Sustainable investing is sort of an umbrella term.
It's been a breakout year for Environmental,
Social and Governance issues, known better as ESG.
2020 was really an inflection for ESG
and as a result, it's become a mainstream topic.
That kind of subgroup called ESG is really by far
the biggest area within sustainable investing,
which in just the past few years has gone from nothing
to more than $30 trillion in assets under management.
Sustainability, it's more than an environmental issue.
As everybody seeks to sort of invest their money
in a way that they believe, at least,
is more aligned with their values.
I believe there will be a future
that all investments are going
to be looked through sustainability.
That's why I really talk to our people
about just four words,
higher returns, lower carbon.
The key question that we've been looking at this year
is how much is sustainable investing helping the world,
making capitalism more sustainable
and how much is it making money for Wall Street?
The Securities and Exchange Commission
has come up with a regulatory agenda
to bring in more regulation
as far as ESG disclosures are concerned.
You've got to pull back the top layers
and look more deeply.
There is a threat of greenwashing
and it needs to be monitored, it needs to be dealt with.
In that process,
we decided that we wanted to look back
at the origins of sustainable investing.
I found a book that was published in 1991,
dedicated in part to these two obscure financiers
called Robert Schwartz and Robert Zevin.
I set out to find out as much as I could
about these two men,
their investment practices,
how they were viewed on Wall Street
and also to find them if I possibly could.
Robert Schwartz died in 2006,
but I did find an extraordinary documentary decades old
that had been made about him, innovating these practices
by a filmmaker who spent a ton of time with him
and followed him around across the country.
Well, I didn't grow up intending to be
an investment advisor any more than I did a fireman
or a policeman.
Business Not As Usual is an 18 minute film
that I
recorded on 16mm film
when films were really films
in the 1980s and the 1990s.
At that time,
I was considerably younger than I am now
and I came upon people
who I discovered were
using their work in ways that I had never heard of.
Twenty-five years ago I realized that a strategy
of directing investments,
according to progressive values could become a forceful
instrument for social change.
Robert Schwartz grew up during The Depression.
The world's richest
and supposedly soundest economy perished
and small business was strangled by The Great Depression.
He was born in 1917,
so he was coming of age during the time when America was
really at its lowest financially
with millions of people unemployed,
with millions of people going hungry.
This had a lifelong impact on him.
I did go through The Depression as a teenager
and keenly aware of the problems of poverty
and unemployment.
Robert Schwartz was a senior level official at the U.S.
Treasury Department when World War II began
and so he enrolled in the U.S. Marine Corps
and he was sent to the Pacific.
After the war he went back to the Treasury Department
where he worked in the international section.
We should remember that practically every issue which we
face today from high taxes to the shameful mess in Korea
is inextricably interwoven
with the communist issue.
Sadly after the war,
there was also kind of a series of witch-hunts that began
in the U.S. going after so-called communists
or leftists who were inside the U.S. Government.
Apparently every time anybody says anything
against anybody working for Senator McCarthy,
he is accusing them of communism.
It swept up Hollywood, it swept up literature,
it swept up Washington D.C.
and the highest-powered corners of the U.S. Government,
especially the Treasury Department and The Pentagon.
This body is improperly constituted.
It is a kangaroo court, it does not have my respect.
It has my upmost contempt.
Robert Schwartz caught up in this
because he was a leftist.
He was incredibly progressive for his time
and he had to give up his career
and his livelihood and the future of his family even
was in jeopardy because he didn't know how,
or if he would ever be able to make a living again.
It created a
lifelong desire on his part
to challenge established authorities.
It also led to him wanting to,
in whatever ways that he could, use the next steps
that were at that time unknown,
to again, pursue what he believed strongly in.
I was put in a position of really having to retire
from the Treasury Department and started life over again,
back in New York with the Amalgamated Bank.
He finally found a bank on Wall Street
that was a pretty unique bank and a pretty innovative bank,
and also a pretty progressive bank.
It was called The Amalgamated Bank
and it was set up by a textile workers union
that represented European Jews who were fleeing Europe
in the 20th century
and coming to work in one of the toughest industries,
which was the textile, the garment industry
and the bank was founded by the union as a safe repository
for the workers earnings, for their pensions,
for their welfare funds.
But also as a way to provide credit to them
so they could start the American dream
and own a home and have access to finance
that could change their lives
and the lives of their families.
When Robert went into the Amalgamated Bank,
he discovered something pretty extraordinary.
He was responsible for about a billion dollars in assets
that the bank had, which is a huge amount back then
and he discovered that a significant amount of these funds
were invested by a union essentially
in companies that were anti-union
that were breaking strikes,
that refused to negotiate with their workers,
that were even engaged in supporting violence
against their own workers on picket lines.
And he thought that the bank should definitely alter its
investment practices to not support companies
that were engaged in unfair labor practices
and this was really a first for anyone.
Robert Schwartz believed that it was possible
both to do well
and to do good.
Portfolios for clients may avoid military contractors,
exclude nuclear power, destroyers of the environment,
union-busters and business in South Africa.
To replace those companies, I seek innovative companies
meeting social needs.
He was not after maximum profits.
He was after maximum profits that would fit with
what he believed
and what most importantly, his clients believed.
Had his clients not believed in that,
my guess is that rather than change his principles,
he would have dropped those clients.
While Robert Schwartz was building his practice
around these principles, another investment advisor,
another economist,
this one trained at Harvard, was building a very similar
business for clients starting with his family in Boston.
I started investing for myself
when my parents began giving me stock in the company,
they encouraged me,
my father anyway, encouraged me to sell it
and invest it, which I did.
I must have been extraordinarily lucky
because I invested all my money in only one or two stocks
and I just had two or three or four big winners.
I said, "Great, so by the time I'm 30, I'll be a millionaire
just from investing."
And did that happen?
No.
It did not happen.
I started an organization called Resist,
designed to deliver support for individuals,
mostly for civilians, who used passive resistance, tax refusal,
whatever, to oppose the war
and a year later I started
the United States Servicemen's Fund,
which had the more important ambition
and more useful ambition of supporting servicemen
and women who opposed the war.
So, in the day I'm teaching
in the weekends I'm investing
and in the evenings,
I'm knocking on people's doors
and going and visiting them to raise money for these causes.
But a few of them would say,
"What, a person with your politics
you're in the investment business?
I'd love to have you manage my money."
They would say,
"But I don't wanna own weapons manufacturers.
I don't wanna own people who make napalm.
I don't wanna own people who do strip mining.
I don't wanna own companies in South Africa."
So it was the investors really who brought
the idea to you.
It was the investors who brought the idea to me
and I was very reluctant and very skeptical
and it took about five years of success to convince me that
I had been wrong and that this didn't cost anything.
More than 7,000 anti-Vietnam War demonstrators
parade near the Los Angeles hotel,
where President Johnson attends
a Democratic fundraising dinner.
The civil rights movement and the Vietnam War
both created similar momentum
for some really clever activists
who realized that they could use money
and boycotts specifically to channel their activism
into capital and to hold back capital
or divest from companies that
or other actors that weren't supporting civil rights
or were supporting the Vietnam War.
Probably the first really high profile war contractor
that was targeted in at least modern U.S. history
was the Dow Chemical Company
and the Dow Chemical Company was manufacturing napalm
for the U.S. military for its use in Vietnam.
Nearly 400,000 tons of napalm were dropped on Vietnam
it was estimated within a decade from 1963 to 1973.
So the Dow Chemical Company,
which was making napalm and profiting from napalm
became a main target of the investment activist community,
which was really coming together for the first time.
The boycotts against Dow did start to take a toll
and they proved effective.
Publicizing the destructive role of military contractors,
caused many on Wall Street to oppose the war.
This lent more legitimacy to the peace movement
and helped bring an end to the war,
which claimed 50,000 American lives
and over 1 million Vietnamese.
After Dow Chemical,
the movement really started to grow
and it grew beyond labor standards
and a main new target of activists
and activist investors became every major U.S. company
that was doing business in South Africa.
South Africa was run by a white minority regime
and was under attack and under pressure
from virtually all corners of the world.
And it was really the activist community joining up
with people like Robert Schwartz and Robert Zevin,
who started to push the divestment movement
in the United States.
The exclusion of the companies in South Africa,
from the S&P 500 has resulted in better performance.
Both Robert Schwartz and Robert Zevin were surprised
when they ran the numbers,
their strategies of not investing in companies that were
doing things that they and their investors
found horrible, was actually working out incredibly well
for their investors and for them.
Do you remember if there was a moment when you really
thought this could be a good thing?
I'm not sure I remember some light going off
but years later, I did some research
about the effects of these screens
and proved that the restrictions had no effect on results
and many other people did the same research
but didn't tell anybody about it
because they didn't want to embarrass their clients
who were opposed to it.
Eliminating each whole sector
of the S&P 500
doesn't make any difference over 5, 10, 15, 20 years,
you still get the same results,
which is kind of amazing and counterintuitive.
It's now a widely accepted idea that all these restrictions
do not make any difference.
Divestment should not be ruled out on financial grounds.
The final consideration is not its effect
on your investment portfolio,
but its effect on apartheid.
I think the most extraordinary thing that I've found
in looking at these two men,
Robert Schwartz and Robert Zevin was how they just flew in
the face of everything that was happening politically.
This was the Reagan - Thatcher era.
Everything that was happening on Wall Street,
everything that was happening in the City of London
was the exact opposite of what these two peacenik economists
were pushing as investment advisors
and they were viewed somewhat openly at times
with hostility by other investment advisors,
by other people in the business that they were in.
Almost never did they say,
"Oh, that's very interesting."
Almost always they said,
"Oh, that's almost, that's impossible.
That must be very difficult."
Or "Why would you do that?"
It always seemed like a foreign land to me anyway
so the impact on me was nil basically.
I just kept plodding along on my own path.
The practice of social investment that I
and a few others began 25 years ago has garnered increasing
acceptance and respect with the huge amounts of money
available for productive application, investment decisions
can profoundly shape public discussion in social conditions.
Socially responsible investing is a powerful vehicle for
pointing the way to a more just and humane society.
There is still a handful of niche funds
and niche investment firms that really focus on
the kinds of principles that Robert Schwartz
and Robert Zevin put into practice.
But in the past couple of years,
what's really changed is Wall Street has capitalized
on this demand by investors
to want to make the world a better place,
but it's done it mostly through marketing
and underneath that marketing are some rather dubious claims
about making the world a better place.
We're seeing transformative changes in almost every sector
of the economy
and that's very, very encouraging,
but investors who want to participate in this
have to take care, to identify the risk of greenwashing.
Success was the mother of defeat somehow.
I think some of the original pioneers
were actually the instigators of
deciding that it really wasn't socially
responsible investing anymore
it was 'ESG' Environment, Social and Governance investing,
which to my way of thinking,
was taking something that was a social movement
and that was intimately connected to people
who weren't investors and didn't own stock,
but were struggling to make a living
or to end a war
or to escape from a war.
It somehow threw all those people out
and it said,
"Now we're a niche product."
It's not just Wall Street, it's capitalism,
it always finds some way to repackage an idea
so that it's profitable and mass-producible
and that's going to be hard to overcome.
All of the really ground-breaking things
that these two men did in finance are really what led us to
this extraordinary moment today,
where this has become a multi-trillion-dollar business
on Wall Street.
The problem for people who've invested their money
in these strategies
and in these funds, especially in the United States,
is that fundamentally the largest funds don't address the
key questions that people believe are being addressed
by the funds.
In fact, some of the biggest ones actually can contribute
to making things even worse.