The question whether foundations can – and should – use their stock market investments to influence corporate behaviour is often asked, not least in these pages. In March’s Alliance, Stephen Pittam of the Joseph Rowntree Charitable Trust spotlighted their decision to disinvest from Reed Elsevier for organizing exhibitions for the arms trade.
Still, until SustainAbility got a grant from the Skoll Foundation, the ‘should-foundations-bring-financial-pressure-to-bear’ question seemed remote. Our work is more concerned with how to influence companies by working with them to address issues such as global governance, climate change, natural resource depletion, biodiversity, poverty and corruption.
No doubt the invitation to contribute to Alliance flowed from an impression, which is only partly true, that SustainAbility knows how to influence business. Our work is often a pragmatic blend of corporate psychiatry – trying to change thinking by poking around in the corporate psyche – and corporate acupuncture, where we seek (and needle) pressure points. For years, though, I have envied James Bond: every time he finds himself in a villain’s control centre he knows which button to press. I often end up pressing whatever comes to hand.
So I asked Jed Emerson, one of our Faculty members, how he views the potential of what I dubbed ‘money with attitude’. ‘In capitalism,’ he replied, ‘investing is the red button in the control room! Capital is the lifeblood of any company and its flows both determine and reflect what we value. We must have “money with attitude” in the personal investing and philanthropic community since when left to its own devices capital will simply seek its own, lowest common denominator – an economic one. If even mainstream investors such as Goldman Sachs are offering clients “enhanced analytics” to help manage investment portfolios with reference to social and environmental factors, and if newer funds such as Generation Investment Management are successfully creating significant financial returns by considering extra-financial issues, it’s hard to believe that mainstream money does not benefit from some additional attitude to help it maximize total, blended value.’
Next, I asked Richard Fahey, Chief Operating Officer at the Skoll Foundation and architect of its capital model, which seeks greater alignment among all the Foundation’s investments, for his views. While he acknowledges that there is growing interest in foundations using their financial leverage, he underscores that Skoll’s core business is in funding the likes of Ceres, Health Care Without Harm and, indeed, SustainAbility, where the organization’s main purpose is to transform business thinking and practice. He also mentions Jeff Skoll’s media company Participant Productions, which among other things co-produced Al Gore’s An Inconvenient Truth. The impact of such films is one reason why Skoll’s investments attract interest.
But the key pressure for a more active strategy comes from Skoll’s own board, which has embraced the idea of the foundation aligning its corpus investments more closely with its mission. The result is ‘a three-part strategy of voting proxies actively, screening publicly held investments for mission alignment, and investing directly in enterprises pursuing business opportunities specifically aligned with the Foundation’s issue areas.’
Fahey notes that while foundations can’t hold controlling interests in for-profit companies, there are few other constraints on what they can do. They can support other people’s shareholder resolutions (like Skoll’s) or mount their own. He cites the case of Smithfield Foods, the world’s largest hog farmer and pork processor, where the Nathan Cummings Foundation brought considerable pressure to bear on environmental issues.
Ultimately, the master button links to brands and corporate reputation. Reed Elsevier eventually pulled out of its arms trade activities because its academic customer base was getting agitated. But foundations should also be better informed. Skoll use Innovest’s company ratings to guide investment. Through Capricorn Investment Group LLC, they purchased a stake in sustainability-focused Generation Investment Management, co-founded by Gore. Finally, the Skoll team invited several Bay Area foundations to discuss mission-aligned investment strategies with Mindy Lubber of Ceres and Lance Lindblom of the Nathan Cummings Foundation. Interestingly, both the meeting and the agenda made the Wall Street Journal. So let’s find those buttons and give them an experimental push.