An interesting article by a local writer related to our favorite local
foundation.

Mary Anne


Responsible Investment: Gates Foundation and the California Model

By Paul Rogat Loeb

Given the magnitude of the global crises we face, we'd hope the key nonprofits
trying to address them would use every
appropriate tool to maximize their impact.

Yet, Seattle's Bill & Melinda Gates Foundation, which does much good with its
programs (particularly its global immunization
efforts), is missing a significant opportunity by not aligning the foundation's
investment commitments with its larger social
goals. Its choices offer a lesson for other foundations, for pension funds,
college and university endowments, and all other
nonprofit institutions that control financial capital.

If Gates Foundation wanted to consider a different approach, it might learn from
institutions like California's massive
CalPERS (California Public Employees' Retirement System) pension fund, which has
combined first-rate financial returns with
investments that put its dollars in service of socially responsible values.

At present, the Gates Foundation invests solely around trying to maximize
returns, arguing that the more it makes, the more
worthy projects it can fund. That means it has steered its dollars toward a
number of companies that contradict the best of
its values. Exxon/Mobil, for instance, has been the prime funder of think tanks
and individuals denying global warming. The
Foundation invested in mortgage companies, like Ameriquest, that have been
accused in lawsuits or by government officials of
making it easier for thousands of people to lose their homes, even as it also
supported nonprofits that helped victims of
predatory lending. It put money into Tenet Healthcare, which has paid over $1.5
billion in settlements for fraud, kickbacks,
and patient-care lapses. The only category of corporations the Foundation
excluded was tobacco companies, and Gates Foundation
CEO Patty Stonesifer defended their approach by saying it would be naïve to
suggest that an individual stockholder can stop
the human suffering blamed on the practices of companies in which it invests.
"Changes in our investment practices would have
little or no impact on these issues."

But the current approach is an opportunity lost to make a broader impact with
the Foundation's $66 billion of capital
(counting the pledged contributions from Warren Buffett). And the financial
returns for trying to do the right thing don't
have to be lower.

To take the example of the $248 billion CalPERS fund, it has more than three
times the assets of the Gates Foundation, while
facing the legal and fiduciary strictures of being a public pension system. Yet,
it has managed to shift its investments
toward companies that take account of social and environmental impacts for a
broader bottom line, while shifting away from
those they find problematic.

In addition, CalPERS has engaged in proactive shareholder advocacy, using the
leverage of its holdings to change corporate
policies. It helped win better drug access for AIDS patients in poor countries.
It improved working conditions for Asian
suppliers to corporations where it's invested. It has publicly joined
shareholder campaigns to require that Exxon/Mobil shift
major resources toward alternative energy and to force the resignation of the
director of Exxon's public-issues committee --
"due to the company's inaction on the business risks from climate change."

CalPERS is now investing close to a billion dollars in renewable technologies
and in increasing the energy efficiency of the
$12.2 billion of buildings and houses in its portfolio and that of it sister
fund CalSTRS. And its still earned excellent
returns consistent with its legal responsibility to the California taxpayers:
12.89% over the past five years for CalPERS and
13.1% for CalSTRS. According to studies by the consulting group Wilshire
Associates and by UC Davis Finance Professor Brad
Barber, the retirement system's proactive stands on corporate governance have
actually added market value to corporations
whose policies they successfully worked to shift.

The Gates Foundation would do well to solicit the perspectives of former
California state Treasurer Phil Angelides and former
Controller Steve Westly, who spearheaded the most far-reaching CalPERS
initiatives. It would also do well to talk with leaders
of other institutions that have followed similar paths. Of course nothing's
guaranteed. Sometimes you do lose money by not
investing in tobacco stocks or the equivalent--at least until the lawsuits hit.
But there's no shortage of examples to suggest
that you can get at least comparable returns by doing right. The Domini 400
Social Index, for instance, has outperformed the
S&P 500 on an annual risk-adjusted basis since its 1990 inception, 12.10% to
11.45%. Educational Foundation of America has
used very aggressive social screens and shareholder activism to secure a 9.88%
average return over the past 10 years, vs.
8.32% for the S&P 500. A United Nations report entitled Show Me the Money:
Linking Environmental, Social and Governance Issues
to Company Value does an excellent job of exploring the relationship between
more ethical business practices and corporate
success in a variety of economic sectors.

We'll never live in a world where our every choice matches our values, but if
the Foundation can shift all or part of their
$66 billion portfolio from companies acting destructively to ones whose actions
benefit the communities they affect, or lobby
for shifts in corporate priorities in those where they're a stockholder, it can
make a major difference.

Imagine, for example, if the Foundation disinvested from Exxon and shifted the
money into renewable energy equities, mutual
funds or program-related investments, along the lines of the new alternative
energy fund that major Silicon Valley venture
capital firm Kleiner Perkins created last year. Exxon, as mentioned, has been
the prime source of financial support for
practically every major denier of global warming worldwide. Its given massive
amounts of money to environmentally destructive
candidates. It just appealed its $2.5 billion file for the Exxon Valdez spill to
the Supreme Court, delaying payment still
further for the now 18-year-old spill No other corporation comes close in terms
of having helped shape America's denial of
global warming. I'm hoping that the relatively new global Exxon boycott will
have a significant impact on their bottom line,
but whether or not it does, it would make a major statement for the Foundation
to publicly sell their shares or join the
corporate campaigns, like Expose Exxon, that are pressuring them to shift.



It's never easy to juggle the trade-offs between return on investment and the
purposes your investments serve, but the Gates
Foundation would hardly be the first major economic institution to address them.
The retirement systems of New York,
Pennsylvania, Connecticut, Vermont, Minnesota, and Oregon are now following
California's lead in launching environmental
investment programs. Rockefeller Brothers Fund just went through a major
reevaluation toward more aggressive social screens
and shareholder advocacy. Last year, 32 pension funds from six continents
representing $2 trillion in combined assets agreed
to place analysis of environmental, social and governance issues at the core of
their investment programs.


True, some dismiss all social investment screens as liberal indulgences. But
they're primarily market fundamentalists who
object to the introduction of any values into economic life except for the
maximization of short-term profits. Or they hold
the socially responsible funds and the companies in which they invest up to such
an impossibly pure perfect standard that
unless their actions bring instant utopia they're never deemed adequate or
sufficient. In the process, they ignore clear
successes, like the investor pressure that forced significant corporate
disinvestment from apartheid-era South Africa, the
shareholder campaigns that helped convince Home Depot to stop selling old growth
lumber, and the previously mentioned
successes of CalPERS.



Like other nonprofits controlling major amounts of resources, Gates Foundation
doesn't have to make and all-or-nothing choice.
It could split the Foundation's portfolio and revisit the impact of this shift
down the line. But it would do well to
seriously talk with those who've pioneered the link between proactive investment
and returns sufficient to fund a retirement
system or the giving of a major foundation. Imagine if it shifted even a portion
of its investments to provide resources for
the best of the kind of world it works to create through its grant-making.



Paul Rogat Loeb is the author of The Impossible Will Take a Little While: A
Citizen's Guide to Hope in a Time of Fear, named
the #3 political book of 2004 by the History Channel and the American Book
Association. His previous books include Soul of a
Citizen: Living With Conviction in a Cynical Time. See www.paulloeb.org

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