Just the other day, I heard Simon Sinek speak about a time in American history when we were united by an esprit de corp. He spoke of the Greatest Generation; the generation that experienced the war and rallied through it, making sacrifices, desperate to enlist and spending their meager household savings on war bonds to support the country. Many at the time truly believed it was the war to end all wars. What they were investing in and sacrificing for was long-term peace, an end to Facism and Nazism, and for democracy. Their expression of patriotism was through the vehicle of what we would now see as shareholder advocacy.
Today, when we think of such a successful investment campaign for something that we can all believe in, do we think about Treasury bonds?
Treasury bonds are in almost every single portfolio strategy
of every investor around the world and yet what is motivating that
investment? Of course there are national
considerations of sterilization of domestic surpluses but otherwise, for most investors,
the benefit of holding Treasuries are its stable and high credit rating and its
subsequent guaranteed coupon more than anything else. So this investment has largely become
disassociated with the nature of the US governmental spending.
However, there’s one body that’s particularly focused on US
expenditure vis-à-vis Treasuries. The US
Treasury has quarterly
meetings with the Securities Industry
and Financial Markets Association (SIFMA), one of the oldest and largest banking lobbies. The
meetings are standardized and fully transparent, offering an update from Treasury’s
side about expenditure, bond issuance and expected issuance and quantitative
and qualitative support for those actions. SIFMA, in turn, offers guidance
given their material concerns regarding the value of their assets held in US
Treasuries. This is akin to a standard
shareholder meeting with a company, but much more frequent. While this practice
has received very little scrutiny in progressive circles or otherwise, it’s
worth mentioning from the outset that the financial industry offering such
intimate guidance regarding US expenditure is fairly undemocratic insofar as
the financial industry is not elected by, nor in anyway represents the
interests of the general public. However, this relationship and format of
shareholders meeting regularly with Treasury is an interesting precedent.
SIFMA-like Relations
with Treasury by SRI-inclined Shareholders
But what if the investors in US Treasuries acted on behalf
of our own interests and focused on treating this investment as subject to the environmental
and social criteria other investments are now being evaluated by. The greatest
contribution of the development of a true Socially Responsible Investment
sector is its ability to change the practices of all corporations, benchmarking
a higher standard of responsibility. The
implicit assumption is that the scope of influence of SRI lies in the private
sector’s decisions. However, there’s no reason why Treasury bond holders who do
not share the exact interests of the securities lobby—in its primary concern
with yield and stability of return—could not form an equally powerful entity to
represent the interest of investors who embody the values of the socially responsible
investment community.
Many investors holding US Treasuries surely share the primary
concerns of socially responsible investors who screen their portfolios for
companies operating in defense and weapons and fossil fuels. However, we know,
the United States grants fossil fuels about
$70 billion each year in government subsidies (amazingly $502
billion in “post-tax” subsidies, once considering government expenditure
on health and environmental negative externalities) and in 2012, roughly 19 cents
of every US government dollar spent went to defense, ($689 billion).
Ironically, today a mass movement sponsoring long-term
peace, stability and democracy might look diametrically opposed to the war bond
effort. Since World War II, war has
changed. And the war to end all wars did not end all wars. With our military interventions
internationally and our bases stationed throughout the world, with a build-up
in Asia and the vague and interminable notion of the “war on terror”, we have
institutionalized war into the fabric of our economy and that’s reflected in
government expenditure. War is now big business. This US expenditure would in
fact, definitionally, exclude US Treasury bonds from portfolios of those
socially responsible investors who seek to avoid exposure to defense and
weapons.
Likewise, while public concern grows over climate change, energy independence and environmental sustainability generally, our government expenditure does not reflect those priorities. Again, screened by environmental, social and governmental criteria, US Treasuries would be divested from environmentally conscious investor portfolios.
My point is not to suggest we divest in US Treasuries which
I believe is as reckless for the country and the great many important things we
do with the remainder of every dollar of government expenditure, as it is
financially irresponsible for investment strategies. But what I do suggest is thinking about articulating
our priorities at least on equal footing as SIFMA, which is demanding stability
and long-term yield for us, without consideration to social and environmental
cost. As a visioning exercise, I think
it would be extremely useful for us to think about what a US Treasury would
look like if it was treated and screened as a socially responsible investment,
or even more stringently, as a social impact investment, which frankly it should
be. This is what the war bond effort was about—putting your life savings behind
an investment in society, in a better world—so shouldn’t we expect government
expenditure to deliver better social and environmental outcomes if we are
funding it?
Let’s start an SRI lobby at Treasury and begin the dialogue.
