The Patience of Incremental Change

Impact Reflection | June 24, 2022

“Go placidly amid the noise and the haste, and remember what peace there may be in silence […] and whatever your labors and aspirations, in the noisy confusion of life, keep peace in your soul.  With all its sham, drudgery and broken dreams, it is still a beautiful world.” – Max Ehrmann

In this moment of difficult political news all around, I am trying to focus on the positive. For the first time in history, Juneteenth and the Fourth of July bookend the summer solstice as twin Federal holidays. I am enjoying this moment of national recognition after centuries of effort to establish equity, and finally, of a fuller polity. It wasn’t easily achieved, and as Jelani Cobb of The New Yorker wrote in 2020, “Juneteenth exists as a counterpoint to the Fourth of July; the latter heralds the arrival of American ideals, the former stresses just how hard it has been to live up to them.”[1] Whether over racial equity, gun control, a woman’s right to her body, or environmental regulation, personal and political disagreements about equitable rights in America have been vigorous for nearly 250 years, and today are as much alive as ever.

With all that disagreement, it’s not always easy to see a path forward. And yet, I sense a gradual shifting of the center of gravity of our national arguments. Over the course of decades and even centuries, those shifts eventually move us forward. Change is always and everywhere incremental; living up to ideals takes work, and real change takes a lot of time. Some steps are agonizingly slow – or feel like backward movement – yet the net result is forward movement.

In the investment world, commitment to live up to social and environmental ideals was initially slow. Earth Day was launched in 1970 but meaningful growth in environmentally oriented investment options didn’t really gain traction for decades. In the last six years we have witnessed a pivot among investors who are now choosing to put their money where their ideals are, significantly increasing investment into socially and environmentally responsible funds and managers. Whether due to the Paris Agreement on climate change in 2015, or the election of Donald Trump in 2016, investors are one by one making new commitments with their investment capital.

Simultaneously, publicly traded companies are making commitments of their own. Following George Floyd’s death, some companies responded to the social climate and the chorus of shareholder voices. As the stewards of investors’ capital, they made commitments to re-energize attention to racial equity in hiring and leadership. Other companies committed to following international climate accords and begin or continue efforts to source cleaner energy or establish and track metrics to more transparently communicate their progress. Commitments are a good start; if they follow through, that will accelerate change.

Another significant source of capital for change comes from banks, which collect deposits from individuals and businesses, and decide how that money will be loaned out to finance business activity. Global financing of fossil fuels is an example where change is beginning but remains uneven. The French bank Crédit Mutuel has entirely stopped financing fossil fuels, while the Postal Savings Bank of China has increased fossil fuel financing by 1200%. In the US, large banks from Wells Fargo to JPMorgan to Goldman Sachs are in the indeterminate middle, having made reductions in fossil fuel financing by 15-25%. These sorts of capital allocation decisions, when added to company actions and investor pressure, can create momentum in the shift to a greener energy infrastructure.

During the pandemic, new capital moving into the hands of managers paying attention to social and environmental issues boomed, with more than $68 billion flowing into ESG equity funds in 2020 and 2021. Investment returns were strong, in part due to radically low interest rates and a collapsing energy sector during global Covid shutdowns. Demand has been strong, and everyone wants in on the action.

The proliferation of funds with ESG in their monikers, though, has led to concern about whether all managers and the companies they invest in are actually working in ways that will lead to change. Consumers believe the labels, but they need to know they can trust what’s under the hood. New indices developed to provide investors easy access to fossil-free portfolios have turned up with holdings that are inappropriate in other ways, whether in cigarette sales or bomb manufacturing.[2] Regulators are paying attention as well. The German investment management company DWS Group (a spinoff from Deutsche Asset Management) is being investigated in Germany and the US for allegations of “greenwashing,” aka deceptive advertising. In the US, the SEC has launched an effort to develop disclosure guidelines for funds that market themselves as having an ESG focus.[3]

In our capitalist economy, profit matters. Increasingly, the alignment of investment opportunities and corporate action indicates that impact matters, too. Demand by investors appears to be met by a desire on the part of companies to create real change, and policymakers are creating a shared vocabulary that will help accelerate the conversation.

When our country exploded with outrage at George Floyd’s killing in 2020, I began a more intensive personal journey to understand how to take action for racial equity. In the course of that process, I was sequentially appalled at my ignorance, angry at the bigots of history, and cynical about the possibility of real change. Eventually, though, I emerged with a hardened sense of passion, but also a deep sense of patience. I know change takes a long time. Positive change is the result of a thousand different actions by a thousand people in a thousand places with a thousand different momentary motivations. 

Investments can’t change everything, but they provide a form of action when we are otherwise overwhelmed by climate change or the need for equity, and they are the language through which our country expresses itself. Shareholders are the citizens of the corporations, and while some argue that the overlap is narrow between purpose and profit, that small space can be widened over time and with collective effort.

Max Ehrmann wrote his prose poem in the early 1920s; the title “Desiderata” translates as “things that are desired.” There is a yearning for better days all around, and yet we must move through our lives day to day, doing little things to head in the right direction. Ehrmann’s sentiments continue to ring true, including the fact that despite the sham, drudgery, and broken dreams, this is still a beautiful world, and worth fighting for.

Resources

[1] Jelani Cobb, “Juneteenth and the Meaning of Freedom,” The New Yorker, June 19, 2020.

[2] Lynnley Browning, “How the ESG industrial complex blurs the lines for do-good investors,” Financial Planning, June 8, 2022.  Browning led into a discussion of the issues for “sustainable” investment funds citing funds with small stakes in an Indian company that makes banned cluster bombs.

[3] Gary Gensler, ”Statement of ESG Disclosures Proposal,” US SEC website, May 25, 2022.