Activism at Work
Alison Cooke Mintzer (photo by Chris Ramirez)
Earlier this year, my daughter and her classmates got quite the civics—and investing activism—lesson. Just a few weeks into September, parents of children attending her school were blindsided by the news that the landlord had not reached an agreement with the New York City Department of Education to renew the school’s lease; the school would close at the end of the year to be co-located inside another school on the other side of the city.
My daughter is lucky enough to attend the smallest city public school that is not a charter school. It is one class per grade from pre-K through fifth. And it was her good fortune to get a spot in this tiny school though a lottery program.
Perhaps the fact that the school has fewer than 200 children and an even smaller number of families—there are many siblings in the school—made the landlord, a large real estate investment trust (REIT), think there wouldn’t be much pushback. But pushback there was.
A group of parent leaders at the school immediately mobilized the parent body to convince the landlord to let the school stay for a few more years, until a new school building—already under construction—can be finished. Leases were reviewed, old documents were unearthed to look for any tax breaks given as a result of leasing to a school. Additionally, local, state and federal politicians were approached and engaged to urge the landlord to let “the little school up the steps” stay. A rally was held, and a photo of my 2-year-old son—not yet a student at the school—holding a sign proclaiming “Save our schools” was shown across a few lower Manhattan news outlets.
When that effort came up dry, out came the list of the landlord’s shareholders and the institutions that had backed the mortgage for this particular investment property. A letter writing campaign was begun, with the children and parents sending letters to stakeholders. Then protests at those New York office locations of shareholder/backer properties were planned. A day before there was to be a gathering of 4- to 10-year-olds and their parents outside one global investment banker’s offices (can’t imagine the firm would have found those optics ideal), a deal was reached between the landlord and the education department. The school was granted a reprieve until the new building is complete.
Cute story, you might say, but what does this have to do with advisers or retirement plans?
My daughter was shown that, while elected officials can help, sometimes the best way to effect change is to go to the financial backers. I recount this story because a day doesn’t go by that something related to environmental, social and governance (ESG) investing or shareholder activism by retirement plans doesn’t cross my radar, whether it’s an opinion piece in The New York Times calling out some of the largest investors in a company damaging the rain forest in Brazil, a survey of advisers finding that many of the younger ones are looking for fixed-income ESG investments, a survey of workers suggesting that ESG investment options would increase interest in the retirement plan, or a review of shareholder activism by the largest pension plans of 2018. I don’t expect those trends to die down. In fact, I’m sure interest will only continue to grow.
Many advisers I talk to are still skeptical about this topic. But let’s be clear, this isn’t necessarily the divestment or exclusionary-investing of years past, which was often criticized because so-called “sin stocks” did well. The ESG of today generally refers to rewarding companies with investments because of positive behaviors: investing, for example, in companies that have diversity on their boards or in management, or that are taking steps to be carbon neutral, among other environmentally minded efforts.
Advisers should be prepared to, at the very least, answer plan sponsor or participant questions about the topic and whether or not such investments are available to be included in the plan lineup. To summarize comments by a panelist at last fall’s PLANADVISER National Conference (PANC), you may not believe in selecting ESG funds over traditional non-ESG investments, but if your clients and potential plan participants do, for you to remain competitive and be able to answer questions and add value, it’s time to get clued in to ESG.