The popularity of socially responsible investing (SRI) reached new heights in the past year. A recent JP Morgan study, “Sustainable Investing on the Rise,” revealed 82% of investors are very interested in sustainable investing and plan to increase their commitment to it in the next two years. Investors shared their investment priorities of climate change mitigation, healthcare, water, and a resilient, circular economy which minimizes waste. They shared concerns about the transparency and accuracy of data used to measure social and environmental impact. Investor skepticism regarding efforts by fund companies to greenwash investment information to and make impacts appear larger than they actually are matches the poor scores many environmental, social, and governance (ESG) funds received from Natural Investments’ Heart Rating system, now in its 32nd year.

Greenwashing also drew concern from the Securities and Exchange Commission (SEC), which in 2023 became the first regulatory body in American history to focus its rule making on the ways in which investment funds and professionals integrate social and environmental issues into their investment portfolios and advisory services. The SEC also developed a rule, now entangled in legal challenges, which would require company disclosure of climate change risks given its financial materiality to a company’s bottom line: The omission of such risks could induce investors into making uninformed decisions. These proposed rules don’t prevent companies from conducting any specific business activities but establish requirements and standards for how to share information with investors so they can make informed choices about what they own as well as which fund they choose to manage their assets. Currently, funds and advisors that claim to be sustainable can independently define the meaning of terms and offerings, which creates confusion and uncertainty for investors.

Natural Investments has actively participated in efforts to guide the SEC’s rule making attempts. We urged the passage of two major regulatory actions related to climate change disclosure and advisors and funds classified as ESG. The SEC had previously sent a chill through the financial industry when it fined major investment houses UBS and Goldman Sachs for ESG investment processes that didn’t match UBS and Goldman Sachs’ stated policies. With regulations pending, many funds therefore changed course in the past year, removing terms such as impact, sustainable, and ESG from their fund names and prospectuses to avoid the new level of both
regulatory and Congressional Republican scrutiny. We remain confident the SEC will finalize its anti-greenwashing rule to rein in exaggerated or unfounded ESG-related claims among funds and investment advisors and require investment companies substantiate ESG strategies and practices through disclosures.

Congress launched the Congressional Sustainable Investment Caucus in 2023, led by Rep. Sean Casten (D-Ill.) and Rep. Juan Vargas (D-Calif.) to directly take on the anti-ESG backlash around both climate change and diversity, equity, and inclusion. The Caucus is something Natural Investments, as members of our trade association, US SIF: The Sustainable Investment Forum, have long advocated. Legislators have increased their understanding of this form of investing and therefore are far better prepared to counter the misinformation and politicization of responsible investing. Conservative politicians’ mischaracterization of SRI as liberal collusion by a small handful of radicals to practice “woke” capitalism, ignore the will of investors, and violate fiduciary responsibility is severely misinformed. But it didn’t stop the House of Representatives from holding hearings this past year to intimidate our colleagues by citing baseless collusion and anti-trust laws regarding ESG screening and proxy voting firms, which provide advice on ballot issues and voting services on behalf of paid subscribers.

While two dozen states have passed legislation prohibiting responsible investing from being applied to state pension plans, fortunately the U.S. Senate has thus far resisted efforts by a Republican-majority House to reduce the funding of the SEC, prohibit it from using its budget to enforce rules it has already passed on matters of shareholder rights and proxy voting, and prevent the U.S. Department of Labor from implementing the ESG fiduciary rule passed in 2022 that permits retirement plans to include ESG factors in the selection of investments.

5 FACTS ABOUT SUSTAINABLE & RESPONSIBLE INVESTING

1. An overwhelming majority of investors state in surveys they are very interested in the approach.

2. Environmental, social, and governance considerations are about investment results, not politics.
3. Sustainable investing is an important strategy for addressing climate change, as the emerging green economy offers investment opportunities that decarbonize the atmosphere and help mitigate the negative societal impacts of climate change.
4. Sustainable investors are investing in a better future, with workers’ rights, healthcare innovation, global food security, and responsible
   corporate governance reflecting strong interest in meaningful ways to maximize returns.
5. Sustainable investing is about the free market, in which investors choose what they own using criteria they find material to financial performance.

SHAREHOLDER ADVOCACY HIGHLIGHTS

We signed on in support of the Black Worker Bill of Rights policy platform created by the Black Worker Policy Coalition to ameliorate workplace discrimination, higher unemployment rates, lower wages, unsafe and unhealthy work conditions, and benefits gaps. These rights include:

1. The right to participate in democracy
2. The right to organize
3. The right to resources and information that address barriers to employment
4. The right to assert and have your rights enforced
5. The right to equitable wages, equal pay, and compensation that is owed
6. The right to career advancement opportunities
7. The right to workplaces free from discrimination, harassment, and other harm
8. The right to health, healing, and rest
9. The right to privacy and freedom from surveillance, monitoring, automated management, and control
10. The right to dignity in seeking, securing, maintaining, and retiring from employment

Natural Investments endorsed a statement and initiative led by the Interfaith Center on Corporate Responsibility in support of living wages for American workers. Engagement is underway with companies in known low-wage sectors such as restaurant, retail, hospitality, and gig to promote discussions with management about steps companies can take toward paying a living wage to their workers, such as:

• Commit in writing to work toward paying employees a living wage
• End subminimum wages
• Disclose wage-setting strategies and compensation metrics
• Perform and disclose cost-benefit analyses of wage increases
• Expand the scope of Board compensation committees to include oversight of compensation practices

We endorsed an Investor Alliance for Human Rights letter with dozens of our colleagues urging the largest 50 global banks to undertake human rights due diligence across all forms of finance, including lending, asset management and bond underwriting. A commitment to due diligence aligns these efforts with longstanding international business and human rights frameworks in consultation with impacted rights holders in high-risk areas. Natural Investments asked the banks to report on how adverse human rights impacts have been identified, managed, and addressed and provide grievance procedures and other remedies to address adverse effects. Thus far, banks leading the way in this realm include Citigroup (the only U.S.-based bank among the leaders), London-headquartered Barclays, and Paris-based BNP Paribas, while the laggards feature U.S.-headquartered JP Morgan Chase and Goldman Sachs, per BankTrack, a global watchdog committee challenging banks to act urgently and decisively on climate, nature, pandemics, and human rights.

The 2013 Rana Plaza building collapse in Dhaka, Bangladesh killed 1,138 garment workers and injured another 2,500. The disaster revealed the need to significantly improve safety conditions for workers who produce most of the clothing consumed by Americans. Companies have made progress in the past 10 years to remediate subpar facilities, train employees, establish transparent inspections, provide grievance mechanisms, and ensure leverage against non-compliant factories, positively impacting 2 million workers, according to the International Accord for Health and Safety in the Garment and Textile Industry.

The International Accord was established two years ago to answer the global call for garment worker safety, with Pakistan its primary focus ofMajor brands such as Adidas, Benetton, Fruit of the Loom, Gap, Georgio Armani, H&M, Hanes, Mango, and O’Neill have signed on and committed to cultivate a culture of worker safety in hundreds of supplier factories in that country. This work remains unfinished—in the past year Natural Investments joined 190 investment firms to request more companies sourcing from garment manufacturers sign on to the International Accord and take critical steps to permanently assure worker safety.

Natural Investments engaged the SEC to strengthen its 2022 rule requiring companies to disclose their business dealings in and with the Russian Federation and the Republic of Belarus, Russia’s ally in its 2022 invasion of Ukraine. We suggested the SEC create uniform reporting standards that would include revenues, expenses, assets, liabilities, and the extent of operations related to Russia and Belarus; disclosure of the use of company products or services by the Russian or Belarusian government; statements as to divestments or exits from Russia and Belarus in the case of issuers who have made public statements of intentions to divest or exit; and information regarding proximity to the human rights risks associated with the invasion.