What does it take to actually shift public policy (and make positive financial returns along the way)?
What does it take to actually shift public policy (and make positive financial returns along the way)?
Aerospace engineer turned impact investment manager, Julianne Zimmerman, shares what her firm, Adasina Social Capital has done to crack the code.
In tandem with the Me Too movement, they were able to help abolish mandatory arbitration for sexual harassment in the workplace (in the USA) that was unintentionally protecting predators. And they did it in record time.
A few key lessons:
– Start by listening to the voices of communities most impacted by the injustice
– Mobilize aligned allies and let them use their strengths
– Focus on why these issues are in their financial best interest as opposed to why they “should” change
What social justice issue do you see the need to shift? What can you do to educate people about the impacts of these policies?
Podcast Transcript
Jacob: [00:00:00] Welcome, I’m here with Julian Zimmerman with Adasina and please introduce yourself.
Julianne: It’s a pleasure to be with you today, Jacob. I’m Julianne Zimmerman. I’m the managing director of Adasina Social Capital. Adasina is a public equities impact asset manager. That’s a mouthful, but basically what that means is that we invest in public markets, our portfolios specifically are focused on social justice, and we have a global social justice investing strategy.
Jacob: Can you give me a case study in driving social justice?
Julianne: Absolutely. So one of the first investor mobilization campaigns Adasina launched was to end forced arbitration for sexual harassment. That may not seem like an obvious investor concern, but what we heard from many of the organizations addressing gender-based violence in the [00:01:00] rise of the Me Too movement was that the finance community was starting to pay attention to these issues and was taking actions like starting to look at the representation of women in senior leadership, C suite, executive, board roles, which is good and welcome.
We applaud that. Everyone applauds that. However, it wasn’t getting to the core of the issue, which was sexual harassment and gender-based violence in the workplace. So they asked us to look at a widely practiced, HR policy of having employees sign an agreement to be bound to arbitration in the case of a sexual harassment claim. It was widespread. What we found was that policy had the unintended consequences of shielding predators. And that in turn caused reduced performance, higher employee turnover, lower morale, [00:02:00] other issues that have costs that more importantly, created buried risk.
You don’t know when someone will say, I don’t care what I signed. I’m going public. When that happens, suddenly you have an uncontrollable situation, You have legal risk. You have public reputation risk. You have expenses. You have likely a hit to share price. You have all kinds of issues that suddenly happen and you have no way to reel them back in.
So we took that to the companies in our portfolio and we asked them, do you have this policy, and here’s why we’re asking as shareholders, and as a result of that initial press just shy of 400 companies, said, wow, thanks for bringing that to our attention and discontinued the practice. As a result of mounting the investor mobilization campaign, a wide array of other investors representing 54 billion US dollars in assets signed onto the [00:03:00] campaign.
For companies that didn’t discontinue the practice, we cut them from our portfolio. We excluded them on that basis. because that policy not only has gender justice issues we don’t accept, but it has shareholder issues that we don’t think that our clients should bear. Many of the investor mobilization campaign participants are shareholder activists so some of them filed shareholder resolutions. Some of them are political activists and so they went to legislative and regulatory bodies and said, look, this is a problem we want you to address. Some of them also did a tremendous amount of public outreach work
As a result of all of that from start to finish in less than three years, the United States passed a new law abolishing forced arbitration for sexual harassment in the workplace. That benefited not only all of the people who were no longer silenced, but it benefited [00:04:00] all of the shareholders of all of the companies that have their headquarters in the United States.
Jacob: How does that actually work? Walk me through that.
Julianne: That’s a legitimate question because what we do is substantially different from the typical asset manager model.
We start off by seeking guidance from the communities that are most impacted and community organizations that are most active in addressing social justice issues. The reason we start off with those social justice partners is because they have knowledge that the market has not yet recognized. priced even reported on as material. So they tell us what’s urgent and vital and necessary to address the issues that are most pressing.
We think of social justice as spanning broadly four pillars, racial justice, gender justice, economic justice, and climate justice, and forgive [00:05:00] me for being a little bit repetitive about saying justice at each point, but a lot of times we’re not used to thinking about those as justice issues and particularly not in finance.
We work with them to translate. their knowledge and guidance into terms and criteria and metrics that we can articulate in ways that investors recognize as material. And which we implement in our own portfolio. We have more than 40 metrics and more than 80 criteria that we implement in our portfolio. But we also then share datasets with anyone who wants to use them at no cost. We also lead investor mobilization campaigns around particular issues. So the entire approach that we take end to end is really community-centered in a way that’s unique in the investment world. Ultimately, the reason we do that is because we believe that acting in community [00:06:00] is how investors are able to have the most control and influence over their investments and we believe that in the long term, that has a risk advantage.
Julianne: We all want to act on information that is relevant and material to our investments and most people I meet are investing specifically for a safer, healthier, more prosperous future. So who better to tell us how to get there than the people who are working on the issues that we need to resolve in order for that future to come to be?
Jacob: How does a firm like yours actually mobilize that kind of political movement?
Julianne: The short answer is we don’t do it all ourselves, it’s a community effort. We start with the investor case. We start with the data set. We start with the insights that our social justice partners have shared with us and helped us to formulate into terms that investors can recognize as material. Then the [00:07:00] campaign itself starts with an investor statement for investors to read through, and sign. These are concerns we have as shareholders. It also includes supporting materials, educational materials, which, often come in written form, an issue brief or a report as well as webinars, and a variety of other means of spreading the information.
What happens is those investors who sign on take action in their own portfolios using their own strategies and we don’t dictate, we don’t control, we don’t own in any way what they do. We work collectively as a community using tools. that we all have chosen in order to achieve an end we all agree is beneficial.
We believe that our investment strategy delivers financial returns in the long term, which are consistent. with a global unscreened [00:08:00] set of equities that are comparable to our portfolio, but we will never chase quarterly returns and we will never make sacrifices on our social justice priorities in order to come up with a short-term return profile. We are an impact firm, however, we are an impact investment firm. We’re not an impact philanthropy firm and we’re not an impact. Political activist firm where we’re an impact investment firm. So investments do matter to us and what we’re working to do is educate and transform the market to raise our standards for recognizing what is material.
Jacob: Especially in the U S more and more of a pushback to anything that is outside of. strict Milton Friedman’s doctrine of making money at all costs. How do you respond to those kinds of pressures?
Julianne: The setup behind that question is whether you are responsible with regard to financial returns. [00:09:00] OR you are looking at other factors and that’s an absolutely false proposition. First of all, investors always want to have all of the legitimately available information, what investor doesn’t? That’s just good practice. Unless your investment horizon is right now, you of course want to be looking at the long-term effects of decisions the companies in your portfolio are taking. Of course, you do.
Jacob: What are some of the common misconceptions that impact investors or those that are wanting to get into impact you wish people better understood?
Julianne: We are all learning and figuring these things out. One of the frustrations that I think many of us wrestle with is that impact investing is not even well defined. It’s interpreted in so many ways and often as a kind of euphemism for philanthropy. That’s a big frustration, I think, and a big hurdle for all [00:10:00] of us to work through.
I think another faulty premise is that a lot of finance and a lot of professional endeavors are based on the notion of a kind of proprietary knowledge set that has to be protected and a notion that opacity and scarcity are the way in which you achieve scale and success. And again, when we’re talking about making changes that are global and monumentally complex, it really doesn’t make sense to think about things that way. As investors, we collectively benefit from sharing information. It doesn’t mean we share absolutely everything. We still need to be careful about things that need to be protected and need to be kept confidential and secure. But by making more information more widely available, more transparency we actually make the market better.
Another really [00:11:00] widespread misconception we carry forward to our detriment from the wider financial world is the notion that we need to be really primarily focused on quarterly returns. Quarterly returns and quarterly reports do matter. We need to be paying attention to what’s happening. However, if we are focused fairly narrowly on quarterly returns, that takes our attention off the bigger picture and the longer term, and it causes us to be suboptimal and sometimes self-injurious. decisions and trade-offs. And so it becomes in effect, a race to the bottom. And so I think as impact investors, we have an opportunity really to raise the standards of the investing world more broadly.
Jacob: What does an ideal client look like for Adasina?
Julianne: Because we are a public equities impact asset manager an ideal client is someone [00:12:00] who has a public equities portfolio and who is seeking products and portfolios that address these issues. That addresses the hazards presented by injustices across racial, gender, economic, and climate categories. We’ve created products that are appropriate for investors even on a very small retail scale. But we focus primarily on institutional allocators because again, that’s where we can engage the community more broadly, more effectively,
Jacob: So what’s next for Adasina? What are you looking forward to, what’s on the horizon?
Julianne: We have a campaign ongoing to end the sub-minimum wage. The sub-minimum wage is a legal loophole for employers to pay as little as $2.13 per hour to employees in some sectors. Unsurprisingly, that is an [00:13:00] economic justice issue, but it also, believe it or not, is just bad for the companies and it’s bad for the rest of our portfolios. So we have an investor statement campaign that already has over a trillion dollars in assets committed. We’re about to launch a new campaign on extractive agriculture.
Jacob: What are you most looking for right now?
Julianne: More asset owners, but particularly more asset allocators to participate in the campaigns. The more we can have those conversations, the more concrete we can be about what are the hazards that the market may not be addressing for the safer, healthier, more prosperous future to come about.
Jacob: If someone was interested in learning more about this whole topic, where would you point them?
Julianne: Well, first of all, please visit the Adasina website. We have a lot of resources there. For people who are wondering if the kind of [00:14:00] impact I’ve talked about is even really possible, we published our first impact report earlier this year. That’s also available on our website at Adasina.com/impactreport and there we document the milestones and accomplishments we’ve been able to achieve over the past 3 plus years.
Jacob: I appreciate the good that you’re doing and keep up the good work.
Julianne: thank you for all you do to bring impact stories to light and to engage people in sharing and building on those stories. I really appreciate it.
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