Banking on Freedom

LAST JUNE, COLUMBIA UNIVERSITY sold all of its shares in the Corrections Corporation of America, the largest private prison corporation in the country, and in G4S, the world’s largest private security firm. In doing so, Columbia became the first U.S. university to completely divest from the $74 billion prison industry.

Though the total amount Columbia divested, roughly $10 million, was not a major financial loss for either company, it was an important win for the students who had been pressuring the university to divest since 2013. “We work in the context of a bigger movement that seeks to break down the notion that prisons and police can solve our problems,” said Asha Rosa, a student organizer with Columbia Prison Divest, part of Students Against Mass Incarceration at the university. “We aim to create a world where people understand that investing in something like a prison is a socially toxic investment.”

Other universities and nonprofits followed suit: In December 2015, the California Endowment—a private, statewide foundation that focuses on health and justice for all Californians—announced it will no longer make direct investments in companies profiting from for-profit prisons, jails, and detention centers. A few weeks later, the University of California divested $25 million. And similar student-led divestment campaigns are underway at universities around the country, including UC Berkeley, Brown, Cornell, and the City University of New York.

For many organizations, the decision to divest from the prison industry is rooted in the organization’s own mission. Divesting is about not wanting to invest “in anything that hurts the people we are trying to support,” explained Maria Jobin-Leeds, a board member of the Schott Foundation and the Access Strategies Fund, two foundations committed to improving the lives of underserved communities, including communities of color. And given the disproportionate impact that mass incarceration has on people of color—in a 2015 speech, President Obama cited a “growing body of research” that shows people of color are more likely than whites to be arrested and more likely to be sentenced for similar crimes—both foundations decided to divest. “Companies that profit from prisons make money off the poorest and are supported by a deeply racist system,” said Jobin-Leeds. “We do not want to make money off this system.”

Profiteers and private prisons

But despite this conviction that divesting was the right move, Jobin-Leeds and her fellow board members realized it wasn’t easy to determine which investments were connected to the prison industry. One reason this was difficult was because of the overall lack of transparency within the prison industry. So while an investor could reasonably deduce that the Corrections Corporation of America manages prisons, she wouldn’t necessarily know that the CCA—like many private prison management companies—has a financial incentive to keep more people in prisons. Which it does: According to a 2013 report, 65 percent of private prison contracts with state prisons regularly stipulate occupancy quotas requiring the state to make payments for empty cells—a de-facto “low-crime tax.”

That investor also wouldn’t know that these private companies have engaged in extensive lobbying to secure prison contracts and ensure a steady stream of prisoners. “They have put pressure on legislators to change what is criminalized and escalate what constitutes a crime,” explained Sonia Kowal, president of Zevin Asset Management, a socially responsible investment management firm. “Violations that used to be a misdemeanor are now considered felonies.”

Another problem is that the link between investments and prisons isn’t always so obvious. Investments in companies that profit from private prisons are often embedded in 401(k) retirement plans held in mutual funds offered by mainstream firms such as Fidelity and Schwab—and most investors don’t know the specific companies included in each of these funds.

For instance, an investor might know that his money was invested through a Wells Fargo financial service company, but that investor wouldn’t know that Wells Fargo has steadily increased its stake in CCA. “I don’t think a lot of people have any idea of what their money is supporting,” said Hassan Latif, founder of the Second Chance Center, a community organization that supports the reintegration of the formerly incarcerated in Denver. “If people actually knew, they might personally insist that their financial advisers help them divest.”

Which is exactly what Jobin-Leeds’ foundations decided to do. Both foundations began by identifying the top five companies that profit from the private prison system, including CCA, G4S, Providence Services Corporation, Sodexo SA, and GEO Group Inc. The foundations then instructed their investment advisers to investigate whether any of these five companies were included in the stocks, mutual funds, and bonds that comprised each foundation’s portfolios—a process that required investment advisers to call the manager of every fund within the organization’s portfolio.

It’s a long process, and both foundations are still in the screening stage. “These requests are time consuming, and we know that we are not an easy client,” said Jobin-Leeds, “but the more phone calls fund managers receive, the less inclined they will be to invest in these companies.”

More felons = more “clients" (and more profit)

These related problems—the prison industrial complex and the difficulty of determining what investments were connected to it—were recently tackled by people who aren’t typically thought of as economic activists: Quakers.

Though Quakers are best known for their conscientious objection to war and commitment to nonviolence, this Christian denomination has been involved in prison reform since the 1680s, when famed Quaker William Penn abolished the death penalty for all crimes except murder and emphasized that prisons should be places of rehabilitation and job training.

Today, the Quakers continue their work on prison reform through the American Friends Service Committee, a peace and justice organization focused on broad prison reforms along with immigrant rights, ending discrimination, and reallocating military spending and corporate tax breaks toward education, affordable housing, and other essential services. AFSC also has a long commitment to economic activism linked to civil rights, the anti-apartheid movement, farm worker justice, nuclear disarmament, Israeli occupation of Palestine, and anti-militarism.

So when AFSC realized it was extremely difficult for responsible investors to figure out whether their money was invested in companies that profit from the U.S. prison system, they decided to take action. In November 2015, at the 26th annual Conference on Sustainable, Responsible Impact Investing—one of the largest gatherings of money managers, investment firms, and social activists in the U.S.—AFSC unveiled a free online investment screening tool that allows users to identify whether companies in their investment portfolios are directly complicit in severe violations of human rights and international law. Users can visit the site, identify whether they want to scan for investments related to Israeli occupation or private prisons, then enter a list of investment holdings and press “scan.” The tool will automatically compare the listed investments to its database and produce a report of all the companies on the list that are involved in profiteering from private prisons. In other words, the tool makes it a lot easier to identify investments that are connected to the prison industry.

One of the main goals of the tool is to raise consumer awareness, explained Dalit Baum, AFSC’s director of economic activism. And when that awareness is coupled with consumer activism, Baum believes companies will be forced to change their practices. “We think that all of these companies should be confronted publicly with dedicated campaigns that expose their complicity to the prison industry,” she explained.

As an example of this complicity, Baum cited 3M, a company most folks associate with “Scotch tape and Post-It notes.” But unbeknownst to most consumers—and investors—3M’s second highest earning division is the “Safety and Graphics Business Segment,” which provides high-tech security and surveillance products for law enforcement and correctional facilities. 3M and its subsidiaries hold numerous contracts with federal, state, and municipal prison systems. In an age of mass incarceration, for-profit companies such as 3M have a vested interest in keeping ex-felons under tight surveillance; after all, more ex-felons imply more “clients”—and more profit. “This is in direct conflict to our social goal of getting people back to their families and reintegrated into their communities,” explained Baum.

And this perverse business logic extends beyond prison walls. According to a 2013 Human Rights Watch report, Profiteering from Probation, every year U.S. courts sentence several hundred thousand people to probation and place them under the supervision of for-profit companies. Courts then require probationers to pay these companies probation fees and whatever fines they owe the courts. According to the Bureau of Justice Statistics, at the end of 2014 there were roughly 4.7 million adults under community supervision—approximately one in 52 adults. Private firms such as Sentinel Offender Services and Judicial Correction Services collect fees from probationers they supervise while courts make probationers’ freedom contingent on paying those fees. The lack of government oversight means that the poorest people ultimately pay the most in fees and live with the constant threat of possible incarceration.

Baum’s ultimate goal for 3M—and all the other companies that profit from mass incarceration—is clear: “We must convince them to drop their electronic monitoring business and to be more transparent,” she explained. And to that end, she hopes AFSC’s new tool will be helpful, especially in letting shareholders know what their money is supporting.

‘For us it’s a human rights issue’

For faith-based investors, socially responsible and “impact” investing—in other words, investments made with the intention to generate a social or environmental impact alongside a financial return—has been a way to align their investment strategies with their values. And historically, faith-based investors have been eager to avoid investing in weapons production, pornography, tobacco, or alcohol industries. But companies that own or manage prisons are often connected to military industries and are increasingly on the radar screen of faith-based investors.

“We have been concerned about private prisons for a while,” said Mark A. Regier, vice president of stewardship investing for Praxis Mutual Funds, an SRI fund offered by Everence, a leading provider of faith-based financial products in the United States and a ministry of Mennonite Church USA. “It has been our policy to monitor the military, contracting, and weapons industries; thus many companies involved in prisons are automatically excluded from our portfolios.” Though Regier prefers to use the notion of stewardship over divestment, he said private prisons are risky. “We don’t think that running prisons as for-profit enterprises aligns the right incentives and the right responsibilities with the right people. For us it is a human rights issue more than a political statement.”

In a 2012 press statement, the United Methodist Church’s General Board said that “investment will not knowingly be made in any company/corporation in which 10 percent or more of gross revenue is derived from the management or operation of federal, state, county, or municipal correctional facilities.” According to David H. Zellner, chief investment officer at Westpath Investment Management, the total market value of the shares sold at the end of 2011 was less than $1 million and, given the small amount of proceeds made, they did not need a specific reinvestment plan.

Investing in success

Just as investing in renewable forms of energy is an alternative to investing in fossil fuels, those who want to divest from prisons can support businesses that hire or are co-owned by formerly incarcerated people, such as the Wellspring Cooperative, an upholstery company based in Massachusetts. This is what Access Strategies Fund has done as per board member Jobin-Leeds’ advice. “We invest in this company and we expect a return in the next three to five years,” said Jobin-Leeds. “Although the return may not be high, 2 to 3 percent over a five-year cycle, this investment is more in line with our mission.”

Investments in these types of business can be made through community banks or microfinance initiatives. There are also publicly traded companies that hire formerly incarcerated people, but this is rarely publicized. “Ex-felons face a negative perception issue when they seek to reintegrate into society,” said Greg Peterson of Zevin Asset Management. “Yet a job is their greatest hope for successful re-entry, building a dignified life, and giving back to society.”

“Investment in empowering formerly incarcerated men and women for successful re-entry reduces public expenditures, makes family healing possible, and creates paths for transforming the formerly incarcerated into contributing citizens,” said Latif of the Second Chance Center. “Successful re-entry after incarceration can be positive for both the individual and society. It means one less prisoner to house and feed, one more person making their own way in society, and one more citizen pursuing the common good.”