Indian Country Today
The United States remains divided on the politics of climate change.
The Senate recently blocked a spending bill that would have directed $555 billion for climate programs, dramatically shifting resources towards doing something. That measure was blocked, in part, by a Democrat from West Virginia who is protecting the coal industry (his family owns a company that profits from coal and he is the carbon industry’s favorite legislator, receiving more in campaign donations than any other member of Congress.)
And, at the same time, U.S. carbon-based emissions grew last year at a pace even faster than the economy itself, nearing pre-pandemic levels. What’s driving this growth is transportation and power generation. And one huge part of that equation is an increase in coal production and emissions.
The independent consulting group Rhodium Group published a preliminary look at 2020 emissions and the bottom line is that the United States (and much of the world) is moving away from the Paris Agreement climate target of reducing emissions by 52 percent below 2005 levels by 2030.
This is not good news, but it’s also the context for another story, one that remains almost hidden, about an initiative that has the potential to dramatically shift how companies are regulated by the United States. And this history has some surprising connections to Indigenous people, the United Nations Declaration on the Rights of Indigenous Peoples, and the investing tool known by its initials, ESG, for Environment, Social and Governance.
From the Lakota Fund to Wall Street
Sometimes one thing leads to another. In the 1980s, The Lakota Fund, was assisted by the First Nations Development Institute, then led by Rebecca Adamson and board president, Birgil Kills Straight. The Lakota Fund started making loans to fund businesses in Pine Ridge, South Dakota. One study at the time identified “only two Native American-owned businesses on the Pine Ridge Indian Reservation. Eighty-five percent of our clients never had a checking or savings account; seventy-five percent never had a loan; and ninety-five percent had no business experience.”
Hardly big business. But the Lakota Fund tapped an extraordinary market. A study at the time by Richard Sherman, Oglala Lakota, found that two-thirds of the tribal households generated income through small informal activities. “He came up with the list of 123 activities that people did to make money,” Adamson recalled. Folks were “welding crosses for the cemetery building, roof box coffins, mending the fences, breaking horses, and doing hair catering sandwiches to IHS. I mean, it just went on and on and on.”
The Lakota Fund built a significant financial stream based on that small scale business activity (that continues today). This was a micro-loan program that operated long before the Grameen Bank made headlines with its small cap loans in Bengal.
Adamson was speaking at a social investing conference when she was approached by Wayne Silby, the founder of the Calvert Impact Capital fund. He asked her to join a board of directors for Calvert Foundation and what started as the “Community Investment Note.” The idea was that people could buy these notes and use profits to finance nonprofit organizations. More than a billion dollars flowed into community organization as a result. It was also the first private investment in what are now called Community Development Finance Institutions, or a CDFI.
Social investing had been around since the 18th century – originally a Quaker initiative to conftont slavery – and Calvert was taking the concept to commercial markets in an innovative way, using capital to push for the end of apartheid in South Africa because of a shareholder resolution that was passed in 1986.
The Calvert Fund started in 1976 with the idea that investments should be holistic and use metrics beyond profit and loss.
This same idea was growing as an alternative investment. A few funds and companies had some sort of buy-in on the idea of social investing. In January of 2004 the United Nations Secretary General Kofi Annan invited 50 corporate leaders to participate in a conference on social investing and how to integrate that into capital markets. A year later a report was produce, “Who Cares Wins,” that included “recommendations by the financial industry to better integrate environmental, social and governance issues in analysis, asset management and securities brokerage.”
Today ESG is mainstream. Law firms have ESG practices. Corporate boards have ESG committees. And companies have ESG statements and are rated by investors on matching that company’s deeds to its words. And the total investment last year was a record $649 billion, accounting for 10 percent of worldwide assets. And several investment analysts predict that ESG investments will reach $1 trillion before the end of this decade.
Critics say ESG is a way for companies to build a facade, claiming the values of sustainable investing, without actually doing anything about it.
Now the government steps in
A year ago the U.S. Securities and Exchange Commission – the primary regulator of financial markets – announced it would enforce regulations related to ESG. The commission said its role would be to “identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.”
Companies have to match their words and deeds – or face federal sanctions.
The SEC regulatory framework goes beyond just ESG. It’s also asking companies to disclose their impact on the climate. “Since 2010,” the commission said, “investor demand for, and company disclosure of information about, climate change risks, impacts, and opportunities has grown dramatically. Consequently, questions arise about whether climate change disclosures adequately inform investors about known material risks, uncertainties, impacts, and opportunities.”
This metric uses the Paris Agreement as a framework. In a speech last year, SEC Commissioner Caroline A. Crenshaw told the Sierra Club and the Center for American Progress that the key to corporate climate policies is disclosure. For example when a company promises “net zero” emissions, how is that measured?
“So while net-zero emissions pledges are an important step forward, they underscore the loud, repeated, and sustained calls for decision-useful metrics – metrics calculated using reliable and comparable methodologies that enable investors to decide whether the companies mean what they say,” Crenshaw said. “That is a core purpose of the SEC’s disclosure obligations.”
And the commission is not limited to the actual climate actions, but a broader review of corporate practices. “One in particular is political spending,” Crenshaw said. “Without disclosures on political spending, executives may spend shareholder money in ways that contradict their public commitments and statements. After the Paris Climate Accords, a number of public companies went on the record in support of the Accords. However, questions remain about whether those companies continue to make political contributions that support opposition to the Accords.”
And the Securities and Exchange Commission is not the only government working on ESG enforcement. Europe is developing similar regulations. And, last June, Treasury Secretary Janet Yellen said the department is leading an international effort to improve “information on climate-related risks and opportunities to identify climate-aligned investments.”
Fossil fuel companies are beginning to buy-in to ESG standards. A study by the accounting firm PwC released last August found that mining companies with high ESG ratings provided 10 percent higher shareholder returns during the pandemic, and delivered 34 percent return over the past three years.
This is where disclosure and enforcement will grow in importance. Can a company still build a “green” facade – or will there be a price paid for pretense? And will it be the markets that punish fake reports or governments? And what happens to the companies whose products – cough – coal – are supposed to be phased out under COP 26?
Perhaps no industry is more impacted by ESG than the extractive industries, especially coal companies. As a column in Mining magazine reported: “For many year’s the industry as a whole managed to sidestep ESG, but the period of evading responsibility has come to an end and mining firms are increasingly being called upon to explain how they plan to incorporate ESG into their planning.”
And the magazine shows how mining conferences have shifted their discussions away from production, commodity products, and prices to the ‘’'softer’ topics like climate change, involving indigenous communities in decision-making, and answering to feedback from shareholders.”
And both Indigenous communities and shareholders have more authority to shape that direction under ESG.
Mark Trahant, Shoshone-Bannock, is editor-at-large for Indian Country Today. On Twitter: @TrahantReports Trahant is based in Phoenix. The Indigenous Economics Project is funded with a major grant from the Bay and Paul Foundations.
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This story has been corrected to include the founders of the Lakota Fund and its history.