Increasingly, investors are investing based on their values and seeking to have a positive impact on the world around them. Today more than $12 trillion is managed responsibly, or one in every four dollars under professional management in the US, according to US SIF: The Forum for Sustainable and Responsible Investment.
For 25 years, Praxis Mutual Funds has sought to invest in a way that combines financially productive and faith-based investment approaches. But we have found that just seeking investments that align with our shared values isn’t enough. As responsible faith-based investors, we are painfully aware that investments can have consequences. For example, investments to improve the environment often displace workers or increase costs. We thus engage directly with companies as part of our approach to reach outcomes that are successful on multiple levels. Shareholder engagement has been a critical part of helping us achieve our investors’ goals.
We view our role as shareholders as part-owners of the companies we invest in. This means we talk to the companies we own and ask them about their policies and practices. In fact, we believe it is our responsibility to encourage companies toward responsible business behavior. And many conscious companies recognize that this form of stakeholder engagement is important for them, as well. We work together with management of forward-thinking companies in our efforts to achieve positive change in environmental, social, and corporate governance practices.
Shareholder Advocacy in Action
To illustrate how this works, consider a recent investment in NiSource, the parent company of Northern Indiana Public Service Company (NIPSCO). NiSource is the largest natural gas distribution company and the second largest electric distribution company in Indiana, and serves 3.8 million natural gas and electric customers primarily in seven states. In fall 2018, NiSource announced a plan to retire all its coal-generation plants by 2028. Not only were the carbon-intensive facilities being closed, but the capacity will be largely replaced with renewable energy — particularly wind, solar, and battery storage technology. This plan will cut NiSource’s carbon emissions by more than 90 percent within 10 years. The changes will take place within the NIPSCO, NiSource’s electric subsidiary. NIPSCO serves nearly 500,000 customers in northern Indiana.
Leading up to these changes, Praxis Mutual Funds had been involved in a shareholder dialogue with NiSource for two years that focused on climate change scenario planning, greenhouse gas emissions reductions, and coal reduction.
The electric power sector contributes more than 30 percent of US energy-related CO2 emissions, so changes made at the utility level can make a significant impact on climate change mitigation. This is especially true when transitioning from coal to renewable energy.
NIPSCO currently generates more than half of its electricity from coal combustion. The new wind and solar installations needed to replace the coal will effectively double the renewable energy capacity in Indiana. The accelerated coal plant retirements will also lead to significant cost savings for customers, and a more sustainable energy supply in the region.
But our engagement with the company wasn’t solely about the environmental impact. Part of our advocacy with NIPSCO included a discussion on the negative impact existing workers would bear in the company’s shift away from coal generation plants. Our focus in this engagement was not just green but human, too. NIPSCO is working with local leaders to support and reduce the effect on workers impacted by the transition. To this point, all of the workers at retired coal generation plants were given the option of keeping employment with NiSource. It’s the company’s goal to be able to provide this option to workers at the remaining coal plants. Praxis will continue to meet with NiSource to monitor the company’s progress on its transition — both human and environmental.
The Bottom Line
In our experience, shareholder advocacy and engagement that considers all stakeholders has the most lasting impact on society and yields the biggest return for companies over time. The example above is one of many engagements that illustrate how this approach does and can work. Our engagement with conscious companies is critical to our approach. We believe that shareholder advocacy, rooted in values, combined with ESG integration, can lead to meaningful environmental and social good, providing value for the company, shareholders and world, while also meeting our investor’s long-term goals.