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The Politics of Values-Based Investing – The Harvard Law School Forum on Corporate Governance



Senate Republicans are introducing legislation directing retirement plan sponsors to select investments solely based on monetary factors, an extension of the position adopted by the Trump Administration Department of Labor. The sponsors to the legislation defend it by arguing that retirement accounts should be off limits to politics. The debate stems from the increasing criticism of pension and mutual funds that incorporate environmental, social, and governance (ESG) factors into their investment policies.

In challenging investment managers’ focus on ESG data, however, critics conflate two distinct issues. A body of empirical literature makes the claim that ESG data is relevant to evaluating a company from an economic perspective. We term this a “value-based ESG strategy.” For example, portfolio managers may invest in companies that they believe face strong growth prospects because they have products to help in the mitigation and adaption of climate change, or in companies that have strategies which will enable them to transform their business models in the fact of climate change. This is a value-based strategy. Of course, this assumes a particular perspective on the risks associated with climate change—one can argue that climate change is not real or that, even if it is, regulators will not impose costly changes on companies. The point, however, for such portfolio managers climate change is an economic risk, and their incorporation of climate-related data is a value-based investment strategy.

Investors who believe you can make money by investing in companies that are addressing this problem can invest in the BlackRock Future Climate and Sustainable Economy ETF (BECO). Notably, BECO purports to be investing for value, not values, stating that it “seeks to maximize total return by investing in companies that BlackRock Fund Advisors (“BFA”) believes are furthering the transition to a lower carbon economy.” Similarly Morgan Stanley touts its sustainable equity funds as outperforming their traditional peer funds.

In contrast, Senate Republicans’ real concern appears to be investments that employ values-based strategies—that is, investing according to a set of principles irrespective of any link between those principles and economic value. An example of a values-based fund is the S&P 500 Catholic Values ETF (CATH). As the fund’s prospectus explains, “The S&P 500 Catholic Values Index applies exclusion criteria to the constituents of the S&P 500 in order to create a benchmark aligned with Catholic values. These values are consistent with the Socially Responsible Investment Guidelines outlined by the United States Conference of Catholic Bishops (USCCB). The index is designed for investors who wish to track a benchmark that is consistent with USCCB guidelines.” Notably, the fund’s website contains an explicit disclaimer about the risks of a values-based strategy: “CATH’s consideration of the Guidelines in its investment process may result in choices not to purchase, or sell, otherwise profitable investments in companies that have been identified as being in conflict with the Guidelines. This means that the Fund may underperform other similar funds that do not consider the Guidelines when making investment decisions.”

Concededly, the line between values-based investing and value-based investing is unclear, and few funds are as explicit in disclaiming the link as CATH. At the same time, many such funds are explicitly marketed as tools by which investors can invest according to their values. As a result, it may be difficult for investors to determine whether they are foregoing economic value when they invest in an ESG fund.

For example, on September 6, 2017, Point Bridge Capital, LLC launched the “Point Bridge GOP Stock Tracker ETF,” now called the “Point Bridge America First ETF,” with the ticker symbol of MAGA. In large and bold letters the homepage of the website for the fund states: “Bring Republican Investment Values to Life by Investing in the MAGA ETF.” The website explains Politically Responsible Investing® as “allow[ing] people to invest in companies that align with their Republican political beliefs.” The MAGA Index is made up of “the top 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates.” MAGA is thus a good example of values-based investing.

Notably, nothing in MAGA’s fund materials purports to tie its investment strategy to economic value. Rather, the underlying rationale for the fund is that:

Money matters in politics, affecting elections and the creation of policy in Washington. Corporations continue to take political stances and actions that ignore the political beliefs and shared values of millions of Americans. The left is using corporate America to silence conservatives and promote their agenda. While some people have boycotted companies with whom they disagree, they remain invested in these companies in their mutual funds and stock portfolios. We have created the MAGA ETF as a solution to these issues.

CATH and MAGA illustrate that responsible investing is not limited to left-leaning funds. In essence, each is a form of “Socially Responsible Investing (SRI),” just based on a different set of values for the screening process. The current rabid debate about ESG investing has its origins in SRI. While SRI can be traced back some 200 years to the Quakers, it can be said to have formally begun with the launch of the Pax World Fund (which still exists) in 1971 that by two “United Methodist ministers—Luther Tyson and Jack Corbett—looking to avoid investing church dollars in companies contributing to the Vietnam War, founded the ground breaking Pax World fund.” The original SRI funds, created for religious groups, screened out “sin stocks” like alcohol, firearms, gaming, and tobacco. Thermal coal, especially, and oil and gas are increasingly on the list for exclusion. Proponents of negative screening also often make the argument that this will put pressure on these companies to change, or even go out of business, by raising their cost of capital. This is a highly researched topic but a recent working paper with one of us as a co-author suggests that negative screening has no effect on the returns of sin stocks.

Although SRI started out on the left, it is now, somewhat ironically, being incorporated by the right. A March 26, 2021 Wall Street Journal article starts by saying “Values-based investing options for conservatives have lagged behind those available to investors concerned about climate change, diversity and animal rights.” It notes with satisfaction that “conservatives are taking a page from liberal investors.” Perhaps unwittingly, the WSJ is bestowing legitimacy on the use of SRI to influence company behavior, particularly when it is combined with strong shareholder engagement with the company’s board of directors and senior management. It’s just that what is “socially responsible” is a function of one’s political views.

The appeal of values-based funds—on either side of the political spectrum—is that people can invest their money in companies they think are living values they care about. For example, the SPDR® SSGA Gender Diversity Index ETF “seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector.” State Street does not claim to be seeking “outperformance,” and there is a body of empirical research showing shows that more diverse groups make better decisions. But it is unclear whether State Street is seeking to market its fund in terms of economics or to those who are seeking a values-based strategy incorporating diversity.

Animal rights is perhaps more obviously a values-based approach. Those with this investment conviction can invest in the US Vegan Climate ETF (VEGN). “Through its passive rules-based approach VEGN seeks to avoid investments in companies whose activities directly contribute to animal suffering, destruction of the natural environment and climate change.” VEGN makes no performance claims, but it is conceivable that those companies for which this is an issue will attract better people and more customers.

A separate question is the extent to which values-based funds behave in a way that is consistent with their marketing. Recent articles, for example, have challenged so-called green funds for not living up to their claims because they hold investments in energy companies. The analysis is difficult, however, in part because there is no universal definition of ESG. Similarly, reasonable people can disagree on what investments are consistent with any values-based investment strategy. Again, consider the MAGA fund. MAGA is based on an index which “uses an objective, rules-based methodology” to identify Republican-friendly companies in the S&P 500® Index, defined in terms of campaign contributions and having at least 50% of their assets in the U.S.

Whether MAGA’s holdings can fairly be characterized as “companies that align with your Republican political beliefs” is less clear. At present, MAGA’s largest holding is Constellation Energy which proudly says on the homepage of its website: “Constellation is now America’s LEADING CLEAN ENERGY COMPANY! We’re the nation’s leading provider of carbon-free energy and are committed to being 100% carbon-free by 2040.” Another company in its top 10 holdings is NextEra Energy which states that, “A REAL PLAN FOR REAL ZERO. NextEra Energy has a plan to lead the decarbonization of America.” The homepage of its website also features its “2022 Environmental, Social, and Governance Report.” There is not a single major oil & gas company in MAGA’s top 10 holdings. This suggests that Republican values aren’t necessarily inimical to recognizing the reality of climate change and the opportunities to make money in addressing it. Indeed, it would appear that both companies would be appropriate holdings for the ESG funds spurned by Republicans.

A final concern is that investors may lose money by investing in values-based strategies. There are two main criticisms of SRI. The first is that negative screening reduces diversification and thus increases risk and suboptimizes returns. The second is that exclusion of “sin stocks” may be leaving money on the table. There is no empirically conclusive evidence that negative screening hurts performance as shown by the 30-year history of the MSCI KLD 400 Social Index vs. the MSCI USA Index. The market value of MAGA’s shares is down by 11.04% since inception (the S&P 500 is up about 72.88% in the same period of time). By comparison, the shares of CATH are up by around 11.67% since inception and 10.72% over the past five years, the shares of SSGA Gender Diversity Index ETF are up 8.95% since its inception on March 7, 2016, and the market price of VEGN is up 9.96% since its inception on September 9, 2019.

The experience of a specific values-based fund does not, of course, condemn a values-based investment strategy. We also note that many of the values-based funds, both those on the left and those on the right, have expense ratios that exceed industry norms, and expense ratios are one of the most important drivers of fund returns. The expense ratio for the MAGA fund, for example, is 0.72 %, the expense ratio for BECO is 0.70%, and the expense ratio for VEGN is 0.60%, MAGA’s expense ratio seems particularly high in that MAGA a passive fund. According to the latest Morningstar report on fund fees, the average for a passive U.S. equity fund like MAGA is 0.08%. The report also notes that fees for passive funds have fallen about 25% since 2017 and states that “The downward pressure on fund fees is unlikely to abate.”

Whether a values-based strategy underperforms, however, is not the point. In values-based investing, people should be free to invest their money however they want, even if at a potentially lower risk-adjusted return. The real problem is that values are obviously in the eye of the beholder and what is value investing for one person may be perceived as values-based investing by another. This is what is at the heart of the current controversy over ESG investing in terms of criticisms from the Right. If some people do not believe climate change is real, that is their point of view. But it goes too far for them to call a value-based climate strategy a values-based one. Nor is a fund that loads up with oil and gas stocks to seek outperformance engaging in a values-based strategy.

We do not expect the controversy about ESG investing to disappear anytime soon. Much of it is healthy, such as correcting for excessive claims that an ESG fund “will make the world a better place” when there is no demonstrable way to show that it will. Conservatives who complain that ESG investing is a way of forcing a social and environmental agenda on companies that has nothing to do with company profitability, perhaps even hurting it, need to look in the mirror if they are creating anti-ESG funds of their own. This is simply swapping out one set of values for another. Both are forms of Socially Responsible Investing.

We also suggest that those buying into these funds look carefully at the holdings. Do the companies in the fund really reflect the values the fund is claiming to support? Just as those concerned about climate change are unhappy when they find an ESG or climate fund owns shares in an oil and gas company, those who have invested in MAGA need to decide if Constellation Energy and NextEra Energy truly reflect their Republican values—even if these companies are major donors to the GOP. Whether on the left or right end of the political spectrum, it is unlikely one can find a fund that ticks every values box.

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Canadian politics: Poilievre and Trudeau spar at QP – CTV News



There’s been a 20-year series of middleweight clashes in the parliamentary fight club – Chretien vs. Day, Martin vs. Harper, Harper vs. Mulcair, Trudeau vs. O’Toole – but nothing comes close to the slugfest now raging between Conservative leader Pierre Poilievre and Prime Minister Justin Trudeau.

After three grudge-settling matches this fall, which is all the prime minister has managed to show up for in the dozen days since the House returned to normal Question Period operations, my scorecard is Pierre Poilievre 2, Justin Trudeau 1.

For their first two encounters, the fledging Official Opposition leader clearly had the upper hand.

But give Thursday to the prime minister for his neck-wrenching topic switch. Answering a question about the rising cost of Thanksgiving dinners, Trudeau segued to the story about a boneheaded Poilievre staffer who had linked their boss’s YouTube messaging to a misogynistic online movement.

Poilievre knew it looked bad, particularly given his reputation of playing footsie with extremist elements. He stood silently to endure 20 seconds of high-volume Liberal shaming after Trudeau demanded an apology.

But he didn’t apologize, merely condemning the movement before swinging wildly into the past to attack Trudeau’s sins, be it wearing blackface or firing Jody Wilson-Raybould as attorney general.

It didn’t quite connect as an emergency defensive strategy, but sometimes it’s best to flail away and move on as quickly as possible.

The reality of Question Period in Canada is that it hasn’t produced a political bombshell since March 2003 when then-prime minister Jean Chretien revealed Canada would not go to war in Iraq without a United Nations Security Council resolution.

That suggests a thousand-question gap filled with huffing and puffing since the House was last blown away by any major revelation from a prime minister.

But breaking news is not its primary purpose. In this age of social media, Question Period has become a mine for YouTube quips, a sentence or two for the nightly newscasts or a couple quotes for print media.

Yet there’s something about these two leaders, at least going by their first trio of matches, which makes the stakes seem higher.

Poilievre does not recite questions from a piece of paper. He hurls them into the prime minister’s face, rubs in the political salt and levels a sneering sidebar or two, usually involving Trudeau’s use of government jets which, to be fair, is the only way he’s allowed to fly.

Trudeau for his part has upped his usual going-through-the-motions performance, which was noticeable on Wednesday when he stickhandled every question fairly well without reading his cheat sheets or sliding into a stammer.

Now for my media friends rolling their eyes at this attempt to build drama out of dogma, let us concede that the duelling themes between these two leaders are fairly repetitious.

Poilievre sounds the alarm about a future where the tripling of carbon taxation prices pumpkin pie out of the Thanksgiving food budget.

Trudeau retorts how the hurricane, flooding and wildfire climate catastrophes he has seen are grounds for a hefty pricing of pollution.

Poilievre snarks that boosting the carbon price is a tax plan, not a climate change plan, which has yet to meet lower emission targets.

Trudeau insists average Canadians get all the carbon tax they pay back and more.

And so it goes, blah, blah and more blah, but there’s a noticeable uptake in intensity between these two leaders.

(Unfortunately, there’s no corresponding improvement from Deputy Prime Minister Chrystia Freeland, who continues to excel at irritating, arm-waving, talk-down double-speak – pleading with the Conservatives to support her government’s social programs in one sentence and ridiculing them for doing so in the next. The more you watch her, the harder it is to see her as future prime ministerial material.)

Trudeau seems to be rising to take on Poilievre as if he’s in a boxing match with a pugilistic senator or something.

This combat arena is not just political, it’s personal. It’s Pierre’s whine versus Justin’s woke; spontaneity versus scripting; the rising cost of potatoes versus the catastrophe of Fiona; bad hair versus good.

It will never win a ratings battle against any afternoon soap opera, but this fall’s editions of Question Period, after a long run as a theatrical bomb begging for the curtain to come down, is now a semi-entertaining clash of leadership styles, beliefs, personalities and policy.

That’s the bottom line.

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Redemption: Danielle Smith aims to be ‘force of unity’ as new Alberta premier



CALGARY — The political story of Danielle Smith is one of triumph then defeat, followed by betrayal, banishment and, now, redemption.

Smith, a 51-year-old Alberta-born journalist and restaurant owner won the leadership of the United Conservative Party on Thursday to become its new leader and the next premier of Alberta.

It’s a stunning comeback for Smith, who eight years ago was a reviled outcast in the conservative movement after she engineered a floor crossing for the ages.

“(It’s) unfinished business for me,” Smith said in an interview earlier this week when asked why she decided to re-enter politics.

“After everything I’ve done in the past to divide the movement, then try to bring it together the wrong way, I feel like I owe it to the conservative movement to do what I can to be a force of unity.”

Smith was born in Calgary and got into politics in junior high school, after she told her dad that her teacher was lauding the virtues of communism. Her father had roots in Ukraine, where millions died under Josef Stalin, and gave the teacher an earful. He then ensured politics was discussed around the dinner table.

Smith attended the University of Calgary and found herself entranced by soapbox lectures of conservatives like Ezra Levant and Rob Anders.

She joined the campus Progressive Conservative club and soaked in teachings of the “Calgary School” of economists and political scientists advocating for free markets and small government.

She devoured the works of John Locke and Ayn Rand and got tongue-tied when she met her idol, former U.K. prime minister Margaret Thatcher. She took leadership courses and attended Toastmasters meetings to hone her debating skills and smooth out a public speaking style now considered to be her strongest political attribute.

In 1998, at 27, she won was elected a trustee for the Calgary Board of Education.

It was a short, rocky ride. Smith clashed with the liberal majority on the board and the panel was so fraught with acrimony and dysfunction that the province fired them within a year.

She then moved to media and business advocacy. She wrote newspaper editorials, hosted the current affairs TV show “Global Sunday” and was the Alberta boss for the Canadian Federation of Independent Business.

By 2009, politics was calling again. A rift was widening in Alberta’s conservative movement.

The Wildrose Alliance, later the Wildrose Party, was hiving off members and money from the governing Progressive Conservatives, under then premier Ed Stelmach.

The PCs, they said, had forgotten their roots, delivered top-down decisions and indulged in profligate spending that delivered multibillion-dollar deficits as oil and gas prices hit the skids.

Smith agreed change was needed and won the Wildrose leadership, telling cheering supporters in her maiden speech: “Ed Stelmach, you haven’t begun to imagine what’s going to hit you!”

The Wildrose grew under Smith and poached floor crossers from the PCs, who in turn kicked Stelmach to the curb and installed Alison Redford as premier.

In the 2012 election, Smith and the Wildrose appeared primed to end the PC dynasty.

But there were late-stage mistakes. Smith questioned the science of climate change and refused to sanction two candidates for past remarks deemed homophobic and racist.

When the votes were counted, Smith and the Wildrose lost to the PCs but captured 17 seats to become the Opposition.

Smith began trying to rebuild the party brand and reached out to marginalized groups.

The Tories, meanwhile, continued their descent into infighting and disarray. Redford quit in 2014 amid scandal and was replaced by former federal Conservative cabinet minister Jim Prentice.

As Prentice took over, the Wildrose began to fray. The party lost four byelections to the PCs, then Wildrose rank-and-file voted to roll back a policy to respect all Albertans regardless of differences, such as sexual orientation.

Some of Smith’s caucus began bolting to Prentice and eventually Smith agreed: if the goal was to keep the conservative movement strong and Prentice would give them what they wanted, let’s roll.

A week before Christmas, Smith led eight more members across the floor, leaving five shell-shocked Wildrosers and staffers getting pink slips for the holidays.

“Tighty Righties” was one cheeky tabloid headline at the time that appeared beneath a photo of a beaming Prentice and Smith.

The fallout was swift and merciless. Smith and the other crossers either didn’t win their PC nominations or their seats in the 2015 election.

The Wildrose rebounded under new leader Brian Jean to retain Opposition status. Jean called Smith a “betrayer of family.”

Rachel Notley and her NDP won government for the first time ever, taking advantage of vote splitting between the Wildrose and PCs in key Calgary constituencies.

Smith began a six-year stint as a daily current affairs radio talk show host in Calgary.

“It was not easy deciding to stay in the public eye after what I’d done and the visceral reaction people had,” said Smith.

“It was unpleasant the first three months I was on the air — the texts and the emails that came in and the people who were so furious at me.”

It was three years before she began attending conservative meetings again, after a friend told her: “you can’t keep hiding.”

“I had dear friends from my Wildrose days that I’d go in for the hug and they’d give me the hand, or they’d walk away,” Smith recalled of the first few events.

“It was a seven-year process of trying to get people to forgive me. Not everyone has, but a lot of people have.”

Smith said she never discounted running again for premier, but figured Jason Kenney had a long-term lock on the job after he united the PCs and Wildrose in 2017 to form the new United Conservative Party.

Kenney won the UCP leadership, then made Notley’s NDP a one-and-done government in 2019.

When Kenney quit over caucus and party discontent in May, Smith said she decided to run by courting the UCP base — rural members frustrated with Ottawa, mainly over health restrictions during the COVID-19 pandemic.

She was an agent of chaos and confrontation, promising to pass a law allowing Alberta to ignore federal laws deemed offside with its constitutional prerogatives. She pledged no more health restrictions or COVID-19 lockdowns and promised to fire health board members en masse.

As premier, she must now pivot to make the UCP palatable to the broader population, quell a divided, angry caucus and answer the question of whether politician Danielle Smith 3.0 can break her pattern of splashy political entrances and even crazier exits.

This report by The Canadian Press was first published Oct. 6, 2022.


Dean Bennett, The Canadian Press

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Quebec elects record number of women, but will they be named to key cabinet roles?



MONTREAL — Quebecers made history Monday when they elected a record number of women to the province’s legislature, but political observers say more is needed to ensure equality between men and women in politics.

Of the legislature’s 125 seats, 58 are represented by women, including 41 of the 90 seats won by the Coalition Avenir Québec led by Premier François Legault. That number broke the previous record of 52 women elected during the 2018 general election.

Esther Lapointe, executive director of Groupe Femmes, Politique et Démocratie, a Quebec organization that advocates for more women in politics, said the increase is good news. But for real equality to be achieved, she said, women need to be represented in the places where decisions are made, including the premier’s cabinet and among his political advisers.

“I believe that things will really change when not only in the forefront, but in the background, behind the scenes we also have more female political advisers, with their ideas, their experience, their expertise,” she said. “We don’t want to replace the guys, we want to share the decisions, discussions; we want to be at the table where the decisions are made.”

Lapointe is also calling for Legault to appoint a gender-balanced cabinet — and to maintain parity throughout the next mandate. The women named to cabinet, she said, should have important portfolios.

In 2018, Legault appointed 13 men and 13 women to his cabinet, but after three months, then-environment minister MarieChantal Chassé resigned and was replaced by a man: Benoit Charette. When the 2022 election was called, Legault’s cabinet consisted of 16 men and 11 women.

“We saw that there were women who were penalized while men who were not always exemplary in their files remained in cabinet,” she said. “I have a question about that: is there a double standard?”

Legault has said his new cabinet will consist of between 40 per cent and 60 per cent women.

Pascale Navarro, author of “Women and Power: The Case for Parity,” a 2015 book that explored how gender parity could be achieved in politics, said the results of the Quebec election are “excellent” — but she said women need more support in politics.

“It’s an excellent result in terms of the number — you can’t argue with that. You have to recognize that the parties have made efforts to recruit female candidates, so it’s an excellent thing.”

However, she said it’s not yet clear that with more women in politics comes more female-related issues on the top of the agenda. Prioritizing issues that affect women is important, Navarro said, especially following the COVID-19 pandemic, which had a major effect on female-dominated fields such as health care and education.

Navarro said that while the parties are doing a better job at recruiting female candidates, they need to ensure they retain them after they are elected — around a quarter of the women who were elected in 2018 didn’t run four years later.

“It’s not just about finding women, you also have to support them. And in this regard, I have not found that Coalition Avenir Québec has done a lot to ensure its capacity to retain women,” she said, using the example of former environment minister Chassé.

Shortly after the 2018 election, Chassé didn’t perform well during a few news events. Legault initially supported her, but then said it was “mutually agreed” she should leave that position.

“I think (Chassé) started to understand her file well — she’s an engineer, a businesswoman — but communicating with journalists was difficult,” Legault told reporters at the time.

Navarro suggested Chassé would have been treated differently if she was a man.

“Why wasn’t she supported when there are plenty of other ministers who made gaffes? Men who made a lot of gaffes remained in office, and they had a team around them, to help them, to support them, to equip them. I would expect the same for women.”

Danielle Pilette, a political science professor at Université du Québec à Montréal, said there are still barriers to women entering politics. Labour shortages in daycares, for instance, have contributed to a reduction in spaces, making it more challenging for women — especially for those who don’t live in the provincial capital and need to travel to the legislature.

As well, female politicians are often targeted on social media more hatefully than men are, Pilette said in an interview Wednesday.

But despite the increase in women holding elected office in Quebec, power remains centralized in the premier’s office, a growing phenomenon across the country. Whether members are men or women, Pilette said, they all have to toe the party line.

This report by The Canadian Press was first published Oct. 6, 2022.


Jacob Serebrin, The Canadian Press


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