Is Your Mutual Fund a Climate Change Denier or Climate Champion?
By Rob Berridge and Jackie Cook
New proxy voting data showcasing how mutual fund companies voted on climate change resolutions in 2015 reveals a major divide in their thinking on this mega issue that will have wide-ranging ripples on investment portfolios.
Among 42 mutual fund companies whose voting we analyzed, nine companies, including the world's largest mutual fund company Vanguard, failed to support a single climate-related shareholder resolution in 2015. The other eight are American Funds, American Century, Blackrock, Fidelity, ING (Voya), Lord Abbett, Pioneer and Putnam.
In stark contrast, seven fund companies supported 70 percent or more of the 73 climate-related resolutions that were included in our analysis, including AllianceBernstein, Allianz, Deutsche (formerly DWS), GMO, Oppenheimer, Schroder and WellsFargo.
The resolutions filed by investors request that companies take such actions as: set greenhouse gas (GHG) reduction goals; disclose the risk of assets such as fossil fuel reserves and coal plants being unusable—“stranded" in Wall Street parlance—due to weakening global demand for fossil fuel products; disclose political lobbying expenditures related to climate change; and issue sustainability reports describing material business risks from climate change.
These common sense requests are believed by investors to be financially material to many of the companies receiving the resolutions and to mutual fund companies who have a fiduciary duty to vote in the best interests of their clients.
For example, an electric utility that is upgrading a coal-fired power plant that lasts 40 years (rather than, say, investing in solar projects or energy efficiency programs) is taking on significant risk considering that 196 countries worldwide recently approved an historic climate agreement in Paris aimed at dramatically reducing greenhouse gas emissions. The U.S. has specifically pledged to reduce its carbon emissions by 26 - 28 percent by 2025, with a key centerpiece being the U.S. Environmental Protection Agency's Clean Power Plan aimed at reducing power plant carbon emissions. Under these scenarios, a recently upgraded coal plant will probably have to be retired well before the end of its planned life, which risks financial losses for the utility and its shareholders. Shareholders need to know how power companies are planning to avoid such losses and to adapt their business models to the transition to a low carbon economy.
Further underscoring their responsibilities on these proxy votes, some of the mutual fund companies, such as Vanguard, are members of the UN's Principles for Responsible Investment (PRI), meaning that they have publicly committed to six principles, including: Principle 2 “active ownership," which entails actions such as supporting resolutions on environmental, social and governance (ESG) issues; and Principle 3 to “seek appropriate disclosure on issues by the entities in which we invest."
Simply put, climate change is among the most critical ESG issues intended to be addressed by PRI signatories, and failing to support any climate resolutions brings into question whether some PRI members are adhering to the principles.
Some mutual fund companies are themselves publicly traded, and investors have begun to file shareholder resolutions asking mutual fund companies to disclose why they fail to support financially material climate resolutions. For example, Zevin Asset Management filed shareholder resolutions with Franklin Resources and T. Rowe Price Group during the 2016 proxy season because it appears that both firms' proxy voting records are inconsistent with proactive approaches to climate change. Walden Asset Management co-filed the T. Rowe Price resolution, which will be voted on at the company's annual meeting in May.
Sonial Kowal, president of Zevin Asset Management, explained to us:
“Proxy voting is one of the principal ways in which investors can engage in active management of portfolio risks and opportunities related to climate change, so inconsistency on climate poses a reputational risk to Franklin and T. Rowe, especially given the proactive record of many of their competitors. Given the severe threats of climate change to human societies and economies, clients may start to wonder if their investments are in good hands. We also hope that other investment companies will now become more thorough and transparent in making decisions when voting on climate related resolutions."
Adding to such reputational risks are campaigns such as a petition, launched by U.S. PIRG, asking Vanguard to vote in favor of resolutions regarding political spending disclosure. More than 65,000 people have signed the petition so far. Walden Asset Management recently sent a letter to Vanguard zeroing in on climate-related voting (some of these resolutions ask companies to disclose lobbying expenditures) and received a response that includes this defense of Vanguard's approach:
“… while we believe that some of the issues animating these proposals are worthy of attention and may have long term implications for a company, we have not been convinced that the prescriptive framing of the proposals will address the risks in a way that drives long term value. Our aim is to influence change that is clearly linked to value creation, and in some cases a simple vote "for" or "against" a proxy proposal doesn't get to the heart of an issue."
Vanguard's explanation is inadequate. For climate change alone, resolutions filed in 2015 covered approximately 20 different types of requests, with many requesting disclosure of risks and others asking for comprehensive sustainability disclosure. Vanguard failed to support even a single one of this broad variety of resolutions. Vanguard's claim that they are all too “prescriptive" is disingenuous. The U.S. Securities and Exchange Commission (SEC) has rules against filing resolutions that are “ordinary business," or that seem to micromanage a company. A number of the resolutions Vanguard failed to support have survived SEC scrutiny on this very question.
As financial, environmental and societal risks from climate change escalate, it is important for shareholders to know if their mutual funds are taking one of the simplest steps to address the risks—voting for climate resolutions.
If your fund company is failing to do so, it is time to give them call, write them a letter or sign petitions such as the one sent to Vanguard. These flawed myopic approaches, such as Vanguard's, need to change.
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By Ana Maldonado-Contreras
- Your gut is home to trillions of bacteria that are vital for keeping you healthy.
- Some of these microbes help to regulate the immune system.
- New research, which has not yet been peer-reviewed, shows the presence of certain bacteria in the gut may reveal which people are more vulnerable to a more severe case of COVID-19.
You may not know it, but you have an army of microbes living inside of you that are essential for fighting off threats, including the virus that causes COVID-19.
How Do Resident Bacteria Keep You Healthy?<p>Our immune defense is part of a complex biological response against harmful pathogens, such as viruses or bacteria. However, because our bodies are inhabited by trillions of mostly beneficial bacteria, virus and fungi, activation of our immune response is tightly regulated to distinguish between harmful and helpful microbes.</p><p>Our bacteria are spectacular companions diligently helping prime our immune system defenses to combat infections. A seminal study found that mice treated with antibiotics that eliminate bacteria in the gut exhibited an impaired immune response. These animals had low counts of virus-fighting white blood cells, weak antibody responses and poor production of a protein that is vital for <a href="https://doi.org/10.1073/pnas.1019378108" target="_blank">combating viral infection and modulating the immune response</a>.</p><p><a href="https://doi.org/10.1371/journal.pone.0184976" target="_blank" rel="noopener noreferrer">In another study</a>, mice were fed <em>Lactobacillus</em> bacteria, commonly used as probiotic in fermented food. These microbes reduced the severity of influenza infection. The <em>Lactobacillus</em>-treated mice did not lose weight and had only mild lung damage compared with untreated mice. Similarly, others have found that treatment of mice with <em>Lactobacillus</em> protects against different <a href="https://doi.org/10.1038/srep04638" target="_blank" rel="noopener noreferrer">subtypes of</a> <a href="https://doi.org/10.1038/s41598-017-17487-8" target="_blank" rel="noopener noreferrer">influenza</a> <a href="https://doi.org/10.1371/journal.ppat.1008072" target="_blank" rel="noopener noreferrer">virus</a> and human respiratory syncytial virus – the <a href="https://doi.org/10.1038/s41598-019-39602-7" target="_blank" rel="noopener noreferrer">major cause of viral bronchiolitis and pneumonia in children</a>.</p>
Chronic Disease and Microbes<p>Patients with chronic illnesses including Type 2 diabetes, obesity and cardiovascular disease exhibit a hyperactive immune system that fails to recognize a harmless stimulus and is linked to an altered gut microbiome.</p><p>In these chronic diseases, the gut microbiome lacks bacteria that activate <a href="https://doi.org/10.1126/science.1198469" target="_blank" rel="noopener noreferrer">immune cells</a> that block the response against harmless bacteria in our guts. Such alteration of the gut microbiome is also observed in <a href="https://doi.org/10.1073/pnas.1002601107" target="_blank" rel="noopener noreferrer">babies delivered by cesarean section</a>, individuals consuming a poor <a href="https://doi.org/10.1038/nature12820" target="_blank" rel="noopener noreferrer">diet</a> and the <a href="https://doi.org/10.1038/nature11053" target="_blank" rel="noopener noreferrer">elderly</a>.</p><p>In the U.S., 117 million individuals – about half the adult population – <a href="https://health.gov/our-work/food-nutrition/2015-2020-dietary-guidelines/guidelines/" target="_blank" rel="noopener noreferrer">suffer from Type 2 diabetes, obesity, cardiovascular disease or a combination of them</a>. That suggests that half of American adults carry a faulty microbiome army.</p><p>Research in my laboratory focuses on identifying gut bacteria that are critical for creating a balanced immune system, which fights life-threatening bacterial and viral infections, while tolerating the beneficial bacteria in and on us.</p><p>Given that diet affects the diversity of bacteria in the gut, <a href="https://www.umassmed.edu/nutrition/melody-trial-info/" target="_blank" rel="noopener noreferrer">my lab studies show how diet can be used</a> as a therapy for chronic diseases. Using different foods, people can shift their gut microbiome to one that boosts a healthy immune response.</p><p>A fraction of patients infected with SARS-CoV-2, the virus that causes COVID-19 disease, develop severe complications that require hospitalization in intensive care units. What do many of those patients have in common? <a href="https://www.cdc.gov/mmwr/volumes/69/wr/mm6912e2.htm" target="_blank" rel="noopener noreferrer">Old age</a> and chronic diet-related diseases like obesity, Type 2 diabetes and cardiovascular disease.</p><p><a href="http://doi.org/10.1016/j.jada.2008.12.019" target="_blank" rel="noopener noreferrer">Black and Latinx people are disproportionately affected by obesity, Type 2 diabetes and cardiovascular disease</a>, all of which are linked to poor nutrition. Thus, it is not a coincidence that <a href="https://www.cdc.gov/mmwr/volumes/69/wr/mm6933e1.htm" target="_blank" rel="noopener noreferrer">these groups have suffered more deaths from COVID-19</a> compared with whites. This is the case not only in the U.S. but also <a href="https://www.washingtonpost.com/world/europe/blacks-in-britain-are-four-times-as-likely-to-die-of-coronavirus-as-whites-data-show/2020/05/07/2dc76710-9067-11ea-9322-a29e75effc93_story.html" target="_blank" rel="noopener noreferrer">in Britain</a>.</p>
Discovering Microbes That Predict COVID-19 Severity<p>The COVID-19 pandemic has inspired me to shift my research and explore the role of the gut microbiome in the overly aggressive immune response against SARS-CoV-2 infection.</p><p>My colleagues and I have hypothesized that critically ill SARS-CoV-2 patients with conditions like obesity, Type 2 diabetes and cardiovascular disease exhibit an altered gut microbiome that aggravates <a href="https://theconversation.com/exercise-may-help-reduce-risk-of-deadly-covid-19-complication-ards-136922" target="_blank" rel="noopener noreferrer">acute respiratory distress syndrome</a>.</p><p>Acute respiratory distress syndrome, a life-threatening lung injury, in SARS-CoV-2 patients is thought to develop from a <a href="http://doi.org/10.1016/j.cytogfr.2020.05.003" target="_blank" rel="noopener noreferrer">fatal overreaction of the immune response</a> called a <a href="https://theconversation.com/blocking-the-deadly-cytokine-storm-is-a-vital-weapon-for-treating-covid-19-137690" target="_blank" rel="noopener noreferrer">cytokine storm</a> <a href="http://doi.org/10.1016/S2213-2600(20)30216-2" target="_blank" rel="noopener noreferrer">that causes an uncontrolled flood</a> <a href="http://doi.org/10.1016/S2213-2600(20)30216-2" target="_blank" rel="noopener noreferrer">of immune cells into the lungs</a>. In these patients, their own uncontrolled inflammatory immune response, rather than the virus itself, causes the <a href="http://doi.org/10.1007/s00134-020-05991-x" target="_blank" rel="noopener noreferrer">severe lung injury and multiorgan failures</a> that lead to death.</p><p>Several studies <a href="https://doi.org/10.1016/j.trsl.2020.08.004" target="_blank" rel="noopener noreferrer">described in one recent review</a> have identified an altered gut microbiome in patients with COVID-19. However, identification of specific bacteria within the microbiome that could predict COVID-19 severity is lacking.</p><p>To address this question, my colleagues and I recruited COVID-19 hospitalized patients with severe and moderate symptoms. We collected stool and saliva samples to determine whether bacteria within the gut and oral microbiome could predict COVID-19 severity. The identification of microbiome markers that can predict the clinical outcomes of COVID-19 disease is key to help prioritize patients needing urgent treatment.</p><p><a href="https://doi.org/10.1101/2021.01.05.20249061" target="_blank" rel="noopener noreferrer">We demonstrated</a>, in a paper which has not yet been peer reviewed, that the composition of the gut microbiome is the strongest predictor of COVID-19 severity compared to patient's clinical characteristics commonly used to do so. Specifically, we identified that the presence of a bacterium in the stool – called <em>Enterococcus faecalis</em>– was a robust predictor of COVID-19 severity. Not surprisingly, <em>Enterococcus faecalis</em> has been associated with <a href="https://doi.org/10.1053/j.gastro.2011.05.035" target="_blank" rel="noopener noreferrer">chronic</a> <a href="https://doi.org/10.1016/S0002-9440(10)61172-8" target="_blank" rel="noopener noreferrer">inflammation</a>.</p><p><em>Enterococcus faecalis</em> collected from feces can be grown outside of the body in clinical laboratories. Thus, an <em>E. faecalis</em> test might be a cost-effective, rapid and relatively easy way to identify patients who are likely to require more supportive care and therapeutic interventions to improve their chances of survival.</p><p>But it is not yet clear from our research what is the contribution of the altered microbiome in the immune response to SARS-CoV-2 infection. A recent study has shown that <a href="https://doi.org/10.1101/2020.12.11.416180" target="_blank" rel="noopener noreferrer">SARS-CoV-2 infection triggers an imbalance in immune cells</a> called <a href="https://doi.org/10.1111/imr.12170" target="_blank" rel="noopener noreferrer">T regulatory cells that are critical to immune balance</a>.</p><p>Bacteria from the gut microbiome are responsible for the <a href="https://doi.org/10.7554/eLife.30916.001" target="_blank" rel="noopener noreferrer">proper activation</a> <a href="https://doi.org/10.1126/science.1198469" target="_blank" rel="noopener noreferrer">of those T-regulatory</a> <a href="https://doi.org/10.1038/nri.2016.36" target="_blank" rel="noopener noreferrer">cells</a>. Thus, researchers like me need to take repeated patient stool, saliva and blood samples over a longer time frame to learn how the altered microbiome observed in COVID-19 patients can modulate COVID-19 disease severity, perhaps by altering the development of the T-regulatory cells.</p><p>As a Latina scientist investigating interactions between diet, microbiome and immunity, I must stress the importance of better policies to improve access to healthy foods, which lead to a healthier microbiome. It is also important to design culturally sensitive dietary interventions for Black and Latinx communities. While a good-quality diet might not prevent SARS-CoV-2 infection, it can treat the underlying conditions related to its severity.</p><p><em><a href="https://theconversation.com/profiles/ana-maldonado-contreras-1152969" target="_blank">Ana Maldonado-Contreras</a> is an assistant professor of Microbiology and Physiological Systems at the University of Massachusetts Medical School.</em></p><p><em>Disclosure statement: Ana Maldonado-Contreras receives funding from The Helmsley Charitable Trust and her work has been supported by the American Gastroenterological Association. She received The Charles A. King Trust Postdoctoral Research Fellowship. She is also member of the Diversity Committee of the American Gastroenterological Association.</em></p><p><em style="">Reposted with permission from <a href="https://theconversation.com/a-healthy-microbiome-builds-a-strong-immune-system-that-could-help-defeat-covid-19-145668" target="_blank" rel="noopener noreferrer" style="">The Conversation</a>. </em></p>
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