On the morning of 11 September 2001, standing in a conference room in France full of institutional investors from around the world— representing pension, sovereign-wealth, and corporate funds—I spoke about the emergence of an important, but not yet fully recognized, new trend: investing with a conscience. The audience scoffed, to put it mildly. Investing was all about returns.
That afternoon, airplanes struck the World Trade Center, and everything changed. In the days that followed, as the full magnitude of the horror set in, the same people who were sceptical came back to talk to me about investing with a sense of direction and purpose, and in ways that would contribute to something bigger than the bottom line. The investment community had begun to transform its thinking.
In that conference room, I described how investors had opposed apartheid by divesting from South African companies, with state pension funds and others including provisions in their guidelines prohibiting further such investment. Those provisions were withdrawn only in 1993, after Nelson Mandela urged foreign investors to return.
Many organizations, I pointed out, were frustrated by advisers who insisted that to increase their endowments, they had to separate their conscience from the need to achieve strong returns. Charities struggled to find ways to invest their money without inadvertently contributing to the very problems they were trying to solve. Investment committees of anti-smoking charities didn’t want to put their money into tobacco companies.
The shift in the investment climate was a long time coming, even before 11 September 11 2001 became 9/11. There was a new sense of acceptance, urgency, and pace.
The mass shooting at a high school in Parkland, Florida, could prove to be a similar inflection point for gun control, with companies and investors taking up the issue of gun safety and culpability. Now, US gun manufacturers are starting to feel the impact of the ethos of investing with conscience.
Of course, the gun-control debate in the US is a long and bitter one, shaped by seemingly intractable disagreements over identity as much as policy. Yet the latest mass shooting—in which a 19-year-old opened fire at his former high school with an AR-15 semi-automatic assault-style rifle, killing 17 and wounding 17 more—may serve as yet another tragic but momentous turning point for investors and companies.
The National Rifle Association (NRA) undoubtedly remains a potent political force in the US. With its large political donations and ability to mobilize its membership, the NRA continues to dictate the actions of lawmakers, who inevitably offer only thoughts, prayers, and excuses after every massacre. Many now even advocate putting guns in the classroom, forcing teachers to act as armed police officers.
But the reality of mass shootings in the US—together with the teenage Parkland survivors’ powerful pleas for common-sense gun regulation—seems to have sunk in for many businesses. One of America’s largest sporting goods retailers, Dick’s Sporting Goods, announced that it will stop selling guns to anyone under 21, and stop selling assault-style weapons altogether.
Consumer-facing companies, including hotels (Best Western and Wyndham), car rental companies (Hertz and Enterprise), Delta Airlines, and the insurance firm Chubb cut their affiliations with the NRA—a move that carries real risks. Georgia’s lieutenant governor Casey Cagle tweeted that he would “kill any tax legislation" that would benefit Delta, unless the company reinstates its relationship with the NRA. Delta stood by its decision, and Georgia’s lawmakers approved a bill that stripped out a tax break proposal that would have saved the company $50 million.
But the Parkland shooting seems to have had an even bigger impact. Blackrock, a $6.3 trillion fund manager, has now established a new approach to gun manufacturers, with investors receiving clear and transparent information about whether they are investing in such companies. Others are following suit, discussing divestment from gun manufacturers with investment committees.
Such actions are part of the larger trend of bringing about important change. Today, large-scale investors, like sovereign-wealth and pension funds, are forcing companies to look more closely at their environmental impact, governance, and pay structures. If companies continue to do harm, those investors will take their money elsewhere.
Norway’s $1 trillion sovereign wealth fund, for example, has strict policies against owning stakes in companies that make nuclear weapons and cluster munitions, or that are involved in production of coal or tobacco goods. US companies, as well as state and municipal governments, have announced plans to meet the commitments made as part of the 2015 Paris climate agreement, despite President Donald Trump’s decision to withdraw the US from the accord. And it was demands by sponsors that compelled world soccer’s governing body, Fifa, to re-examine its governance and structure.
Much has changed since I stood on that stage in 2001 talking about the future of investing and divesting. Today, companies and investors recognize that the power they wield must be used responsibly, and that they have a significant role to play in driving change and influencing policy and action, not only for their own good, but also for the long-term security and well-being of people everywhere. ©2018/Project Syndicate
Lucy P. Marcus is CEO of Marcus Venture Consulting