Archive for month: June, 2016
The Presbyterian Church USA (PCUSA) had a chance last week to make history. During their General Assembly, the denomination delegates were presented with the opportunity to make changes to the investments of the Board of Pensions, the Presbyterian Foundation and the Presbyterian Investment and Loan Program, by divesting from fossil fuel companies. Unfortunately, the “overture” to divest was defeated despite the committee’s recommendation in favor.
PCUSA decided instead to take a “middle ground,” and to engage with fossil fuel companies through shareholder advocacy. Now shareholder advocacy has proven to be an effective tool for issues such as corporate governance, lobbying, pollution, human rights and equality. But never has advocacy been effective at changing the fundamental business model of a company. The idea that by engaging with oil/gas/mining companies and urging them to be better corporate citizens will change their behavior is naïve and a fools errand. Big Oil is not going to stop producing, refining and distributing oil because a few shareholders ask them to stop.
In my opinion, divestment is the only response to fossil fuel companies – both as a means of protest for their actions and as a fundamental investment move. The risk that fossil fuel companies currently present because of stranded assets and commodity volatility make them a questionable investment – especially for fiduciaries who oversee these institutional investments. PCUSA had the opportunity to make a major statement to the world that fossil fuel companies’ business of changing the chemical composition of the atmosphere for profit is unacceptable – a description that 350.org’s Bill McKibben has used often.
Perhaps the bigger opportunity was the potential to reinvest those fossil fuel assets into sustainable and responsible companies – companies focused on alternative energy, energy efficiency, battery and storage technology and other cutting-edge technologies. And while the adopted overture included the phrasing “consider an increasingly more diversified energy sector in their overall investment portfolios,” it is simply not strong enough – and is toothless without divestment.
I have been involved with this process as I served on three panels over the past year focused on Presbyterian divestment – two for the Western North Carolina Presbytery and one for Presbyterians for Earth Care. This decision is very disheartening, especially considering the need for bold actions. The climate will not wait for another General Assembly in two years.
On the positive side, the fossil fuel divestment movement continues to gain considerable ground as other churches, colleges and non-profits have made the commitment to divest. At a time when bold and decisive actions are needed, these organizations are to be applauded. Not to mention the countless individuals who have taken the step to remove fossil fuels from their individual accounts, trusts and retirement holdings.
I have no doubt that the PCUSA General Assembly will be faced with the same divestment overture in 2018, and with the work of Fossil Free PCUSA, Presbyterians for Earth Care and others, hopefully it will receive the consideration it deserves. In the meantime, individual congregations and parishioners can make their own divestment decisions – and reinvest in sustainable solutions. The climate won’t wait for talk. Visit www.divest-revest.com for more information on fossil fuel divestment for people of faith.
By now you’ve heard the news that Britain has voted to withdraw from the European Union. The repercussions for the UK could be profound as the island nation finds itself to be an economic and political island this morning.
The vast majority of financial, political and international relations experts warned British voters of the implications of a ‘leave’ vote and they ignored the advice. They chose to act on fear and anger over facts. The emotionally-charged issue of immigration overwhelmed the intellectual arguments.
Our portfolios are global in scope, so they will be affected by this decision. But as with the British vote, we have a choice to make based on fear or facts, and I am a strong believer that you cannot make decisions based on fear. Historically, when important events like this happen, investors and markets can panic and emotions exaggerate behavior. Our role is to put things into perspective and provide balance.
The fact is that US market and economic fundamentals remain strong. US companies make up nearly ¾ of the stocks in our Balanced Portfolio, while British companies are only about 2.75%. We believe in the importance of global investing, but historically, domestic companies have been more stable, so we overweight the USA.
Interestingly, the drop in domestic markets at 11:00 AM EST today, based on the S&P 500 is about 2.5%. However, compared to last Friday the drop is only 0.5%. The bigger impact is on European shares. But even there the drop is not as monumental as you might believe. As of 11:00 AM EST today, based on iShares Europe ETF (IEV) the drop is 9%. But as compared to a week ago, the shares are down only about 4.78%. Nowhere near the armageddon the pundits predicted.
Other thoughts – this will probably delay the Fed’s raising of interest rates, help maintain the strong dollar, force the EU to address its immigration troubles and create buying and rebalancing opportunities for disciplined investors. Britain will lose jobs and the EU will gain as companies move workers out of the UK, potentially improving the EU’s jobs picture. The reality is, though, that it will take years for the UK to disentangle itself from the EU, so ultimately, we won’t know the actual impacts for quite some time.
Overall, our philosophy of spreading out risk between different countries, different styles of investing and different risk levels better helps us to withstand global events like this. In the end, I believe that all risk levels of our investment models are well-positioned and prepared for however this event plays out. We will make changes as necessary, including account rebalancing to take advantage of overreactions in the market.
Below are links to a few articles and research reports I found interesting and helpful this morning.
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