Will writing a letter to huge mutual companies make them address climate change? Co-op America seems to think so. It’s now running a campaign, asking you to sign on a letter to ask mutual fund companies to “take action on climate change”:
With trillions of dollars in assets, Fidelity, Vanguard, and American funds could play a vital role in encouraging corporate responsibility on climate change and protecting the assets of their investors.
I am dubious ’bout this plan.
Back in the day, I worked for American Funds. More accurately, I worked for The Capital Group Companies, of which American Funds is a part. They paid me nicely, they gave me excellent benefits, and they even put the equivalent of 10% 15% of my annual salary — including bonuses — into a retirement account without requiring a cent of contribution on my part. I’m betting Co-op America doesn’t do that for its employees, even if it might like to.
All in all, CGC treated me very nicely while I was with them. So nicely that whenever protesters came to the steps of our building about whatever uncouth move American Funds made, I could sort of relate to the whole, “why’re they criticizing this v. nice and caring company” attitude common among my co-workers. It’s the same feeling triggered in well-treated employees and happy customers whenever Starbucks is criticized for greenwashing, for busting unions, for blocking trademarking initiatives, etc. Even if an employee knows little about the actual issues involved, the most immediate impulse is to go on the defensive.
But back to American Funds: I still hated working 9 to 5, quit my job right after a promotion, and went to grad school. And a year or so ago, I moved the money in my CGC retirement plan into a Roth IRA with Green Century Funds, a money management company that already does consider the environment in its investment decisions.
I guess what I’m saying is: Moving your money away from companies like Fidelity, Vanguard, and American Funds will prove much, MUCH more effective in inciting eco-action from these companies than signing another e-letter. Unlike Starbucks, these aren’t even companies that make a huge effort to tout their eco-efforts. They’re not green — They’re not even really greenwashing.
So sign the letter, if you like. But if you really wanna change these companies, put your money where your mouth is too.
The other problem with these complaints is that mutual fund managers cannot cave to such pressure. It’s unprofessional and illegal (managers are bound by fiduciary duty to make money for their investors).
Mutual funds are objective-based. They are either in a matrix of a combination of market capitalization (small, medium and large) and strategy (value, growth or blend), or focused on a sector or index. These parameters limit the manager’s choices. Also, long-term fund holders dislike changes of strategy and might remove their investments.
The good news is that there are hundreds of socially responsible funds available now. Their returns aren’t as good as conventional funds, but they still make money.
The web site http://www.socialinvest.org maintains a database of socially responsible funds and their filtering criteria.
Comment by Wad — March 9, 2007 @ 4:34 pm
I would add that in addition to moving your money, it might be worthwhile to tell them *why* you’re moving it. If the companies discover that a lot of folks are taking their business away for the same reason, perhaps they would be more likely to address that reason.
Thanks for the link, too, I didn’t know that such a site existed.
Comment by lornadoone — March 9, 2007 @ 5:32 pm
Lornadoone wrote:
I would add that in addition to moving your money, it might be worthwhile to tell them *why* you’re moving it.
This might work with local retail businesses, but is much harder to pull off with mutual funds.
Securities, and especially mutual funds, are managed through brokers. They buy and sell the security, but aren’t responsible for it.
And most personal mutual fund investments are made through workplace 401(k) plans and IRAs. Investors would have to goad their human resources managers about getting SRIs included into the selection. These would be the best way to get more SRI investments.
As for the big guys like Fidelity, Capital Group and Vanguard starting their own funds, who knows with them. Fidelity, for instance, is the Wal-Mart of Wall Street. It’s the world’s largest mutual fund company, and it’s also the largest retirement benefit management company in America. It also has a retail investment arm. Consequently, rival families want access to Fidelity’s customer base, especially to be qualified as a no-transaction-fee fund.
Vanguard orients itself to indexes and exchange-traded funds, which are in essence mutual funds that trade like stocks. It has retail investing, and may offer similar benefits as Fidelity.
In the meantime, research the SRIs through prospectuses, and see if they can be bought directly through the fund companies. This especially helps if you don’t have the minimum to deposit but would rather build up the initial investment through monthly payments.
Here’s SocialInvest’s list of SRI funds and what their screens are: http://www.socialinvest.org/Areas/SRIGuide/mfsc.cfm
Comment by Wad — March 9, 2007 @ 9:48 pm
Siel
1. Co-op America does contribute to their employees retirement plan. I worked there almost seven years and they are very conscious of helping their employees save for retirement.
2. Co-op America actually houses and manages the Social Investment Forum (the trade association of social investment companies group whose website is referenced above). Many of their programs are geared toward helping people shift their savings and investments into social investing options.
3. In addition to all of the above, encouraging shareholder resolutions on climate change is a separate and effective strategy for getting fund companies to dialog with companies they hold. Far from being unprofessional or illegal as suggested by Wad, this is a tried and true mechanism for shareholders to effect change in companies they invest in. It was one of the key strategies used to trigger widescale divestment from South Africa which eventually help lead to the official end of apartheid.
My main point, shareholder action on climate change is a valid strategy and it is not mutually exclusive with also telling people to invest their money with funds that are more socially responsible. Failure to act on climate change is now a legitimate business risk and therefore fund managers are obliged to act on their investors best interests and get companies they hold to act in a way that prepares the company for climate change.
Peace out,
Chris
Comment by Chris O'Brien — March 10, 2007 @ 6:59 am
I never said Co-op America doesn’t contribute to their retirement plan. My point was simply that Co-op America likely doesn’t have the kind of money to be AS generous to their employees as many of these mutual fund companies.
While I agree that shareholder activism can make a difference, I also wonder if this letter petition thing qualifies as shareholder activism. As far as I can tell, Co-op isn’t specifically compiling names of individuals with money invested with these mutual funds, saying we have x number of your shareholders worth $x of your assets who want you to change course. That, perhaps, might be effective.
Instead, Co-op’s just collecting random signatures from everyone and anyone (including me — and I don’t have money with these companies). If you want to call this shareholder activism, it’s certainly a very disorganized attempt.
BTW — I want to point out I’m a fan of Co-op, which is why I’m on their email list. I’ve donated to them. I’m pointing out what I see as the weaknesses of this particular strategy. It’s not an indictment of Co-op’s work as a whole.
Comment by Siel — March 10, 2007 @ 10:15 am