Erin Gray’s interest in environmental activism started with fracking. Today, she works for Green Century Funds, a mutual fund specializing in green investing and shareholder advocacy. At Green Century, impact investing is about “trying to get companies to improve their environmental performance” explains Erin.
Green Century Funds was one of the first groups looking exclusively at green investing. Green Century has now been in the business for 30 years, and Erin has been with them for 20 of those years. This is not Erin’s first interview on green investing, and she has been an advocate for both the shareholders, and the efficacy of impact investing.
“Growing up, [the environment] was never the top priority for me or my family,” remembers Erin. She majored in Economics at Smith College before transitioning to an intensive accounting program after graduation. During a vacation in Southeast Asia, Erin witnessed the impacts of air and water pollution. The experience drove Erin to switch from accounting to green investing.
Erin believes that impact investing is effective, but the impacts can be varied. When I spoke with her, she pointed to two high profile issues that illustrate the challenges and possibilities of impact investing: fracking and McDonalds
Erin remembered 15 years ago a financial advisor asked, “What are you guys doing about fracking?” At the time, Green Century didn’t even know what fracking was. The fund didn’t invest in gas or coal, but they did have investments in natural gas. Natural gas burns cleaner than oil and coal. For that reason, it was seen as part of the solution for climate change because gas is lower in emissions than coal or oil. “For maybe 3 or 4 years we tried to work with” natural gas companies to improve their environmental performance. They focused on environmentally friendly procedures like green capping wells and pre-drilling water testing.
Green Century doesn’t invest in natural gas anymore because, at the end of the day, natural gas companies still are major emitters. Fracking is also incredibly harmful to the environment, and natural gas, while cleaner than oil, still contributes to climate change. Green Century divested and moved to industries capable of adapting.
For Erin, this example illustrates the role of impact investing in advancing environmental goals by tracking “time-bound, concrete, measurable change”. When natural gas companies weren’t able to meet Green Century’s standards for engagement, Green Century took their investments elsewhere.
Credit to Green Century Funds
The first step to achieving improved environmental performance is reaching out to companies. “There are a variety of different responses we get when we go out to companies,” says Erin. Some welcome support and guidance. Other companies are not interested.
In those cases, the next step is often filing a shareholder resolution. This strategy signals to a company that their shareholders are interested in changing the management or policy of the company. Laughing, Erin shares that sometimes companies, after receiving the shareholder resolution, will say “oh so you were serious about that?”
Shareholder advocacy can yield unexpected results. Shareholder resolutions aren’t binding: a company has no obligation to comply with the wishes of the shareholders. But to engage with companies one must own shares in the company. Erin tilts her head and concedes that “you can sometimes make strange bedfellows” through this strategy. It might be surprising that Green Century Funds invests in McDonalds. The reason they do is to engage with McDonalds as a shareholder.
This started, Erin explains, when one of Green Century’s clients raised concerns about how McDonald’s sourced pork. McDonald’s pigs were kept in restricted gestation crates, which the investor considered inhumane. McDonald’s agreed to change their policy for pig welfare and factory farming, but when the fund checked in on progress with McDonald’s a few years later, there was no change. So, the investor went public, shaming McDonalds for its failure to follow through on its commitment. The investor hoped that by swaying public opinion they could draw support for the cause.
This example illustrates how public shaming can be an effective tool for pushing companies to change their behavior and agree to the demands of investors. After the public pressure on McDonald’s, other companies changed their policies around cage free eggs and pork gestation crates. Companies like CVS and Walgreens reached out to nonprofit groups and the Humane Society asking “What are the policies we should be implementing?”
“There’s a lot of different strategies and techniques and partners,” Erin explains. She’s serious when expressing that “the goal was not to cause the… stock [price] to drop. It was to create political space so that laws, regulations, and policies can be put into place and implemented to be sure we address the biggest environmental concern”.
Green Century still includes McDonald’s in its stock portfolio. “No one in their right mind would say ‘Hey look at that great ESG company’… but we’re going to work with these companies and try to make them better”. The concession can be hard to swallow. “Some advisors have clients who can’t handle looking at their portfolios”, because McDonald’s is a major emitter of GHGs. Other clients are more amenable to the inclusion, holding the belief that the fund is a lot greener than most alternatives.
Green Century continues to focus on environmental issues, shifting to plastic pollution and deforestation in Southeast Asia and South America more recently. When asked if she’d ever leave she laughs and recalls that she’s the last of her graduate school friends still in the first job they got out of graduation. “[The work] is just continuing to evolve” she says. It “keeps me engaged with environmental issues that I might not otherwise have a way to work on”.