One of the most delightful benefits of working in sustainable investment is sleeping at night: the work we do gives us the assurance that our days are spent making the world better and more sustainable. It is enormously helpful that so many more investors are, 47 years after Pax started, seeing the financial logic behind sustainability. The challenges we face are profound enough to need a large community of sustainable investors to solve them.
One place where we make headway is on gender equality. There is a lot of support in the academic and financial literature for the idea that companies that work to empower women tend to do better financially. So, for over a decade, on behalf of Pax World Funds we have used our annual proxy votes to vote against all-male boards, and to vote against the male members of boards with only one woman on them. And over the last five proxy seasons (July 2013 – July 2018), we have voted against 322 all-male board slates.1
The needle moves slowly on board diversity, but it does move: every year, there are fewer companies with all-male boards, particularly among larger companies. And as illustrated below, since 2015, the portion of boards with at least three women has increased by 14 percentage points and represents nearly half of S&P 500 boards.
Source: Harvard Law School Forum on Corporate Governance and Financial Regulation, 2018 Proxy Season Review, Kellie C. Huennekens and Jamie Smith, EY Center for Board Matters, August 8, 2018.
We’ve also expanded our company engagement to cover another key aspect of women’s empowerment: pay equity. Equal pay is the law in the United States, but it’s a law that is frightfully easy to evade. That is why we urge companies to assess how their workers are paid. We’ve found that when companies conduct pay audits, they’re often surprised to learn that they don’t actually have equal pay. As the old saying goes, you can’t manage what you don’t measure.
This year, we filed resolutions asking that companies conduct pay audits and commit to paying men and women equally at HP, Inc., Discover Financial Services, KeyCorp, MetLife, Inc. and Oracle. We were able to withdraw the resolutions at the first four2 after all of them agreed to publish commitments to pay equity with detailed information on their processes for managing pay equity, including plans for how they will remediate unexplained pay gaps.
Along with many other asset owners and asset managers who have focused engagements on pay equity, we believe that progress here helps to set a standard that informs all companies, not just the ones we engage specifically. There is a domino effect in sustainability: when leading companies make progress, competitors and aspiring competitors tend to quietly adopt those practices as well. Competition, in this case, is not just a race to the bottom.
All that said, there are times when we face headwinds. Right now, public policy is often just such a headwind: there has been an effort on the part of some companies and trade associations to eliminate or curtail shareholders’ rights to file shareholder proposals. Legislation that has passed the House of Representatives would, if it becomes law, significantly undermine the ability to file shareholder proposals. One trade group has published a deeply flawed study that purports to show that shareholder engagement does not add value, and that so-called “main street investors” do not want asset managers to engage companies on sustainability matters.
Those main street investors often have choices, and when they choose Pax World Funds, they can be assured that we will engage companies on sustainability issues, from pay equity to board diversity to mitigating climate change to sustainability reporting. Pax is also a member of the Shareholder Rights Group, an association of investors formed in 2016 to defend our rights to engage with public companies on long-term value creation.
There is a lot of evidence that more sustainable companies perform better financially, and we therefore believe it makes sense for shareholders to encourage companies to do better when it comes to sustainability issues, from climate change to gender equality. Sustainability is not a ball and chain on profits, but to the contrary, a hallmark of companies that add value over the long term. We intend to continue to invest in those companies, and where necessary, cajole and persuade them to do better.
1Note that this figure does not represent 322 unique companies – in many cases, we voted against a board slate put forth by a company over multiple years.
2Pax has refiled its pay equity proposal with Oracle for 2018. Our 2017 shareholder proposal at Oracle on pay equity reporting received support of 38.7% at the Annual General Meeting on November 15, 2017. Excluding inside ownership (Founder and Chief Technology Officer Larry Ellison owns 27% of Oracle’s shares), a majority of independent shareholders supported Pax’s proposal.
As of 7/31/18, HP, Inc. was 0.04% of the Pax Balanced Fund, 0.5% of the Pax ESG Beta Dividend Fund, 1.1% of the Pax ESG Beta Quality Fund and 0.2% of the Pax Ellevate Global Women’s Leadership Fund; Discover Financial Services was 0.1% of the Pax ESG Beta Quality Fund and 0.1% of the Pax Ellevate Global Women’s Leadership Fund; KeyCorp was 0.4% of the Pax Balanced Fund, 1.0% of the Pax Large Cap Fund and 1.7% of the Pax Ellevate Global Women’s Leadership Fund; MetLife, Inc. was 0.1% of the Pax Balanced Fund, 0.7% of the Pax ESG Beta Dividend Fund and 0.2% of the Pax Ellevate Global Women’s Leadership Fund; and Oracle was 0.01% of the Pax Balanced Fund, 0.1% of the Pax ESG Beta Dividend Fund, 0.6% of the Pax ESG Beta Quality Fund, 0.7% of the Pax Ellevate Global Women’s Leadership Fund and 2.1% of the Pax Global Opportunities Fund. Holdings are subject to change.