Blog : Engage or Divest?

By Sam | Jul 16, 2014 | in

By Michael McCord
Green Alliance Correspondent

NEWMARKET – One of the hottest, ongoing debates in the Socially Responsible Investing (SRI) community is one that gets to the heart of the ecological dilemma of our times – should investors divest from or engage with fossil-fuel dominant energy companies?

Mike Smith, the Newmarket-based representative for the Progressive Asset Management Group, the socially responsible investment division of Financial West Group, said the debate was sparked in 2008 when renowned environmental activist Bill McKibbon led a movement to divest from the 200 top energy companies. Since then major SRI mutual funds have taken strong positions on whether total divestment or more engagement (or a mixture of both) with these companies is the proper strategy.

“There has been a lot of media attention and increased public awareness,” Smith said about growing concerns around climate change against the backdrop of the engagement and divesting debate. Last fall, he was part of a panel discussion in Exeter about divestment and was struck by the level of interest. Seemingly as concern grows with each news cycle about global climate change and its very real environmental consequences, the SRI community has reacted against investments in the fossil fuel industry.

“If you believe climate change is real and you believe it’s wrong to profit from it then you probably need to make some changes to your portfolio, because if you hold large cap mutual funds, either in individual or retirement accounts/401(k)’s etc., these most likely include the major oil and coal companies” Smith says.

The divestment debate is happening across the country and has garnered recent headlines as a fast-growing student divestment movement has sprung up in the past two years. At institutions such as Harvard (and its $32 billion endowment), students, faculty and alumni are calling for total divesting from fossil fuel companies – not unlike the debate in the 1980s over divesting from companies that worked with the apartheid regime in South Africa.

Some SRI mutual funds are also taking a stand. Green Century Funds stated that “when the goal is to reduce the production and use of fossil fuels, Green Century believes that divesting from fossil fuel companies is the most effective way for investors to pressure those companies on climate change, and to clear the path for policy and regulatory changes needed to curb carbon emissions.”

While offering a fossil fuel free SRI alternative, Portsmouth-based PAX World Funds also believes that “the role of activist investors in prompting change should not be completely discounted” and full divestment lets companies escape shareholder accountability.
Smith said while the case for divestment for many investors is becoming morally clear with each passing day, investors now have a wider range of investment choices to choose their own engagement or divestment path.

Smith said more fund choices for the divestment option have become available during the past three to six months because people have been asking for it. In addition to the before-mentioned Green Century and Pax World, the other mutual funds which offer fossil fuel free investments include: Shelton Green Alpha Fund, Parnassus Endeavor Fund, and Portfolio 21.

Smith said Oakland-based PAM Inc., the nation’s first independent brokerage firm to specialize in SRI, has an agnostic take on the debate by serving SRI clients with their preferred choice. Smith has served SRI investors with the PAM Group since 2007 and he said public awareness about the connection between investments and personal values has never been higher.
“All of our clients come to us with a different perspective and history and for those who feel it’s important not to be invested in fossil fuel companies they love having the option to divest,” Smith said.

What is becoming less debatable is that values and returns can go hand in hand. To cite one example, the Shelton Green Fund was launched in March 2013 and reported a yearly return of 56.09 percent in what the company called “next economy stock selections represent companies delivering green economy growth in multiple sectors including transportation, communications, infrastructure, materials, energy, agriculture, and water.”

Smith said recent SRI data shows that, for example, the MSCI KLD 400 Social Index showed a strong return in 2013 (36.2 percent vs. S&P 500 24.40 percent) and since 1990 had an annualized return rate of 10.49 percent while the S&P 500 had a 9.55 percent annualized return rate.

“We believe your investments can follow your values and still be competitive with non-SRI strategies when it comes to performance,” Smith said.

Past performance is no guarantee of future results.

Progressive Asset Management Group is a business partner of the Green Alliance, a Portsmouth organization representing over 100 local green businesses, along with more than 3,000 consumer members.