Report of the Socially Responsible Investment Stakeholder Advisory Committee: July 2017

Report of the Socially Responsible Investment Stakeholder Advisory Committee: July 2017

(Download the report as a pdf)

The Socially Responsible Investment (SRI) Stakeholder Advisory Committee (SAC) has its origins in Resolution III: Creation of the Board of Trustees SRI Stakeholder Advisory Committee from the 2015 Diocesan Convention. This resolution instructed the Board of Trustees to set up a standing multi-stakeholder committee for four purposes:

  • to study any issues/concerns regarding SRI investment, divestment, reprioritization of SRI/Gospel Values, or similar SRI concerns;
  • to assist the Board of Trustees in communicating information regarding the Socially Responsible Investment Fund (SRIF);
  • to undertake the triennial polling required relative to the SRI/Gospel Values priorities (as mandated by an earlier resolution) and preferred percentage of Diocesan-owned and Diocesan-controlled assets to be allocated to the SRIF; and
  • to serve as an ongoing resource for members of the Diocese who have concerns or suggestions regarding investment, divestment, reprioritization of SRI/Gospel Values, or similar SRI issues.

The Board of Trustees constituted the committee in May 2016, and the Committee held its first meeting on June 22, 2016.

This report provides information on the following topics:

  1. Background: The Socially Responsible Investment Fund (SRIF)
  2. Convention Resolutions on Investment Related to Israel/Palestine
  3. Activities of the SRI Stakeholder Advisory Committee (SAC)
  4. Recommendations

 

1. Background: The Socially Responsible Investment Fund

The origin of the Socially Responsible Investment Fund (SRIF) was a resolution introduced at the 2013 Diocesan Convention by the Environmental Commission urging divestment of the Diocesan Investment Fund (the “DIF”) from fossil fuel companies. After discussion and advice from the Diocesan Chancellor concerning fiduciary obligations towards investors in the DIF, the resolution was withdrawn and a substitute resolution was introduced and passed.  That Resolution in Support of Socially Responsible Investment Strategies directed the Board of Trustees as well as the DIF and their professional advisors to conduct studies “assessing the effects of divestment from fossil fuel companies” and “to include socially responsible investing generally in a revised investment policy.”

In response to the 2013 Convention resolution, the Board of Trustees created an advisory committee, the Socially Responsible Investing Committee.  At the 2014 Convention, that committee led the diocese in a process of identifying “socially responsible and gospel value priorities.” The top SRI priorities thus identified included “human rights,” alongside sustainability and community justice.  Delegates supported both positive investment and divestment in support of human rights.

The 2015 Diocesan Convention adopted resolutions accepting the recommendation of the Socially Responsible Investing Committee to create a separate Socially Responsible Investment Fund (SRIF) within the Diocesan Investment Fund.  The SRIF was initially funded with one-third of the Diocesan-controlled funds managed by the Board of Trustees. Working with professional advisors at Sellwood Consulting LLC, the Diocesan Investment Committee established the SRIF as a new long-term, diversified investment fund combining investments in major asset classes reflecting the SRI priorities identified at the 2014 Convention.  The SRIF as a whole reflects all the priorities and values identified in the dot voting; not all investments in the SRIF seek to implement all the objectives.

“Investment” in the context of the SRIF is used in its narrow sense of an outlay of money with the goal of income or profitable returns.  As fiduciaries, the Board of Trustees is legally bound to follow the so-called “prudent investor” standard for all the investments by the SRIF.  Indeed, the very concept of socially responsible investing “recognizes that carefully selected socially responsible investment programs may provide attractive investment returns while fulfilling greater social purposes” (“Resolution in Support of Socially Responsible Investment Strategies,” 2015 Diocesan Convention).

It is important to remember this goal of attractive investment returns because in common parlance the word “investment” is sometimes used to refer to an outlay of money without expectation of monetary return.  Advertisements, for example, might encourage “investment” in a particularly expensive car.  This is a pure expenditure, not an investment in the financial sense.  In a charitable context, one might speak of “investment” in a clean water system for a village.  That is an investment in the sense of furthering a social good.  However, it is not an investment in the sense it is used in the mission of the SRIF.  The SRIF has two goals:  a competitive financial return on its investments for the benefit of its investors and a furthering of the gospel values that the Diocese has prioritized.

The criteria for socially responsible investing may be either positive or negative.  A positive criterion is one that seeks to encourage the growth of a particular industry or type of company by actively channeling capital to it.  For example, the positive investing criteria adopted by the Diocese include “climate and clean technology.”  By directing capital to companies researching and producing technology such as electric vehicles or solar cells, the Diocese seeks to reduce climate change.  A corresponding negative criterion, or criterion for divestment or noninvestment, adopted by the Diocese is “pollution and toxics.”  Mutual funds using this criterion would screen out of the list of possible investments companies that have a record of polluting the environment, using what is termed a negative screen.

Like the Diocesan Investment Fund, the SRIF invests in mutual funds rather than in individual stocks.  Mutual fund managers create funds with particular screens and priorities.  Pax World Investments, for example, was the first socially responsible investment fund management company (initially started by clergy).  For example, with regard to environmental issues, in 2008, Pax World created a fund, Pax Global Environmental Markets Fund (Symbol PGRNX), using both positive and negative screens.  “The Fund seeks to invest in companies with positive overall environmental performance offering products or services that help other companies and societies improve their environmental performance. It avoids investing in companies with significant environmental problems or worsening environmental profiles. The portfolio is fossil fuel-free” (http://paxworld.com/funds/pax-world-mutual-funds/global-environmental-markets-fund, May 18, 2017).  The Diocesan Investment Committee, based on advice from Sellwood Consulting, made the decision to invest a portion of the SRIF assets in this fund because its investment criteria fit some of the SRI priorities identified by the Diocese at Convention and because of the competitive performance of the fund and the quality of its managers.  The Diocese has no direct control over which stocks are held by any such mutual fund; as noted, these choices are made by the fund’s managers.  The Diocese’s choice, made on its behalf by the Diocesan Investment Committee, is to invest or not invest in various mutual funds or to divest from them should it become apparent that their screens do not match Diocesan priorities or that they are no longer competitive.

“Human rights” appears on the Diocesan SRI priorities as both a criterion for investment and a criterion for divestment or noninvestment.  In a carefully designed process at the 2014 Convention, using widely recognized socially responsible investing categories and “dot voting,” delegates expressed a desire both to avoid investment in companies with a record of violating human rights and to invest in companies promoting dignity, respect, and diversity.  This is an investment priority consistent with our baptismal promise to “strive for justice and peace among all people, and respect the dignity of every human being.” (Book of Common Prayer (1979), p. 305).

2. Resolutions Concerning Investments Related to Israel/Palestine

At the 2014 Convention, a resolution was passed that directed the Socially Responsible Investing Committee to “study the implementation of divestment from companies profiting from the military occupation of the Palestinian Territories by the State of Israel, specifically Caterpillar, Hewlett-Packard (HP), Motorola Solutions, Group 4 Securicor (G4S), Veolia, and SodaStream.” (Resolution IV, “Substitute Resolution in Support of Palestinian Human Rights,” 2014 Diocesan Convention).

At the 2015 Diocesan Convention, two resolutions concerning investment related to Israel/Palestine were introduced:

Resolution IV (“Naming a Source for Identifying Companies for Divestment as a Guide to the Committee for Socially Responsible Investments”) proposed that “the Committee for Socially Responsible Investments shall use the annual list of companies that profit from the Occupation from the group: WHO PROFITS FROM THE ISRAELI OCCUPATION INDUSTRY. This annual list can be found on the website http://www.whoprofits.org.” Resolution IV was introduced by The Task Force for Palestinian Human Rights.

In contrast, Resolution V (“Affirmative Support of the Palestinian Communities in Areas of, and Surrounding, the Holy Land”) urged that the Diocese take a position that such divestment “is not in the best interests of The Episcopal Church, its partners in the Holy Land, interreligious relations and the lives of Palestinians on the ground,” but that the SRIF should instead look for “affirmative” investment opportunities that create jobs for Palestinians and interfaith cooperation.  The resolution further argued that divestment “can unwittingly contribute to anti-Semitism, to which we as Episcopalians, exercising our Anglican commitment to justice and reason, should be ever alert.”  Resolution V was sponsored by “members and supporters of the Ad Hoc Committee for Positive and Compassionate Action for Peace in the Holy Land (CPCAP).”

Both Resolution IV and Resolution V were referred by action of the 2015 Convention to the Stakeholders Advisory Committee, the creation of which had earlier been approved at the same Convention.

3. Activities of the Socially Responsible Investment Stakeholder Advisory Committee

Since the committee’s first meeting in June 2016, The Stakeholder Advisory Committee (SAC) has engaged in several activities related to the tasks the Committee was assigned. These include:

  • educating itself on the context of issues related to Israel/Palestine;
  • interviewing fund managers and experts in nonprofits, including religious organizations, that focus on socially responsible investments;
  • researching how other nonprofits and religious organizations are dealing with issues related to socially responsible investment in conflict areas, and Israel/Palestine in particular;
  • meeting with the groups that proposed the resolutions on investment at the 2015 Diocesan Convention and studying the materials they provided the Committee;
  • sharing information about the Socially Responsible Investment Fund (SRIF) at various convocations, trainings for wardens and treasurers, and Clergy Conference, to help congregations make informed decisions regarding whether to put some of their own funds into the SRIF;
  • at the Bishop’s request, making suggestions about the Diocesan Indaba conversations on Israel/Palestine and participating in these dialogues along with other members of the Diocese; and
  • preparing for the triennial polling regarding investment priorities at the 2017 Convention as required by resolution.

The comments below focus initially on the Committee’s efforts to understand the concerns of the two groups that proposed resolutions at the 2015 Convention relating to investment and Israel/Palestine. It then provides some background information on the situation in Israel/Palestine and discusses the present state of Diocesan investments there, describing what the committee has learned regarding the question of investment screening procedures for that region.

In addition to the committee’s continuing discussions, on September 29, 2016, the SAC held separate meetings with members of the Task Force for Palestinian Human Rights and the Ad Hoc Committee for Positive and Compassionate Action for Peace in the Holy Land. To avoid the appearance of favoritism, each group was allotted a period of time to state their major concerns followed by a timed period during which the SAC asked each group the same series of questions. Following this meeting, the SAC met on October 8, seeking to discern common themes and shared concerns emerging from the information presented to the committee by both groups.  As a follow-up, on February 16, 2017, the SAC invited the two groups to the Bishops’ Close for an evening meal together with the goal of determining the extent to which there might be a consensus among the groups and their individual members about issues and interests regarding Israel/Palestine and investment.

The February 16th discussions made clear that there is little agreement among advocates of the two 2015 resolutions about the situation in Israel/Palestine and what, if anything, should be done with respect to the issue of investment, whether the focus is facts, ethics and morality, or theology. Although there is general agreement that any SRIF actions should “benefit all God’s children,” and uphold the “dignity of every human being,” there was clearly no consensus about how to apply these shared values to the question of social responsible investments in this specific case. The evening’s discussions evidenced passionately held opinions and convictions shaped by very different personal value commitments, life experiences, and understandings of the implications of shared beliefs for action in the world. These differences led to contrasting and conflicting imperatives regarding the role of the Church in this situation and socially responsible investment more broadly.

As noted below, although there was support among both groups for positive investment in the broad sense explained in §1 above and §4 below, such efforts would, with the exception of the limited microfinance fund described in §4, constitute charitable donations and thus fall outside the purview of the SAC.

Israel/Palestine in global context. The impetus for the 2013 resolution and Resolutions IV add V at the 2015 convention is a long-standing conflict that is among the most seemingly intractable on the contemporary world stage. Indeed, there is little, if any, agreement, among academics, policy makers, politicians, or the public in this or other countries about how best to frame the conflict. In the broader context, the issue is the relationship between Israel and the neighboring Muslim-majority countries. More narrowly, the focus is the relationship between the state of Israel and the territories it has occupied since the 1967 war—East Jerusalem, the West Bank, Gaza, and the Golan Heights. Even these formulations, however, are too simplistic given the various shifting geopolitical and religious alliances among both the neighboring Muslim-majority countries and those Palestinian Muslims and Christians living under occupation as well as among Israelis citizens—whether Jews, Muslim or Christian Arabs, or members of the country’s other minority groups. The involvement of the international community in these conflicts since their origin, dating from the late 19th century, and in the region generally, further complicates the situation.

Indeed, international attempts to mediate this conflict have repeatedly resulted in failure and, in many cases, worsened the tensions among the parties involved. In an important sense, the 2015 resolutions represented starkly different responses to the Boycott, Divest, and Sanction (BDS) movement begun in 2005 by 170 nongovernmental Palestinian organizations. Modeled on the anti-apartheid movement in South Africa, the campaign encourages countries, institutions, and individuals to boycott Israeli products, to divest from Israeli companies (especially those that profit from the occupation or make its continuation possible), and to sanction the state of Israel and various Israeli institutions, where possible. Supporters of BDS see the movement as a way to end the occupation by forcing Israel to honor international law while critics see it as an effort to delegitimize the State of Israel, and as encouraging anti-Semitism and/or anti-Zionism. Thus, the 2013 and 2015 resolutions are ultimately about a much larger set of unsettled, highly divisive national and international issues than merely the question of Diocesan socially responsible investments.

Present state of investment.  At this point, the SRIF has virtually no investment in any of the companies in the list cited in Resolution IV proposed by the Task Force on Palestinian Human Rights. There are certainly no direct holdings; there may, however, be de minimus indirect holdings through diversified mutual funds, as explained in §1 above.

Relevant fund screens. The SAC has found SRI funds that screen out companies that profit from conflict and human rights abuses.  In nearly all cases, these funds’ policies are applied globally including regions such as Israel/Palestine, China, Burma and other regions where human rights issues arise.  Fund managers with whom the SAC has spoken have reported that, from a policy perspective, funds are reluctant to single out particular regions or countries for any number of reasons. One such reason is equity based: fund managers do not choose to prioritize abuse of one group of people over abuse of another group in a different part of the world.

4. Recommendations

With respect to the 2015 Resolutions IV and V, the socially responsible investment objectives, which emerged from dot voting at the 2014 Convention, presently include both positive investment priorities with respect to human rights and negative screening criteria with respect to human rights and defense and weapons.  Those criteria apply globally, including to companies doing business in conflict zones such as Israel/Palestine.  The effectiveness of those global screening criteria is demonstrated by the fact that the Stakeholders’ Advisory Committee’s detailed investigation showed that the Socially Responsible Investment Fund (SRIF) holds only de minimus indirect investments in companies that have been identified by advocates as benefiting from abuses of human rights in Israel/Palestine.  The Stakeholder Advisory Committee (SAC) recommends the continued application of these global human rights criteria, wherever applied across the SRIF portfolio, for both noninvestment/divestment and positive investment.  Global applications of these screens will include Israel/Palestine and the United States, and are consistent with our baptismal covenant. The SAC believes that both positive and negative screens related to human rights—in Israel/Palestine as well as in the rest of the world—are required by the priorities identified at the 2014 Convention. They also demonstrate the Diocese’s commitment to our baptismal promise to respect the dignity of every human and to act so as to benefit all God’s children; values shared by sponsors of both Resolutions IV and V at the 2015 Convention.

Many of the investments that have been advocated in both the initial resolutions referred to the SAC, and in the Committee’s conversations with interested persons, fall outside the purview of the SRIF because they are charitable or missional expenditures rather than investments in a financial sense. One of the documents shared at the 2015 Diocesan Convention was a list of “Organizations Investing in Peace, Reconciliation, and Productive Engagement.”  The organizations listed are educational, religious, and scientific organizations.  They are not profit-making companies in which “investment” in the narrow financial sense is possible. Similarly, members of the Task Force for Palestinian Human Rights advocated during our meeting with them for “investment” in organizations providing education and healthcare to Palestinians.  Again, this is “investment” in the broad sense, not the narrow sense appropriate to the SRIF.  It is worth noting that charitable and missional Diocesan expenditures have already supported the interest of stakeholders whose focus is local concerns to some degree; for instance, the Episcopal Bishop of Oregon Foundation has provided support for projects relating to homelessness and refugees in Eugene.  The SAC commends these ideas to those entities within the Diocese with authority over missional expenditures; however, as the Committee understands its charge, such suggestions do not fit the category of financial investments appropriate for the SRIF.

There is, however, a small portion of the SRIF (0.7% of its assets) that can make investments more directly in projects supportive of UN Sustainable Development Goals, for example via microfinancing projects.  These modest funds (about $21k at the time this report was drafted in June) could be applied towards positive investment that supports human rights agendas, both here in the US and overseas, including Israel/Palestine. In light of Resolution II of Policy from the 2015 Convention, which acknowledged the Episcopal Church’s support for the United Nations’ Sustainable Development Goals and directed the Board of Trustees or a committee so designated to authorize the SRIF to invest in microfinance, the SAC recommends implementation of this directive.

In summary, the SAC recommends, wherever human rights screening is applied across the SRIF portfolio:

  • That the SRIF holdings continue on a global basis (i) to avoid anything more than de minimusinvestments, via co-mingled mutual funds, in companies engaged in direct and serious human rights abuses and (ii) to avoid any direct investment in such companies. Global application of this policy would include companies related to Israel/Palestine, and would be consistent with our baptismal covenant to respect the dignity of all persons.
  • That the SRIF consider positive investments supporting human rights globally, including Israel/Palestine and the USA, through its microfinancing asset allocations.