What is divestment?
Divestment means selling securities. In this case we would avoid owning shares of companies in industries that members feel are not aligned with the church's values.
why is first church considering an sri STRATEGY?
As Unitarian Universalists, we affirm and promote the Seven Principles, which we hold as strong values and moral guides. Divestment is a common means of extending those Seven Principals to investment decision making. In 2014, the UUA voted to divest from fossil fuels and encouraged member congregations to do the same.
Aligning our investments with our values demonstrates to the rest of the community that this church walks the talk. Those interested in SRI comprise the core segment of the population we build our membership around.
The financial argument is that fossil fuels are a bad investment and will underperform in the future. Companies valued by their carbon reserves are currently overvalued, and will decline as the world moves toward other forms of energy production.
Aligning our investments with our values demonstrates to the rest of the community that this church walks the talk. Those interested in SRI comprise the core segment of the population we build our membership around.
The financial argument is that fossil fuels are a bad investment and will underperform in the future. Companies valued by their carbon reserves are currently overvalued, and will decline as the world moves toward other forms of energy production.
What is socially responsible investing?
Socially responsible investing (SRI), is an investment strategy which seeks to consider both financial return and social good. SRI’s typically target business activities that are seen as socially costly in some form, such as firearms, tobacco, pornography, labor conditions, alcohol, gambling & fossil fuels. Fund managers work to identify the set of “negative” filters to be used to avoid such investments. Sometimes SRI involves a set of “positive filters” designed to promote investment in a sector believed to promote social good. SRI fund managers may use a mix of negative and positive filters to achieve their client’s goal.
What are the risks of divestment?
Risk 1 – Loss of diversification. Finance theory sates that divestment reduces diversification, and hence will be harmful to returns in the long run. The amount of risk depends on the degree of diversification we forego. Avoiding a single stock would have negligible impact on returns. Avoiding a sector that comprises 5% of all stocks would have measurable impact. Many advisors recommend aggregate divestment not exceed 10%.
Risk 2 – Single Manager Risk. Currently the endowment has spread its money across about 20 funds, each of which has separate management, and contains many underlying investments. Instituting a custom SRI program such as the one contemplated by the resolution would require us to move our endowment capital to a single manager who specializes in divestment filtering (called a "negative screen"). It is more likely that a single manager will deviate from benchmark returns than for 20 managers to do so.
Risk 3 – Fee Increases. It is more costly to manage a fund with a negative screen. We have found one manager that can match our current management fee costs of 0.75%. However, our endowment is not large, and the other managers we spoke to charge annual fees of around 1.25%. The additional 0.5% of our current endowment is $7500 annually. So, in this hypothetical example, after a decade, we would spend $75,000 in additional management fee. SRI is a dynamic area, however, and low cost passively managed mutual funds may be available now or in the future that could address this fee issue.
Risk 4 – Endowment contribution impact. On the one hand, some members could be concerned about investment returns of the endowment in a shift to “too many exclusions”, which might prompt a deferral of an endowment gift. On the other hand, a shift to “investing in line with the church’s values” might inspire members to make significant contributions to the endowment that could obviate any reasonably expected risk of underperformance.
Risk 2 – Single Manager Risk. Currently the endowment has spread its money across about 20 funds, each of which has separate management, and contains many underlying investments. Instituting a custom SRI program such as the one contemplated by the resolution would require us to move our endowment capital to a single manager who specializes in divestment filtering (called a "negative screen"). It is more likely that a single manager will deviate from benchmark returns than for 20 managers to do so.
Risk 3 – Fee Increases. It is more costly to manage a fund with a negative screen. We have found one manager that can match our current management fee costs of 0.75%. However, our endowment is not large, and the other managers we spoke to charge annual fees of around 1.25%. The additional 0.5% of our current endowment is $7500 annually. So, in this hypothetical example, after a decade, we would spend $75,000 in additional management fee. SRI is a dynamic area, however, and low cost passively managed mutual funds may be available now or in the future that could address this fee issue.
Risk 4 – Endowment contribution impact. On the one hand, some members could be concerned about investment returns of the endowment in a shift to “too many exclusions”, which might prompt a deferral of an endowment gift. On the other hand, a shift to “investing in line with the church’s values” might inspire members to make significant contributions to the endowment that could obviate any reasonably expected risk of underperformance.
WHy is this issue being voted on by the congregation?
This is an important decision. This decision intersects our values and the fiscal well-being of our church characterized by a plurality of viewpoints. The Parish Board, Finance& Investment Committee and FCBG agree that the decision to put the endowment at any increased risk should be made by the congregation as a whole.
What are the financial challenges the church is facing today?
The church has been getting about $45K annually from the endowment. Recently, the Parish Board asked the Investment Committee (which is appointed be the Finance Committee) to explore increasing that amount due to serious budget constraints. Our annual payroll at the church grows yearly by about $6000. But our aggregate pledge has not grown. So we have reached the point now where we either cut staff, ask for more money from the endowment, or grow the endowment.
Have other uu churches in our area voted in favor of divestment?
Yes. Brookline, Cambridge and Concord have passed resolutions to divest. In each case, a member-wide vote was held to pass these resolutions. Both Cambridge and Concord had already embraced SRI investing.
FC Belmont Green and the UUA are not aware of any UU churches in our area that voted against divestment.
FC Belmont Green and the UUA are not aware of any UU churches in our area that voted against divestment.
have other INSTITUTIONS voted against divestment? What about in favor?
Yes. Some large universities in our area have chosen not to divest. For example Harvard has chosen to reject divestment. The University sites being “wary of steps intended to instrumentalize our endowment in ways that would appear to position the University as a political actor rather than an academic institution… The endowment is a resource, not an instrument to impel social or political change.”
Yes. Boston University is an example of a large institution in our area that has voted to divest.
Yes. Boston University is an example of a large institution in our area that has voted to divest.
How would the church decide which companies to divest?
Typical divestments can include industries such as firearms, tobacco, pornography, alcohol, gambling & fossil fuels. It’s expected that requests to introduce new criteria for SRI would come through the Social Action Committee to the Parish Board. If the Parish Board feels a proposal has merit, they would then ask for analysis from the Investment and Finance Committees to understand what the “additive risk” might look like. Those committees would need some time to conduct that analysis and present their findings to the Social Action Committee and to the Parish Board. If the Social Action Committee decides to proceed with their request, a resolution would need to be crafted and approved by the Parish Board and voted on by the congregation at annual meeting. In fact, FCBG has followed the above mentioned process and if the congregation decides to vote in May in favor of divestment, FCBG’s proposal to divest in fossil fuels would be up for consideration in the fall of 2017.
What if divestment leads to financial difficulty?
The resolution to divest offers an “escape clause” that allows the Parish Board and Finance Committee to temporarily suspend SRI criteria if it proves harmful to the returns of our endowment. That said, absent the benefit of a benchmark, the performance effect of SRI will be difficult to gauge. This would be new territory and defining the degree to which we can tolerate negative impact remains unclear.
How will the vote be conducted?
There will be a written ballot conducted at the annual meeting. Only those present will vote.
What are the most common arguments against divestment?
The ones we have seen most often are:
- Loss of influence: When you divest, you sell shares to another party that is actively investing in fossil fuels. Not only do you lose your ability to band together with other like-minded shareholders to influence the company, you are likely adding an opponent to the shareholder roster. So when you divest, you in no way harm the divested company, and worse, you free it to behave against your interests.
- Endowments are a resource to be used to further the mission of the institution, a mission should be fulfilled with deeds of its members. If we hamper in any way the endowment, we could hamper the ability of the institution to further its mission.