change raise costs of flood insurance and property and casualty insurance. We had a big utility here in the US, Pacific Gas & Electric, that lost USD 2 billion in three days due to the California forest fires. But concern over climate change is still not as big a motivator here in the US as it should be. We’ve had a real assault on science here for a couple of decades, and the result has been that there’s a whole category of people who for 15 years thought they could not be re-elected for office if they acknowledged this climate change problem.”
What about the energy transition from coal, oil and gas to renewables? The world still needs fossil fuels, so how do you view this arena?
“Domini Impact Investments has moved to the explicit removal of energy sector companies from our universe. Many years ago, we had a couple of fairly large oil and gas companies; then we moved to the position that natural gas was transitional, and we wouldn’t have oil; then all natural gas companies started fracking, and we moved down further. We’ve excluded coal since the start. Most economies still rely on coal, but they also still allow smoking and guns.”
Did the Domini 400 Social Index make its mark on investing culture, particularly in the US?
“For the period of time after the end of apartheid in South Africa, it was the performance of the Domini 400 Social Index that drove the interest in this field. People could not believe that it kept outperforming! But then the KLD partners separated, and the index became part of MSCI. The MSCI KLD 400 Social Index as it exists today is now very different from what I would design – for instance, it holds oil and gas. They would say that the typical responsible investor is invested in oil and gas today (*including Robeco).”
You’ve won a considerable amount of plaudits during your long career… do you still get excited about SI today as when you started?
“I’m still giddy about it; I think my battle has goals that I now see as urgent; these are threefold. First is the need for disclosure or transparency about corporate impact, and how they affect communities and the planet. The next thing I would ask for is putting some sand in the speed of financial transactions, as this is converting the investor into a gambler. And finally, fiduciary responsibility, especially in the US, needs to be more clearly tied to the whole person. You really don’t retire in dignity based on your income if you live in a dangerous neighborhood and you’re afraid to go out after dark. If your grandson has asthma, you don’t care that you have an extra 100 dollars in your pocket due to the flourishing coal industry; you’re more interested in your grandchild’s health. With these three things dealt with, I would feel I can rest.”
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