How the C-suite can defend democracy

Greetings from New York, where I am preparing to celebrate the July 4 Independence Day holiday. Traditionally, this is a moment when patriotic Americans eat hamburgers — and reflect on the state of the nation, history and values. In that respect, the sustainability community has much to ponder this year.

Never mind the fact that the issue of climate change has become a hotly contested political football, with some Republican state legislatures unleashing a backlash against green policies. What is doubly notable is that the Supreme Court has just handed down two decisions, on the eve of the holiday, that are creating new battles around so-called “woke” corporate policies.

One of these, which emerged on Friday, embraced the rights of Christian-run businesses to refuse orders from clients celebrating gay marriage. The other ruling, announced on Thursday, found that considering race in university admission programmes was unconstitutional.

Both rulings could potentially have big implications for companies. But the second is particularly striking since while it supposedly focuses on educational institutions, it also creates a precedent that could be used to challenge corporate diversity, equity and inclusion policies, as Jeff Rosen, the president of the Constitution Center, told me. Stand by for some heated legal — and political — battles in the months ahead.

Meanwhile, in today’s newsletter we look at how some companies are hoping to protect US democracy, ahead of the 2024 presidential vote. We also explore a new challenge for UK pension funds around fiduciary duty, in relation to climate issues. And check out the smart read from Roy Swan of the Ford Foundation about why the phrase “patriotic capitalism” is needed today. Happy holidays (for those in America)! — Gillian Tett

The C-suite campaign to defend democracy

The Republicans’ “war on woke” in recent months has left many US corporate executives nervous about sticking their heads above the parapet on social issues. But not all. Last week I sat down at the Aspen Ideas Festival with Chip Bergh and Ryan Gellert, the chief executives of Levi Strauss and Patagonia — two companies that have been loudly beating the sustainability drum.

They both insisted that they had absolutely no intention of keeping quiet on social issues, be that LGBTQ rights (about which they both signed a joint corporate letter last week), green activism (where Patagonia is now co-operating with a range of non-profit organisations), or gun rights (where Levi’s has been loudly campaigning for more controls, partly to protect its own store employees, who are increasingly fearful of gun violence).

However, another hot-button issue that both companies are championing, ahead of the 2024 race, is finding ways for the C-suite to uphold democracy. More specifically, back in 2016 the two companies joined forces with PayPal to launch a “Time to Vote” campaign to persuade companies to give their staff time off to vote, and take other steps to support fair electoral processes. After launching with a handful of members, the campaign has now snowballed and the leaders hope that a new wave of corporate leaders will sign the pledge for 2024 too.

“We think the most important thing for democracy is for everyone who is eligible to go out and vote — we try to be non-partisan and non-political on this. But we are one of the only true democracies where elections happen on a work day, so this is very important.” said Bergh. “During the last election [in 2018] we had over 2,000 companies from all 50 states — red and blue states — pledge to give their employees time off to vote during election day.”

In the case of Levi’s, Bergh added, the policy was that store employees all received time off to vote. Patagonia goes even further: it closes all its stores on election day “and we encourage our staff to not just vote but help people to get to the polls and volunteer and help in other ways,” said Gellert. The company leadership was also exploring ways to support democracy in other ways, such as tackling the widespread “loss of trust” in elections and democracy in America as a result of misinformation, he added. This is going to be badly needed given the speed at which artificial intelligence tools are proliferating, but it is unclear how exactly C-suite leaders can help. Either way, the Time to Vote initiative looks timely — whichever side of the political aisle you might sit on. (Gillian Tett)

UK pension funds tackle thorny fiduciary duty issue

Should fund managers have a legal duty towards shareholders to consider climate, social and governance risks? In the UK this debate around fiduciary duty rages most actively in the pension sector.

In its green finance strategy earlier this year, the UK government asked its pensions regulator to clarify pension scheme trustees’ fiduciary duties, and said it wanted to revise the regulatory framework for funds’ stewardship on climate and environment matters.

This followed concerns that a lack of engagement among savers — who mostly do not bother to switch from their default pension option — is complicating pension fund managers’ efforts to tackle ESG risks.

Then last month the UK Sustainable Investment and Finance Association (UKSIF), alongside some of its big pension fund members, including Scottish Widows, upped the ante by saying a “lack of clarity” on fiduciary duty from authorities was leading to “a more risk-averse culture of investing” (and a reluctance to switch from dirtier to cleaner energy investments).

Research on pension holdings last week sought to give additional weight to these concerns. A tenth of the stock and bond holdings by UK pensions schemes are in oil, gas or coal companies, more than £3,000 per saver on average, according to Make My Money Matter.

And nearly half of the 28.5mn adults in the UK with an untouched pension would switch providers if they were aware of this, according to MMMM’s survey.

This savvy campaign has marshalled screen stars such as Richard Curtis, famous for directing Love Actually, as well as memes like the one below, to highlight pension investments in deforestation, arms, tobacco and fossil fuels.

Its number-crunching estimated that £88bn of the £935bn of listed equities and corporate bond holdings held by UK pension funds are invested in oil, gas or other dirty fuel companies.

It looked at disclosures by a sample of pension funds and the fossil fuel exposure of the indices pension funds most commonly track, including the FTSE 350 and FTSE All Share for domestic securities and the MSCI World ex UK and MSCI All Country World ex UK for foreign ones. 

These slightly tortured extrapolations based on limited data point to a broader transparency issue: most funds did not disclose details on their top bond holdings, making it hard to paint an accurate picture of where savers’ money is going. 

And while some pension funds have set targets to reach net zero by 2050, very few (unlike banks and insurers) have clear red lines about investing in companies with oil and gas development plans. 

This is despite the fact that the transition will undoubtedly hit the performance of oil and gas companies, said Katharina Lindmeier, senior responsible investment manager at Nest, a UK workplace pensions scheme. “It’s not acceptable to be kicking the can down the road and failing to act,” she said. (Kenza Bryan) 

Smart Reads

• This week, the White House formally embraced the phrase “Bidenomics” for the first time, to describe a bigger reset of economic policies. But Roy Swan, chief investment officer of the Ford Foundation, thinks that a better way to frame the policies that America needs today is with the phrase “patriotic capitalism”. Read his fascinating piece here.