by Geeta Aiyer, President & Founder, Boston Common Asset Management & Matthew Patsky, CEO Trillium Asset Management
Originally published in Boston Business Journal
Despite struggling with deep-seated racial tensions locally, in 1984 Boston passed legislation prohibiting the city’s investment in companies doing business with South Africa’s apartheid state. More than three decades later, social-justice advocates are once again hoping to use divestment to address racial injustice, this time occurring right here in the U.S.
Late last year, Boston activists and investors announced a divestment campaign targeting the city’s investments in companies profiting from the nation’s mass incarceration crisis. The Boston City Council held a hearing on the issue earlier this year. The hearing, held on Feb. 28, represents a meaningful first step towards Boston’s divestment from companies that expose pensioners to financial risks and oppose the city’s values.
In reviewing Boston’s portfolio, advocates have found clear investments in the prison industrial complex, a term used to describe the wide spectrum of parties commercially interested in mass incarceration and surveillance. Financially incentivized to expand the number of people incarcerated, these parties purchase political influence to maintain or expand the reach of the criminal legal system. Among the most notorious of these are private prison operators CoreCivic and the GEO Group — two of the seven corporate targets of the campaign. The others include security giant G4S, prison telecom providers GTL and Securus, and prison commissary companies Keefe and Trinity Services Group.
The financial bottom lines of these target companies necessitate the incarceration, and, in turn, the exploitation of primarily low income and minority communities — those disproportionately targeted by the criminal legal system. It is for this reason that the Socially Responsible Investing (SRI) community do not invest in such companies and have recently joined the citywide prison divestment campaign in Boston.
As part of that community, we are optimistic about the divestment initiative in Boston.
Historically, Massachusetts has entirely avoided the use of private prisons. In the 1980s, the state eradicated the exploitative bail-bonds industry, something many states continue to struggle with ending. Just last year, Massachusetts passed expansive criminal-justice reform legislation. These are all positive signs that Boston, and Massachusetts more broadly, understands and wants to challenge the corrupt nature of for-profit incarceration.
In 2017, Boston announced its status as a sanctuary city for undocumented immigrants. Private prisons and other for-profit prison-service providers are heavily engaged in the immigration injustices transpiring at our Southern border and throughout the country thanks to ICE raids. More than 70 percent of immigrants in ICE custody are held in privately operated prisons, also known as detention centers. ICE contracts amount to nearly 25 percent of private prison revenues. Any investment in these companies conflicts with our intentions as a sanctuary city by profiting from the confinement of undocumented immigrants in other parts of our country.
For those who remain unmoved by ethical arguments, these companies also pose a substantial financial risk.
For example, with a highly concentrated consumer base, nearly 50 percent of which is tied to two federal contracts, the success of private prison operators is dependent on the volatile legislative policies and political stances of nationally elected officials. This was clearly exemplified by the shifts in national politics over just the past four years. In 2016, the Obama administration announced that it would phase out private prisons due to a Department of Justice report that concluded private prisons have higher rates of assaults, uses of force, and lockdowns than publicly operated prisons. On the day of the announcement, CoreCivic’s stock plummeted 48.6 percent and the GEO Group’s dropped 42.7 percent.
The loss of a major customer was only one reason for the stock hits. The report’s findings established conclusively that private prisons present significant safety and security deficiencies. As a result, these companies are frequently faced with lawsuits that lead to costly payouts, diminished residual profitability, and a damaged public reputation. New York City and Philadelphia, who divested from private prisons over the last few years, cited such financial risks as their primary motive for divestment.
Opponents of divestment often cite the presence of these companies in widely held indices, but these arguments lack substance. Only five major indices include CoreCivic or the GEO Group, and they comprise no more than 1.6 percent of each. The other target companies are privately held, and thus, not traded in the public market. As investment professionals who have long been excluding these problematic assets from our clients’ portfolios, we view divestment as a strategic risk management tool that protects market-rate returns.
In the lead up to the collapse of South Africa’s apartheid, Boston exceeded New York City and Philadelphia’s initiative by enacting an ordinance with the most far-reaching divestment provisions of that time, causing Massachusetts to become the first state to divest from South Africa. The spirited and passionate citizens of Boston now have another opportunity to divest from racial injustice and xenophobic harm, reinvest in the values they hold, and lead the country once again.
Geeta Aiyer is president and founder of Boston Common Asset Management, and Matthew Patsky is the CEO of Trillium Asset Management in Boston.