Critique of Proposed Investment Policy

On April 5th, Portland will consider changing its investment policy, abandoning the Socially Responsible Investment Committee [SRIC] and adopting a new proposal from Treasurer Jennifer Cooperman. This proposal is inadequate, nontransparent, unaccountable and would contradict Portland’s position as a sanctuary city.

The proposal calls for sole reliance on MSCI ratings (formerly Morgan Stanley and Capital International), to screen approximately 35 companies that have the requisite credit ratings for the city to invest in corporate securities. MSCI reports issue Environmental, Social and Governance (ESG) Ratings ranging from CCC to AAA, on companies. The proposed investment policy calls for only investing in companies with a minimum of BBB ESG rating.

The whole point of socially responsible investing is to publicly pressure bad companies to change their behavior, as other cities and Wells Fargo shareholders are now pushing for a vote regarding the Dakota Access Pipeline. But Cooperman’s proposed investment policy does not name any company. Furthermore, MSCI ratings and reports are proprietary information, so the public will not know any company ratings nor any rationale for Portland’s investments. In contrast, the SRIC used a public, transparent, and democratic process to name 9 companies for the Do Not Buy List in its Sept 2016 report.

Additionally, MSCI rating methodology is flawed. For example, ethics and fraud should be primary concerns for banks, but even Wells Fargo’s low score has no effect on their overall rating, since Ethics and Fraud scores have a ZERO weight (along with Labor, Anti-Competitive Practices and others). Also, although Wells Fargo Company as a parent company wholly owns Wells Fargo Funds which finances private prisons, there was no mention of this in the MSCI reports. (See bottom of the page here.) In contrast, the Sept 2016 SRIC Report named 9 companies for the Do Not Buy list, after public deliberation and input and hours of research beyond the MSCI reports by committee members.

Moreover, the SRIC plan would also have a smaller financial impact for Portland: not buying securities from 9, instead of 11 companies with low ESG ratings. Also, because SRIC’s Do Not Buy list is not to immediately divest but only prohibits buying new securities of the named companies, while holding on to securities that may not mature for months if not years, there is little financial impact.

We need to reinstate the SRI Committee, which has been suspended since the city council’s December resolution. While other cities sever ties with Wells Fargo, Portland has $77.5 million in WFC securities. Looking back at the SRIC report from Sept 2016, created after a full year of careful deliberation, I am confident that we identified the worst-of-the-worst companies, as they look even worse now. Making sure that Portland’s investments reflect our values as a sanctuary city is even more important after Trump. Socially responsible investing is a complex endeavor that requires a diverse group of people, doing independent research, taking public input, and deliberating publicly and democratically. We cannot avoid controversy and must be principled and courageous.
Hyung Nam
SRIC member

Written by: Hyung Nam SRIC member