Oregon Environmental Council had a problem. It was late last year, and the nonprofit’s board finance committee was reviewing the performance of its endowment fund, which was invested in various stocks and bonds and mutual funds. On the roster, committee members discovered companies such as Exxon and Fox News.
OEC is on the front lines protecting Oregon’s rivers, pushing climate policy, and working with farmers and businesses to build green economies. So its board was not stoked to discover that its money was invested in Big Oil and Big Right-Wing Media.
The group’s investment manager at the time informed the finance committee that even though OEC’s investments were screened for environmental and social responsibility, specific companies OEC opposed could not be removed because they were included in the portfolio’s big mutual funds.
Unsatisfied with the response, OEC’s executive director, Andrea Durbin, embarked on a quest to divest the group’s $700,000 endowment fund from fossil fuels and other industries that conflict with OEC’s mission, and invest it in ways that the group could feel good about. Durbin was well equipped for the job: She has worked as an independent consultant on social and environmental lending policy for international financial institutions. But it turns out she didn’t have many options.
Divestment is tricky for an organization like OEC, for two primary reasons: risk and returns. For the most part, the financial community doesn’t yet buy the idea that divesting from fossil fuel companies can be done without increasing risk or compromising returns. “It took us a little while to find someone to work with who understood what we were trying to do and could take the outcome we wanted to achieve and still make sure we have a financially sound organizational portfolio,” says Durbin.
This conundrum helps explain why university boards of trustees have been so reluctant to heed calls for divestment: It’s easier to say where your money shouldn’t go than it is to identify safe, profitable places where it should go.
In January, Durbin brought in Mark Bateman, whose consultancy, Segue Point, focuses on socially and environmentally responsible investing, and John Wrenn, an adviser at UBS Financial Services. Bateman helped OEC prioritize the core values that the organization would be willing to support via investments. Durbin says that they came up with a list of attributes you’d expect such a group to endorse: transparency, climate action, good environmental performance, respect for human rights, and workplace safety, to name more than a few.
Bateman described two strategies they would use: “negative screening,” or divestment, which is outright exclusion of companies or industries the organization doesn’t want to touch; and a “best-in-class” approach, which employs a special scoring system that evaluates how well companies’ policies and performance match OEC’s values.
Wrenn also used a tool called ENSOGO Analytics — Bateman’s other company — that rates mutual funds in much the same way. “It allows you to look under the hood of things in a way that’s never been possible before,” Wrenn says. “So you can tell whether there’s nuclear, guns, drugs, or anything in there that you object to or don’t want in the portfolio.”
By March, Wrenn had designed an investment portfolio based on the scoring formula that had come out of the January meeting with Bateman and the finance committee. OEC’s board approved the game plan, and a clearer-conscience endowment fund was born.
The portfolio is now spread between ENSOGO-approved mutual funds, a global sustainable equity fund, an investor-activist fund, and a custom-built index-like fund composed of companies that scored best on the aspects of social and environmental responsibility that concern OEC most.
The fund doesn’t do everything a group like this might like. For example, OEC’s investments largely fail to get needed capital to the small-scale, community-owned, renewable energy projects that need it. That’s because, in essence, the financial economy is rigged in favor of bigness. Community investment options exist (last year, Forbes called community investing the fastest-growing segment of socially responsible investing) but Bateman says their returns are roughly equal to a certificate of deposit or savings account: super low. And with potentially big-impact investments, like cleantech start-ups, the problem is risk: You’ll never see that money again if the venture fails, as many do. Again, it’s risk and returns.
Also, OEC’s new portfolio isn’t completely devoid of dirty energy, but that’s by design. A fifth of the endowment is in a shareholder activist fund managed by Trillium Investments, a group that intentionally buys up shares of less-than-responsible corporations, such as fossil fuel companies. Trillium’s strategy is to own stock in the bad guys and use its rights as a shareholder to bring about positive change. The ownership stake gives Trillium a platform to pressure the captains of industry to treat people and the planet with more respect, as well as urge changes to corporate policy, like mandating disclosure of political donations or methane emissions.
The path to creating OEC’s purposeful portfolio was neither straight nor short. And the result, again, is tailor-made according to what OEC cares about. So it might be a stretch to say the group has created an easily replicable divestment blueprint for other organizations to copy. And everyday Joe and Jane investors still have only a few off-the-shelf divestment options like Fossil Free Indexes U.S., which is basically the Standard & Poor’s 500 without the dirtiest fossil fuel extractors.
Still, as demand for climate-friendly financial products grows, frameworks like Divest-Invest are emerging to guide interested investors toward helpful resources — and unite the accompanying social movement.
And if a green organization with a staff of about 20 and less than $1 million in total assets can pull off 100-percent impact investing in just a few months, certainly big institutional investors like universities can navigate these waters, too. The OEC story proves that, while it may take a little work, it’s possible to develop a portfolio that matches your morals and makes money, too.