Finance & Investment

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Investors Show How to Stay the Future-Proof Course in a Post-COVID World

A new toolkit provides a roadmap for addressing risks to the ‘S’ part of ESG investing; while a new case study validates the Rockefeller Brothers Foundation’s bet on a fossil-fuel-free portfolio.

Published 4 years ago | About a 5 minute read

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New ‘Investor Toolkit on Human Rights’ helps investors get the ‘people part’ of ESG right

Image credit: Investor Alliance for Human Rights

The Investor Alliance for Human Rights today unveiled a new Investor Toolkit on Human Rights for asset owners and managers to address risks to people posed by their investments. This comes in the midst of the COVID-19 crisis, where systemic economic and social inequalities across society have been exposed and exacerbated — starkly revealing the precarious foundation that financial markets rely upon.

In this context of the pandemic and going forward, institutional investors of all sizes have a responsibility, as well as an opportunity, to support recovery and positively contribute to new systems grounded in respect for human rights. While more and more mainstream investors are integrating environmental, social, and governance (ESG) criteria into their investment activities, many are not. Even when ESG factors are considered, addressing risks to the ‘S’ part of the equation remains widely neglected.

“In this global crisis, we see why investment-as-usual must change. An essential step in this process is recognizing that institutional investors, even minority shareholders, have a responsibility to address the risks to people present in their investment value chains,” said Paloma Muñoz Quick, Director of the Investor Alliance for Human Rights. “To do this, investors should know the human rights risks connected to their investment portfolios and show how they are taking action to manage those risks in line with globally agreed upon standards.”

The expectation that investors, like all business actors, respect human rights is outlined by the UN Guiding Principles on Business in Human Rights, unanimously endorsed by governments in the UN Human Rights Council in 2011.

This expectation is also increasingly embedded into legal requirements impacting financial markets across the world — for example, the European Union now requires European investors to disclose the steps they have taken to address the adverse impact of their investment decisions on people and the planet.

“For European investors, the Investor Toolkit provides timely and much-needed practical guidance for helping investors apply the UN Guiding Principles and meet emerging EU requirements calling on investors to disclose due diligence efforts to manage risks to people throughout the investment lifecycle,” said Carola van Lamoen, Head of Active Ownership and Executive Director at Robeco.

It’s been heartening to see more and more companies pivoting their product or service to put people first during the pandemic. But, altruism aside, a growing body of research shows the correlation between corporate attention to ESG and corporate financial performance.

Read more about the Toolkit here ...

After 5 years away from oil, the Rockefeller Brothers aren't looking back

Image credit: Milada Vigerova/Unsplash

Meanwhile, the Rockefeller Brothers Foundation (RBF) has just released a case study detailing how its investment returns beat market benchmarks since it divested from fossil fuels — on which their great-great-grandfather, John D. Rockefeller, built his vast fortune — five years ago.

Financial data included in the study shows the RBF posted an average annual net return of 7.76 percent over the five-year period that ended December 31, 2019. Over the same period, an index portfolio made up of 70 percent stocks and 30 percent bonds — including coal, oil, and gas holdings — returned 6.71 percent annually.

When the RBF announced its decision to divest in September 2014, it set out to prove the business case behind the move — projecting that fossil fuel holdings would decrease in value as the world shifted away from carbon-intensive energy to mitigate the impacts of climate change.

The divestment movement accounted for just $50 billion in global assets under management when the Rockefeller Brothers Fund signed on in 2014. That number has now ballooned to around $12 trillion today — the RBF and its grantees continue to press other foundations, universities, governments, companies and banks to divest, as well.

“The rationale for continued investment in gas and oil is fading fast,” said Stephen Heintz, president and CEO of the RBF. “We spent the last five years proving oil was bad not only for the environment but for the bottom line — COVID-19 did it in two months.”

The RBF report points to recent moves by financial giants such as BlackRock and Goldman Sachs as further evidence that fossil fuel stocks are increasingly getting the boot from investors, but the coronavirus pandemic has helped prove the case, as just eight weeks of reduced global consumption — a drop in the bucket of what will be required to curb global climate change — have seen crude futures drop to record lows. The RBF report includes 2020 first-quarter data that suggests its earlier departure from fossil fuels extended its financial outperformance and shielded the Fund from some of the market volatility caused by the pandemic.

“When we joined the divestment movement, we were convinced that a more profitable and less risky investment portfolio could be constructed without exposure to fossil fuels,” said Valerie Rockefeller, great-great-granddaughter of John D. Rockefeller and chair of the RBF board of trustees. “Now, we have five years of financial data to back it up. Oil is obviously a definitional part of my family’s past, but it has no place in our future.”

Read more about the Rockefellers Brothers Fund and the case for going fossil fuel free here.