CHAPTER
13
How to Get Your Company to Offer Funds Aligned with Your Values
This chapter is based on the input and review of three experts in this area: R. Paul Herman, founder and CEO of HIP Investor,164 Rob Thomas of Social(k),165 and Timothy Yee of Green Retirement.166
You’ve used one of the transparency tools available to understand what you own, looked inside your employer-sponsored retirement plan mutual fund holdings, and have determined that you want to make some changes. So what’s next?
If your investments are in your employer-sponsored plan at work, it is possible to change what the plan offers, but it will take more effort than if you have a personal investment you control. You will need to engage the plan administrator to help find the right blend of funds to satisfy the many employees that all invest in the same basket of mutual funds. This may take time and possibly some coordination with your co-plan participants.
STEP 1: TALK TO YOUR COLLEAGUES
To effectively advocate for new offerings through your employer-sponsored plan, first build a coalition of peers and interested co-workers inside your company. Your voice will be much stronger as a group. If you’re writing to someone in power, advocating on behalf of 10 or even 20 people carries a lot more weight than just one. One way to spur interest would be sharing the results from your search among fellow employees. All plan participants are offered the same basket of funds as you are, so they are probably asking the same questions right now. It will certainly make interesting conversation around the water cooler.
Some companies have social justice, human rights, or green teams, and there may be affinity groups for gender equality or LGBT employees, and if there isn’t one already, it may be time to create one for a specific issue, be it human rights or environmental health. Communicate with your co-workers through a company intranet, employee portal, a company newsletter, corporate chats, or social media. The herd is heard!
STEP 2: IDENTIFY THE BEST PEOPLE IN THE COMPANY TO SPEAK WITH
The 401(k)/403(b)167 plan administrator, manager, or coordinator should be known if you are a plan participant, and that’s where to start. There could also be a chief sustainability officer or employee engagement manager, and those could be good resources. An effective method is to go to the LinkedIn pages of those people and find who might have some sympathy for the cause. Do any of them volunteer or have connections with organizations concerned with climate change? Look for indicators that they’re friendly to sustainability and start contacting them in order of their friendliness. In a publicly listed company with more structure, a coalition is vital to signal to managers that it’s an important issue for many employees. If it’s a smaller company, the CFO or CEO could be approached directly. In a midsize or family company, a family member could be more influential.
STEP 3: BRING A SOLUTION TO THE TABLE
The usual starting point in these conversations is, “We want to reduce the future risk of our 401(k) fund choices. We also want to invest in funds aligned with our values, like funds that support gender diversity and don’t have fossil fuels. How can we enhance our 401(k) choices to do so?” Here are the criteria. Getting three new fund choices added to the list of the existing 15 to 30 is a formal process and could take a year to be added. Larger companies often have some form of investment committee that engages an investment advisor. There may be some funds in your plan that you see contain only one company you feel is out of alignment. You could ask the plan administrator to call the fund manager and say, “Is there a substitute for this one company?”
If the investment advisor and plan administrator refuse to help in swapping out some funds for others, you may need to get fellow employees to sign a petition requesting the change and send it to the investment committee. If you are told, “But you’ll make less money,” you can reply, “Actually companies with women on the boards outperform those without, according to a Credit Suisse report,168 and oil is very risky these days. We want to diversify, and reduce our risk.”
IF YOU ARE AN INDIVIDUAL INVESTOR
If you are not part of a workplace plan, it is much easier to divest and reinvest; it’s your money, and you can trade on your own using E*TRADE or a similar platform, or there is a financial advisor who works for you. You just need to have a meeting to discuss what you have learned about your holdings and how you would like them changed to align with your values. An investment professional will advise you of potential risk, and you can make your own decisions. If you ask your advisor to make changes and you get push-back telling you that you’ll make lower returns, then dive deeper into the discussion, as this may be a knee-jerk reaction and not based on current data.
Your advisor may recommend against investing in a specific fund because it has a short or rocky history, so you may need to be patient while your advisor finds a better alternative. The goal is to reduce risk and align with your values, and there are many ways to do this. If the advisor is unwilling to help you with this transition, it may be time to find a new advisor.
Not everyone has time to vet their investments, let alone file shareholder resolutions or take other actions. However, if you’re concerned that your investment dollars are not working toward goals that you support, you can choose a Socially Responsible Investment advisor, also known as “Sustainable, Responsible, Impact Investing,” “socially conscious,” “mission,” “green,” or “ethical” wealth manager to guide you. The overarching term is an advisor who considers environmental, social, and governance (ESG) issues.
These investment advisors seek out investments that comply with set criteria: for example, they might seek investments that are involved with human rights, LGBT rights, sustainable forests, consumer protection, or labor rights, to name a few. You can find out much more about these firms at US SIF or the Forum for Sustainable and Responsible Investing.169
Individual companies are “screened” or removed from your portfolio in one of three ways. Negative screens filter out companies that are involved in a certain sector or sectors of the economy: the use of animal testing in their products, for example.
Positive screens add investments according to desired criteria: companies that have more than 30 percent women on the boards, do not do testing on animals, and have signed a pledge to not buy cotton harvested with child slave labor, for example.
A restricted screen allows a certain small percentage of undesirable activity within a company. These are also referred to as “best of class.” Investors may support the companies that are leaders in their sector and move investments away from laggards. We are seeing a great deal of this in the utility sector as companies shift their energy mix to renewables but still may burn some gas and coal. These are often chosen over those continuing to burn coal. Companies that get a good grade in a report on recycling or make public statements about offering a fair living wage are often rewarded with investments.
As a component of SRI investment, dozens of Mutual Funds and ETFs—Exchange Traded Funds—have also been created so that one can invest in hundreds of equities that meet designated environmental, social, and governance criteria. But just because an investment meets ESG criteria does not guarantee returns. There are good ESG investors and bad ones, just like there are good and bad investment advisors and fund managers in the world of non-SRI investing.
Also, the advisor should either be actively involved in proxy voting and filing or co-filing ESG-issue shareholder proposals or at least be supportive of the concept and its potential to reform corporate practices. Shareholder advocacy, plus impact investing and fully integrating ESG factors across your entire portfolio, are the three pillars to build a holistic and empowered approach to investment that reflects an alignment between your values and your portfolio.