Editor’s note: This article is part of a continuing series in which Paul Ellis, a well-known advisor and consultant on sustainable investing strategies, interviews industry professionals on the topics of millennials and sustainable investing. What follows is an interview with two industry experts from Pekin Singer Strauss Asset Management: Matthew Blume, manager of shareholder advocacy and Colin Rennich, director of sales.

 

To read other article in the series, click on the links below:

http://www.fa-mag.com/news/the-wise-woman-and-the-millennial-23738.html

http://www.fa-mag.com/news/millennials-leading-the-way-in-sustainable-investing-24019.html

http://www.fa-mag.com/news/millennials-mainstreaming-impact-investing-24487.html

/news/an-sri-collaboration-across-generations-and-genders-24873.html

/news/like-minded-people-with-purpose-and-passion-25457.html

/news/green-investing--all-in-the-family-26082.html

/news/sri-investing-well-positioned-for-growth-26394.html

/news/a-passion-for-healthy-living-and-sustainability-26918.html

/news/investing-with-a-personal-touch-27147.html

/news/investing-with-impact-27565.html

 

Ellis: Colin, tell us about the relationship between The Appleseed Fund (ticker: APPLX, APPIX) and Pekin Singer Strauss.

Rennich: Pekin Singer Strauss Asset Management is the advisor to the Appleseed Fund. Adam Strauss, Bill Pekin and Josh Strauss have been portfolio managers of The Appleseed Fund for almost 10 years, since early 2007. They are also the principals of Pekin Singer Strauss (PSS). Matthew Blume, who is also a principal, manages the firm’s shareholder advocacy efforts on behalf of the fund.

I mention this because we believe financial advisors should be asking the managers of their clients’ assets about their engagement with companies on behalf of shareholders. In our experience, advocacy may contribute to enhanced disclosure and transparency into a company’s operations. This provides our analysts with additional information for modeling a more comprehensive risk assessment.

Ellis: Colin, tell our readers about your role with the Appleseed Fund.

Rennich: My role with the fund is investor communication and relations. I work with financial advisors and wealth managers to educate them about the Appleseed strategy and help them grow their business by making better impact-related investment decisions. I’ve been with Pekin Singer since 2012.

Ellis: And what were you doing prior to that?

Rennich: I was working in the retirement plan division with Principle Financial Group after starting my financial services career as an advisor with Ameriprise in 2003. 

Ellis: Matt, you are a portfolio manager for private wealth management clients at Pekin Singer and, as Colin said, you also manage the firm’s shareholder advocacy efforts. What were you doing before that?

Blume: Yes, I have also worked at Pekin Singer since 2012. Prior to that, I was a financial advisor for a small retail advisory firm.

Ellis: So both of you started as financial advisors and now work in asset management to support financial advisors and their clients.

Rennich: Matt and I have both been in the financial advisors’ shoes. We understand what is helpful to them and how we can support them with education or business development opportunities.

Ellis: Anything to add, Matt?

Blume: Having been a financial advisor is a big help in the work that I do with individual and institutional private clients at Pekin Singer.

Ellis: Let’s talk about your role as manager of shareholder advocacy for the firm.

Blume: Shareholder advocacy represents a way for us to make a positive impact on the various companies whose shares our investors own. Of course, no company is perfect; even best-in-class companies have opportunities for improvement. Our shareholder advocacy efforts allow us to help well-managed companies become even better.

Ellis: What does “best-in-class” mean?

Blume: When our team is vetting potential investments, we look very closely at fundamentals and valuation, but we also go through a rigorous screening process in which we examine company performance across a number of environmental, social and corporate governance (ESG) factors. We consider a wide range of non-financial factors that could affect a company’s future, such as controversies related to labor standards, human rights violations and environmental performance, for example. This process helps us identify companies that are stronger performers related to ESG factors, have management teams that are long-term oriented in their outlook and risk profiles that are more likely to be lower than the industry average. Our goal is to identify high quality companies for investment in the Appleseed Fund that have minimal downside risk and significant upside potential.

Ellis: Advisors often say to me, “That’s all very good, but doesn’t the process limit the universe of companies that we can select from and thereby reduce the potential for my client’s portfolio to achieve competitive returns?”

Blume: We view ESG screening as a risk-reduction process from an investment standpoint. Think of a company that has a significant environmental issue resulting in government fines or shareholder lawsuits. These issues may result in real financial impact to companies, sometimes just as a result of the industries they operate in. In our opinion eliminating some of these companies from our universe reduces risk.

Ellis: Let’s talk about your advocacy success with Nabors Industries (NBR), an energy services company. Pekin Singer has a history of advocacy with this company that resulted in Nabors Industries recently deciding to publish their first sustainability report.

Blume: We engaged with Nabors Industries for the first time in 2013 when we asked them to begin publishing a sustainability report. Our thinking was this company was a very good operator in terms of safety and environmental performance in a challenging industry. They are a leader and an innovator, but from our perspective their corporate governance needed improvement, especially with regards to environmental disclosures.

We asked them to write an annual sustainability report so they could be more transparent to their shareholders about what steps the company was taking to reduce risks, as well as write about how corporate governance is tied to those risk reduction efforts.

We started with conversations but there wasn’t any change in the company’s position. In 2014, we decided to file a shareholder resolution that asked the company to publish an annual sustainability report in compliance with Global Reporting Initiative guidelines. Over 40 percent of the shareholders voted in favor of the resolution. We felt that was a fantastic result since most resolutions in their first year get about 10 percent shareholder support.

Ellis: Nabors Industries is a company that Pekin Singer owned in its portfolios on behalf of some of its wealth management clients, is that correct?

Blume: Yes, we had owned shares in the company for some time prior to filing the first resolution.

Ellis: Filing shareholder resolutions is time and resource intensive for your team. Outside of supporting greater transparency from a company like Nabors Industries, what is Pekin Singer getting out of this process?

Blume: Our investors want to do more than just own quality companies; they also want to make a positive impact. The changes we are able to implement with these companies may also be recognized in the market place by adding to long-term shareholder value.

For example, there have been multiple studies published that talk about the financial performance of companies that file sustainability reports. What the data indicate is that the management of companies that take sustainability reports and internal ESG analysis seriously tend to be better aligned with their investors, and tend to manage their companies in more sustainable ways over the long term, thereby resulting in better financial performance.

Ellis: Back to your shareholder activity with Nabors Industries, Matt. What you’ve talked about so far is getting significant shareholder support on the first filing of the resolution.

Blume: Yes. In the subsequent year (2015), we filed the same resolution, asking for the same thing, and we worked harder to get the support of additional shareholders. This time, we got over 51 percent of the vote. The result was that the company suddenly sat up and really took notice. They became much more willing to speak with us. We started having productive conversations on what we wanted them to do and why. In December of 2015, Nabors Industries published their first comprehensive sustainability report.

This was a huge victory, because we were able to use the strength of the shareholder base to advance Nabors Industries through a process of breaking down their operations in a way they had never done before. We believe their shareholders, as well our analysts who cover the stock, are better informed as a result. This is an ongoing process. We have asked for additional disclosures to be present in future sustainability reports.

Ellis: How has the management of Nabors Industries responded to that?

Blume: They were very open to it. In fact, we have a legal agreement that they will add a few additional disclosures in their future sustainability reports dealing with emissions and with water usage in their operations. They now view this report as a living document and expect it to be better each year.

Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients. Matthew Blume is manager of shareholder advocacy and Colin Rennich is director of sales for Pekin Singer Strauss Asset Management.