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Partners in Advocacy: Pax World Investments
By Holly Testa, Director, Shareowner Engagement

First Affirmative’s shareowner advocacy program does not stand alone. Many of the asset managers we use in client accounts are also our partners in advocacy—and they have powerful stories to share. In this installment, we talk with Julie Fox Gorte, PhD, Senior Vice President for Sustainable Investing at Pax World Investments.

Partners in Advocacy Pax 1Pax World has been around since the birth of the modern socially responsible investment industry. They opened their doors in 1971 with $101,000 and a first of its kind investment product—a publicly available mutual fund that integrated social as well as financial criteria in the investment decision-making process. From these humble beginnings, Pax World's investment options and assets have grown exponentially, and so too has their advocacy impact.

Recipe for Success Is Integration

Julie Gorte points out that the Pax advocacy program is not viewed as a function separate from the investment management process. “We closely track the literature linking ESG strength with financial outcomes, and to date have amassed nearly 300 studies that do this; the case for ESG integration has been successfully made.”

“All of our work—the research as well as the advocacy—proceeds from this conviction: Sustainability and financial performance are positively and significantly linked together in the long run. If we are engaged in advocacy on an issue, it means that Pax World believes that it presents a significant risk or opportunity for the companies and their investors.”

“For example, when we ask companies to disclose their political contributions, it is because there is clear evidence that not doing so poses a significant reputational risk. The only way to mitigate this risk is to either not make any contributions to start with or to disclose the decision-making process and contributions made so that you are not later accused of hiding embarrassing involvement in campaigns that do not contribute to the success of the company.”

Gorte points out that lack of disclosure of all sorts can haunt companies in the long run, and cited a recent example: “It was revealed that Dr. Willie Soon’s climate research, often cited by climate change skeptics, was funded substantially by fossil fuel interests, including Southern Company. Companies hiding involvement by running contributions through a third-party to avoid scrutiny can later damage one of their most valuable assets—their reputation.”

Case Study in Leadership: Gender Diversity

An issue that clearly illustrates what makes Pax a standout leader is women’s empowerment. Their leadership has been recognized and appreciated, as is demonstrated by Pax World’s President and CEO Joe Keefe receipt of the 2014 Women’s Empowerment Principles (WEPs) Leadership Award presented by the United Nations.

Why is gender diversity so important? When looking at the statistics, the answer seems obvious, but apparently it is not to many corporations. Gorte points out that gender diversity is not just a social or fairness issue, it represents a crucial company asset—talent.

Elevating Diversity to an Investment Concept Pax is convinced they are onto something important here, and so they have launched a unique mutual fund, the Elevate Global Women’s Index Fund.

Julie Gorte tells us that “this fund is the first of its kind—a broadly diversified mutual fund that invests in the highest-rated companies in the world in advancing women’s leadership. We just opened it last year, but the fund is starting to attract some attention. We are pleased that people seem comfortable with the concept as a legitimate screening process.”

“The fund highlights the fact that some industries are more open to or attract more women into leadership ranks—although no sector a zero weight, energy has a severe underrepresentation of women, while the consumer staples and financial sectors have a higher than average representation.”

“About half of the people on the planet are women, but they represent only 12% of senior management and 12% of corporate board membership. There is no evidence that talent is spread out unevenly across the population in this way. The future success of companies is not based on bricks and mortar and other physical assets, it is based on human ingenuity. The ability to attract the best possible talent available is the responsibility of the decision-makers in every company. The lack of women in leadership represents missed opportunity to hire the best talent available. This is not just a social concern, it is a competitive advantage concern.”

“I could bore you with studies that clearly show the quantitative links that have been found between gender diversity and financial performance. But that link is clear. In Korea for example, a country where the culture does not favor women in positions of power, foreign multinationals who take advantage of this untapped resource of women leaders outperform those who neglect this resource.”

Say “No” to All Male Boards Campaign

Pax World works closely with other investors and non-governmental organizations such as The 30% Coalition to advance the cause of diversity. For example, they organized the Say No to All Male Boards campaign that uses the power of the proxy to communicate with companies lacking diversity. Many companies, including First Affirmative, have joined this campaign by voting against corporate boards lacking diversity and contacting those companies to explain why.

Unfortunately, investors have very little control over who is elected to the board. Gorte describes the process this way: “Board elections are akin to the President of the country choosing a single person to run for each Senate seat, and then giving every person in the appropriate state the opportunity to either vote for or against each person.”

“Still, investors need to use what little control they have. The purpose of ‘Just Say No’ is to send a message that many investors are concerned about this lack of diversity and they are going to vote against boards that are not taking action in the face of clear evidence that it is their duty as shareholders to do so.”

“While progress on truly diversifying boards is slower than it should be, the fact that the issue has become so prominent and, in many countries, increasingly covered by regulation or at least public-policy exhortation, is due in no small part to the kind of advocacy and proxy voting we have done on this issue for many years.”

Evolutions, Not Revolutions

Success stories are seldom quick-they are an evolutionary change. As Julie points out, “if you are into instant gratification, you’d better find another job!”

“ Staples is a great example. Long ago, I was involved with a campaign at Staples on sustainable forestry. The first small step was that Staples hired a consultant to see what was possible in the narrow scope of selling more sustainable paper. They decided to stock Forest Stewardship Council certified paper. This single successful action led the company to explore what other related things they could do. They promoted long time employee Mark Buckley to work on sustainability issues. He went to town, evaluating Staples environmental footprint and finding ways to improve it. This in turn impacted lighting, energy and transportation decisions.”

“Sometimes, all you need to do is plant a seed– people get excited when they see it growing, and sometimes it takes root and continues to grow all by itself. This was the case at Staples. A single program evolved into a corporate culture shift.”

NOTE: Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.

Posted: April 6, 2015