Sonia Kowal, president of Zevin Asset Management, joined the Top Tier Impact Group to discuss impact investing. In the interview, Sonia discusses the firm’s approach to pushing for social change, how to distinguish real impact from impact washing, and more.
You can read the interview below or at the source.
Sonia Kowal: Advocating for a better society and environment
This week, the TTI Interview Series covers our member Sonia Kowal. Sonia is the President of Zevin Asset Management, an investment manager focused on socially responsible investing. Sonia leverages over two decades of investment experience managing corporate matters, business practices and strategic planning. She holds a BS in Zoology from the University of Edinburgh and an MS in Investment Analysis from the University of Stirling, Scotland.
Educating all stakeholders about sustainability
Sonia, tell us about how your work intersects with the impact space.
I came to my work in impact investing because I was bothered by the inconsistencies between the ethical lifestyle I was trying to lead and the investments I was making in my professional life as a portfolio manager at a large traditional asset manager.
As president of a majority women-owned and -led firm that offers both wealth management services as well as institutional money management for families and foundations, we have a commitment to social justice and active ownership that upends and challenges the traditional money management paradigm. Our mission is to secure returns for our clients while creating and guarding a legacy of integrity that critiques the unethical status quo of our capital markets and pushes for genuine, positive impact at powerful companies globally. Impact is achieved via cutting edge shareholder advocacy efforts that create substantive and long-lasting change across companies and the world as a whole.
Given the large social and environmental footprints of publicly traded corporations and their high allocation in most investor portfolios, public equities present a major opportunity for impact. We use tools including proactive proxy voting, dialogue with corporate executives, shareholder resolutions that are voted on at company annual meetings by all shareholders, investor letters and public policy advocacy. This includes writing letters to legislators, commenting on potential legislation, and providing testimony for committee briefings. We amplify this impact by writing white papers and thought pieces to educate our clients, other investors, and the public on the issues on which we are focused.
Impact comes down to the firm’s mission
What is your own definition of impact?
Impact doesn’t happen by accident – it has to be intentionally driven by the firm. And that comes down to the firm’s mission. Why do we bother to have impact as investors? To make more money? And/or to change systemic issues by leveraging our unique investor voice? ESG factors are an important indicator of future performance. But the unfortunate reality is that companies rarely increase their focus on sustainability without pressure. Productive and timely change is often inspired by investors who prod them to action. We believe we have a leading track record in collaborative social impact engagement and advocacy and that we furthermore cover new issues with innovative strategies, as covered in our last Impact Report. Another differentiator is that we also use our investor voice to engage in public policy work, believing it to be a vital tool for systems change. Our team is experienced at building coalitions to support our impact investing objectives and winning earned media to increase pressure on companies for positive change. We are often able to sway many proxy advisory firms to vote for our shareholder proposals. Finally, we have expertise and experience working hand-in-hand with mission-oriented foundations and advocacy groups to formulate engagement objectives and drive campaigns for corporate change. We have worked to this end with groups such as Oxfam America, Paid Leave for the US, Union of Concerned Scientists, Coworker.org, as well as several organized labor groups and more.
The social contract is becoming more brittle
Sonia, what do you see as the most important issue to address in the next 10 years?
Racial injustice. In the US at least, the social contract is becoming more brittle along racial and class lines. The wealth gap, if held constant, or more likely it continues to grow, will lead to increased social unrest when the US becomes a majority minority country. How does our economy continue to run properly when that happens? For a start, the investor community needs to recognize that it has contributed to and benefited from racist systems and the entrenchment of white supremacy. And then to be part of the solution and create impact, commit to actively engage with, amplify, and include BIPOC voices in investor spaces and company engagements, taking direction and guidance from their expertise and lived experience, including on issues related to criminalization. This starts with committing to embed a racial equity and justice lens into our own organizations as well as committing to integrating racial justice into investment decision-making and engagement strategies and using our investor voice to advance anti-racist public policy. See our Impact Brief “How can investors help confront racial injustice?”.
Impact washing is a big problem
What is the greatest challenge you face to scale your impact?
In the US at least, impact washing is a big problem as asset managers convince their clients that they are having impact but in reality, there are no changes to corporate behavior outcomes despite boxes being ticked. Consulting the Real Impact Tracker website is one way to better understand a manager’s impact.
In addition, a failure of public equity managers to listen to and engage with NGOs, community groups, and other grassroots voices to understand the trickle-down effect of corporate or policy activities is also hugely problematic as there is a very real risk that what investors ask for from companies could have large, unintended consequences on the ground and that inequitable power structures are reinforced.
We understand that without consulting those most impacted, that our actions, however well intentioned, may uphold the status quo or inflict further harm. By listening to and upholding stakeholders, we aim to restore influence and give a voice to those impacted. Impacted communities know best what changes are needed and our industry needs to do a better job of engaging with them instead of ignoring their voices and/or being patronizing by thinking we know best because we are “educated” investors. To this end, we regularly consult with leading environmental advocates, human rights experts, labor groups, etc. in an attempt to inform changes to our screening criteria, impact investing objectives, and overall approach. These relationships are unique and have been cultivated over many years, establishing trust and mutual respect.
Trying to identify shortcomings in the impact process
Sonia, what is your long-term vision and how do you measure & quantify your impact?
We continuously track the “asks” that we make of portfolio companies, we assess the progress that companies make toward those asks and how much of that is attributable to our activity. Importantly, we also try to identify shortcomings in our impact process and results in our reporting. Each quarter we publish an Impact Update, which reports on engagement/shareholder activism in progress. Our biennial Impact Report reports key data on how we are asking portfolio companies to change, what we are doing to influence their behavior, our assessment of their progress (and our wins), and the real-world implications of those changes. This includes reporting on: alignment with the SDGs, portfolio characteristics (including carbon footprint), longitudinal analysis of proxy voting, summary of current engagement activity and the progress of various engagements, longitudinal description of engagement asks, and progress of several key portfolio companies. However, we realize that measuring the impact of this work—that is, the outcomes—is difficult because change is typically not the consequence of any one action. We are part of many collaborative, long-term efforts to create change, and often join forces with other investors and civil society groups to build support for our dialogues so that each investor’s input is amplified. Through our work, we hope to give power to other stakeholders, both within and outside of companies, to improve company behavior. Our impact is achieved when companies change their practices in response to our pressure, shareholder engagement, shareholder proposals, and the coalitions that we assemble.
Getting companies to change their behavior
What are some misconceptions you’ve noticed regarding what “impact” is all about?
In the public equity space, many equate impact with investing in thematic, solutions-oriented companies. That may be impactful on the private side but I would argue that there is little impactful additionality there, just like with ESG.
Having impact is getting companies to change their behavior, to improve. What we’re currently seeing is that traditional asset managers who don’t have a mandate for clear corporate change but do have a mandate to grow at all costs are greedily eying this space. They’re calling what they do “stewardship”.
In our view, this is little more than simply pushing for a policy at a company — which usually results in very little actual impact on the ground. Those firms looking at investments only from a risk analysis perspective are satisfied when they see a company has checked the box on a policy. They’re “covered,” so to speak. We need to go further than that—we have 11 years left on the SDGs!
We’re not okay with just checking the policy box. We ask companies about what they are actually doing: what is different in the company after a policy is adopted? How is it changing a behavior, or a strategy, or a function to achieve a better goal? How is a company watching the space it alters when it employs, expands, produces, or pollutes?