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RepRisk: The Ten Most Controversial Companies
of 2018. "The MCC 2018 Report shows how
major corporations from different sectors, including
airlines, utilities, and banks, had to mitigate
reputational and financial impacts resulting from
inadequate management of ESG risks. The wide spectrum of
ESG issues faced by these companies, and the ripple
effects of these issues on the sector as a whole,
stresses the global dynamics of ESG incidents."
[COMMENTARY] Interestingly,
most are in Asia. See the list on page 7 of the report.
RepRisk Special Report: Most Controversial Companies
2018, January 16, 2019, Switzerland.
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Why it makes sense to invest in companies
with a healthy gender balance. "A 2017
sustainable investing study from Swiss bank UBS found
that companies in the FTSE Developed World Index where
women made up at least 20 per cent of the board and
senior management had higher returns than their less
gender-diverse peers. In addition, firms that retained
more than half of their female managers through to
senior management had higher returns than those that
lost more than 50 per cent of their women in
management."
[COMMENTARY] So,
how is it that more women on boards improve corporate
profits? The full answer is still unclear. However, the
evidence showing that women on boards help improve
corporate profits is clear! Ethical investors have long
believed this to be true. Racial and ethnic diversity of
boards can also add to improved corporate profitability.
Why it makes sense to invest in companies with a healthy
gender balance, by Alice Haine, January 14, 2019,
The National, UAE.
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ESG screening boosts stock market
performance, research finds. "Amundi, which
manages more than €1.47tr worth of assets, looked at
investment data from 2010-2017 to analyse the
performance of 1,700 companies across five MSCI
investment index groups using ESG criteria... Overall,
the study found ESG screening does not impact all
stocks, but tends to impact the best-in-class and
worst-in-class assets."
[COMMENTARY] There
are some interesting twists in Amundi's findings. Read the
article. The link is below. As a result of their
research, Amundi has decided to use ESG analysis across
the board in the firm.
ESG screening boosts stock market performance, research
finds, by Michael Holder, January 14, 2019, Business
Green, UK.
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Fitch Ratings launches ESG Relevance Scores.
"The new ESG Relevance Scores, which have been
produced by Fitch's analytical teams, transparently and
consistently display both the relevance and materiality
of ESG elements to the rating decision. They are
sector-based and entity-specific."
[COMMENTARY] This
is an exciting development. What is also noteworthy is
that its ESG Relevance Scores will be in the public
domain. It'll be most interesting to compare their scores
with ESG ratings from firms like Sustainalytics and
MSCI. It seems the ratings will be available soon.
Fitch Ratings launches ESG Relevance Scores, staff,
January 8, 2019, Institutional Asset Manager, UK.
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Putting Faith In Investing.
"Whether it’s public or private, pooled fund or
individual portfolio, investors seemingly are opting to
trade more and more on faith. For faith-based advisors,
things should be looking up."
[COMMENTARY] This
article is a good overview of current faith-based
investing from a US standpoint. I've known the writer,
Tom Kostigen, for many years.
Putting Faith In Investing, by Tom Kostigen, January
2, 2019, Financial Advisor, USA.
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Clients more open to advice on ESG investing.
"According to Legg Mason’s Global Investment Survey,
advised investors are more than twice as likely to
choose companies or funds according to environmental,
social and governance (ESG) factors (50 per cent versus
18 per cent DIY investors).
The survey found that more than three-quarters of
advised investors said they would like to move money
into funds that take ESG considerations into account
when selecting securities.
Further, 54 per cent of investors said they avoid
businesses with controversial track records, and 89 per
cent of investors believe that fund managers should
actively 'police' companies they invest in to ensure
they are acting responsibly."
[COMMENTARY] Yes,
another study illustrating the importance of advisors in
promoting ESG investing to their clients. I wonder about
the number of fund managers actually 'policing' their
investments though!
Clients more open to advice on ESG investing, by
Adrian Flores, December 21, 2018, IFA, Australia.
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“Impact investment” funds advertise great
returns and social impacts. They aren’t delivering.
"When you do the math, impact investing seems worse
for the world and worse for your pocketbook than just
investing traditionally, earning higher returns, and
donating the difference. Impact investments are often
marketed as a cost-free way of doing good. But they’re
not cost-free, and under typical circumstances it
doesn’t look like they’re doing much good."
[COMMENTARY] The
arguments presented in this article are largely reliant
on a new
paper by John Halstead of Founder’s Pledge and Hauke
Hillebrandt at the Center for Global Development.
Judging by their degrees they're highly intelligent
people.
However, their thesis seems largely dependent on biased,
philosophical arguments with little or no empirical data
to support their views. In a few cases though, they do
make some useful observations such as sustainable
funds investing in tobacco and fossil fuel companies.
Such misrepresentation is unfortunately common and that's
why investors who really want investments to closely
resemble their personal values are better off with an
individual stock portfolio which can
easily be accomplished.
“Impact investment” funds advertise great returns and
social impacts. They aren’t delivering, by Kelsey
Piper, December 18, 2018, VOX, USA.
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3 Reasons ESG Investing Lags Behind Interest
[in ESG]. "'There are several factors at
play to help explain why financial advisors have not
wholeheartedly adopted ESG mutual funds and
exchange-traded funds (ETFs),' Brendan Powers, senior
analyst at Cerulli, said in a statement.
Survey respondents listed 1). a sense that ESG
strategies do not fit into client investment policy
statements (26 percent), 2). negative impact on
investment performance (24 percent) and 3). cost (19
percent) as the top reasons for the lack of uptake.
Another potential explanation? It might be an
instance of ‘old dog, new tricks.’"
[COMMENTARY] I
believe that last comment is among the more likely.
Furthermore, when scrutinized for their validity, the
three reasons advisors gave for not advocating ESG
investing are weak, at best, illustrating their
disinterest in really knowing their clients and
unwillingness to examine the performance of ESG
investing products!
Also,
another major factor is that most advisors are in the
latter phase of their careers with 36% (says Cerulli)
planning to retire in the next 10 years.
Rather than not being able to
teach an old dog new tricks, it's really that the old dog
doesn't want to learn new tricks.
3 Reasons ESG Investing Lags Behind Interest, by
Jessa Claeys, December 14, 2018, 401K Specialist, USA.
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The Year Wall Street Got Sustainable
Investing. "On October 23, 2018, the
Financial Times published an article stating that Larry
Fink, CEO of the world’s largest asset manager,
BlackRock, had announced that 'sustainable investing
will be a core component for how everyone invests in the
future.'
In my opinion, [Amy Domini] Mr. Fink’s statement
means that we early advocates have convinced the world
of the need for adding “people and the planet” into our
way of investing, and it means that the world’s most
conventional asset manager doesn’t need an academic
catch phrase to hide behind."
[COMMENTARY] Amy
is one of the 'greats' and early pioneers of socially
responsible investing. This article she just wrote is a
milestone in time concerning where we now stand.
The Year Wall Street Got Sustainable Investing, by
Amy Domini, December 14, 2018, TriplePundit, USA.
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ESG investing a recipe for disaster.
"The attempts being made to expand the fiduciary
obligations of pension fund trustees to incorporate ESG
and, as yet, ill-defined ‘sustainability’
responsibilities are flawed and dangerous to the extent
they weaken the obligation to maximise the financial
interests of members...
Empirical evidence to date, using data sets that are
publicly available, suggests G is a rewarded investment
factor but not when other common factors are already
included. ESG factors are likely to correlate with other
widely used factors, such as quality, thus adding
little, if any, reward. E and S, if anything, have been
shown to detract from returns. "
[COMMENTARY] A
provocative headline, but a comment of many fiduciary
fund managers. Much more research needs to be done
concerning the E, S, and G, individual factors on
influencing stock prices.
ESG investing a recipe for disaster, by Paul Bevin,
December 11, 2018, Top 1,000 Funds, Australia.
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Investors’ Search for ESG Risk & Value.
"A survey of institutional investors, coordinated by
Donnelley Financial Solutions (DFIN) and SimpleLogic
revealed a disconnect, between the ESG information
public companies are disclosing in their corporate
social responsibility reports, 10-K, proxy and other
public disclosure documents and what investors are
seeking as 'decision-useful' in assessing risk, as well
as the value of the company's sustainability strategy."
[COMMENTARY] This
is an old story. Nonetheless, progress is being made as
companies realize the potential positive impact on their
stock price by disclosing relevant
material and quantifiable corporate information.
Companies publishing ESG metrics often enjoy a stock
price premium relative to those companies that don't.
Investors’ Search for ESG Risk & Value, by DFIN,
September 10, 2018, Financial Executives International,
USA.
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Europe's Largest Insurers Move To Limit Coal
And CO2-Related Risks. "'We also stopped
insuring projects to build coal-fired power plants or
any operation for oil sands mining and associated
pipelines.--Thomas Buberly, chief executive of AXA.”
[COMMENTARY] The
Canadian and US governments have big pipeline projects
involving oil sands' products. Will this shift to
avoiding such insurances become the industry norm and
affect the development of these projects? Will it make
these projects even more expensive? Will governments
become the sole insurer of new oil pipelines? Investors
have to begin to ask these questions.
Europe's Largest Insurers Move To Limit Coal And
CO2-Related Risks, by Ken Silverstein, December 7,
2018, Forbes, USA.
-------------------------------------------------------------
Winners of 2018 IRRC Institute Research Award
Examine Pressing, Big Picture Investor Issues.
"An academic research paper examining the corporate
stewardship of index fund managers and a practitioner
paper looking at how to measure the amount of
sustainable investing in equity portfolios are the
winners of the 2018 Investor Responsibility Research
Center Institute (IRRCi) annual investor research
competition. Each winning research team will share a
$10,000 award."
[COMMENTARY] The
IRRC Institute awards are among a few prized awards in
the sustainable-ethical investment research space.
The two winning papers are:
1)
Index Funds and the Future of Corporate Governance:
Theory, Evidence and Policy, is co-authored by
Lucian Bebchuk, James Barr Ames Professor of Law,
Economics, and Finance, and Director of the Program on
Corporate Governance, Harvard Law School and Scott
Hirst, Associate Professor, Boston University School of
Law and Research Director, Program on Institutional
Investors, Harvard Law School. And,
2)
Are Sustainability Factors Associated with Stock Price
Informativeness? This research is authored by
Zabihollah Rezaee, Professor, School of Accountancy,
University of Memphis and Anthony C. Ng, Deakin
University, Australia.
Winners of 2018 IRRC Institute Research Award Examine
Pressing, Big Picture Investor Issues, press
release, December 6, 2018, IRRC Institute, USA.
-------------------------------------------------------------
Lies, damned lies and ESG rating
methodologies. "CLSA picks out one company
which is a really good example — yes, it's our old
friend Tesla. According to CLSA, as of 17 September FTSE
rated Tesla last for global auto ESG. MSCI, meanwhile,
rated it best. In Sustainalytics' rankings, it fell
around the middle of the pack."
[COMMENTARY] So,
thinking about Tesla's ESG ratings makes one wonder what
to believe. It is important for investors to understand
the methodologies (where possible) of the ESG ratings'
agencies before deciding to use them.
Clearly, if you feel that the ratings' agencies 'values
systems' don't represent you, consider taking my
Tutorial: Creating A Profitable Personal Values-Based
Portfolio. In that tutorial, I show you how to find, research, and evaluate stocks,
mutual funds, and ETFs according to your personal
values.
Lies, damned lies and ESG rating methodologies, by
Kate Allen, December 6, 2018,
FT Alphaville, UK.
-------------------------------------------------------------
The 2018 [Canadian] RIA Investor Opinion
Survey. "Based on an Ipsos poll of 800
individual investors in Canada, found that 80% of
respondents are concerned about climate change and the
environment. It also found most investors view climate
change as a financial issue: 70% of respondents believe
climate change will have negative financial impacts on
companies in some industries within the next five years,
and 79% believe this to be true within twenty years...
66% of respondents said they would like a portion
of their portfolio to be invested in companies that are
providing solutions to climate change and other
environmental challenges."
[COMMENTARY] The
survey this year appears to be focused on Canadian
investor attitudes concerning their investing around
climate change. Also, it illustrates how worries about
climate change have induced large numbers of investors
to think about sustainable-ethical investing.
However, the bottleneck for many of them acting on their
beliefs (see below) are their advisors.
The 2018 [Canadian] RIA Investor Opinion Survey,
press release, December 6, 2018, RIA Canada, Canada.
-------------------------------------------------------------
Why Are Advisors Reluctant to Hop on the ESG
Train? "Some reasons found in a recent
survey by financial consultant Practical Perspectives
include lack of interest by clients, lack of training
and education, or lack of a compelling reason to use ESG
products. One advisor called it “a fad.”
[COMMENTARY] Several
things remain unsaid here. They include: advisors'
compensation is often tied to particular products;
advisors aren't interested and don't want to know
client's personal values (it gets too messy), and
advisors' general unwillingness to look at something
new. Let me know if you're aware of other reasons or
believe my views are faulty. Nonetheless, this
article/survey is important reading for all advisors!
Why Are Advisors Reluctant to Hop on the ESG Train?
By Ginger Szala, December 4, 2018, ThinkAdvisor, USA.
-------------------------------------------------------------
Companies must address ESG issues to be
deemed trustworthy by investors — Edelman survey.
"Results of the second annual
Edelman Trust Barometer Special Report: Institutional
Investors show that 89% of investors have changed
their voting and/or engagement policy to be more
attentive to ESG practices, with 63% reporting that this
change has taken place in the past year."
[COMMENTARY] Edelman
is renowned for the quality of its surveys. This
data, together with the comments of Larry Fink of
Blackrock, the world's largest asset manager, clearly
illustrate that ESG criteria are frontline concerns for
assets managers today. We've come a long way!
Companies must address ESG issues to be deemed
trustworthy by investors — Edelman survey, by James
Comtois, November 30, 2018, Pensions & Investments, USA.
-------------------------------------------------------------
Education ‘main barrier’ to engaging in
responsible investing. "The survey [by
First State Investments and research firm Kepler
Cheuvreux], which assessed the attitudes of more than
400 millennials globally about SRI, found that while
more than four in five (81%) would be interested in
investing in socially responsible or sustainable
investment products, a similar proportion (82%) believe
more education is needed to drive interest in SRI.
Almost half (49%) of those surveyed currently have
investments, but despite the apparent interest in
responsible investing, just 9% currently invest in a
fund focused on sustainability issues."
[COMMENTARY] Several
things stand out from this survey. The first is that
most millennials aren't, yet, investing in SRI, or
even investing generally. Secondly, they know little
about SRI. Thirdly, the majority prefer
"digitisation, including digital investment platforms
and live chat functions" as a means by which to
invest.
Also, being an online questionnaire might induce a bias
to the results. Furthermore, for many parts of
the world, SRI is virtually unknown with few products to
invest in. The referenced study, published
here, does not provide a geographic breakdown.
It's clear that millennials are still a largely
untapped market for SRI/ESG/ethical investment products.
Education ‘main barrier’ to engaging in responsible
investing, by Robbie Lawther, November 29, 2018,
International Advisor, UK.
-------------------------------------------------------------
OECD, UN Environment and World Bank call for
a radical shift in financing for a low-carbon,
climate-resilient future. "Delivering a new
report, Financing Climate Futures: Rethinking
Infrastructure, to the G20 at its Summit in Buenos
Aires, the three International Organisations said
governments need to adopt a more transformative agenda
on low-carbon, climate-resilient investments if they are
to meet the Paris Agreement goal of cutting CO2
emissions to net zero in the second half of the century
and build resilience to climate change."
[COMMENTARY] I
agree with the above call. However, even though most
people believe that human activities are heating the
planet and massive weather-related costs will be
incurred, they reluctant to presently pay for it.
Perhaps a few more climate disasters close to home will
convince taxpayers that incentives to create new low
carbon industries and consumption are truly timely.
OECD, UN Environment and World Bank call for a radical
shift in financing for a low-carbon, climate-resilient
future, press release, November 29, 2018, UN
Environment Programme.
-------------------------------------------------------------
Lack of international standards holding back
ESG investing, finds BNY Mellon study.
"Non-financial performance measurement and a lack of
international standards have been identified as the
biggest hurdle for environmental, social and governance
(ESG) investing."
[COMMENTARY] BNY
Mellon have hit on an old and familiar theme with their
study. However, as addressed in their findings, there's
a great deal of work by regulators and others behind the
scenes attempting to remedy the situation. I believe in
future years we'll see such remedies.
Lack of international standards holding back ESG
investing, finds BNY Mellon study, by Joe Parsons,
November 22, 2018, Global Custodian, UK.
-------------------------------------------------------------
Companies Leading on Disability Inclusion
Outperform Peers. "Accenture, in
partnership with Disability:IN and the American
Association of People with Disabilities (AAPD), has
released 'Getting to Equal: The Disability Inclusion
Advantage.' This report looks at both the disability
practices and financial performance of 140 companies
over the past four years... Companies that 'embrace best
practices for employing and supporting more people with
disabilities in their workforces' are several times more
likely to outperform their peers financially."
[COMMENTARY] This
is a pioneering and worthy study. It might also be true
that employees with disabilities feel they have to prove
themselves and so are more productive. Hence,
forward-looking companies know this and so increasingly
employ individuals with disabilities? Thus, such
employment is not out of charity.
Companies Leading on Disability Inclusion Outperform
Peers, by Megan Amrich, November 20, 2018,
TriplePundit, USA.
-------------------------------------------------------------
Are ESG Ratings the New Credit Rating for
Stock Prices? "A new MSCI study of ESG
ratings finds they have a similar impact on share prices
as do credit ratings."
[COMMENTARY] Though
to me the findings are unsurprising, this is the first
study to demonstrate that ESG ratings have a similar
impact to credit ratings on a company's stock price.
This finding will no doubt be challenged, but comes at a
time when investors everywhere are looking at the
inclusion of ESG criteria in their investment research.
It bodes well for the mainstreaming of ESG!
Are ESG Ratings the New Credit Rating for Stock Prices?
By Ginger Szala, November 19, 2018, ThinkAdvisor, USA.
-------------------------------------------------------------
From upstream to mainstream: ESG at a tipping
point. "In a year's time, the percentage of
Millennials expressing a high level of interest in ESG
investing jumped from 26% to 35%, advisers say, while
the percentage of Gen Xers embracing ESG spiked from 16%
to 25%. This is more than a generational story,
however... Twenty-six percent of ultra-high-net-worth
investors now show a high level of interest in ESG
investing, advisers say, up from only 10% in 2017.
Similarly, interest among very-high net worth investors
shot from 13% to 19% in a year's time."
[COMMENTARY] These
results are from a US survey of 300 advisors. The jump
in numbers over just one-year is impressive. Somewhat
interesting is that its regular advisors reporting the
rapid growth. Calvert was involved too.
From upstream to mainstream: ESG at a tipping point,
November 15, 2018, by IN Research and Calvert,
Investment News, USA.
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Green finance: a contrarian take.
"Renaissance’s argument thereafter is that, even if
emerging markets have far lower ESG scores, directing
capital their way allows for the highest overall rate of
improvement, and so the greatest ethical utility. This
is, unsurprisingly, an argument for more investment in
EM."
[COMMENTARY] The
argument presented here is like the idea of investing in
companies who are just beginning to engage in ESG
seriously to take advantage of their possible rapid
stock price as they're identified as a potential 'high'
ESG company. It's recognized by many investors that high
ESG scoring companies also now have a premium to their
stock prices.
Green finance: a contrarian take, by Thomas Hale,
November 15, 2018, FT Advisor, UK.
-------------------------------------------------------------
S&P 500 Firms Expand Sustainability Data in
Financial Filings, But Slow to Adopt Fully Integrated
Reporting. "78 percent of S&P 500 companies
issue a sustainability report... Among companies that
issue sustainability reports, 95 percent offer
quantified, annually comparable environmental
performance metrics; two-thirds set quantified and
time-bound environmental goals. Some 86 percent offer
social performance metrics, but only 40 percent set
quantified social goals."
[COMMENTARY] Many
companies may not acknowledge climate change, but they
know that demonstrating an interest in it and providing
some metrics is good for their stock prices. There's
still the issue that most companies issuing
sustainability reports don't have that data
independently verified and audited. That being said,
we're seeing great progress in such reporting!
S&P 500 Firms Expand Sustainability Data in Financial
Filings, But Slow to Adopt Fully Integrated Reporting,
press release, November 14, 2018, IRRC Institute, USA.
-------------------------------------------------------------
Research Links Financial and Corporate
Sustainability (ESG) Performance. "Based on
642 North American sustainability reports for the 2017
reporting period, CSE created a unique analysis
framework. It identifies correlations between
Sustainability (ESG) performance and Financial results."
[COMMENTARY] The
press release gives little information on their
findings. However, you can
download for free the report by providing your
contact information. What quickly stood out for me in
the report is the abysmal use of external auditors for
ESG data in GRI reports.
Research Links Financial and Corporate Sustainability
(ESG) Performance, press release, November 6, 2018,
Center for Sustainability and Excellence, USA.
-------------------------------------------------------------
Clean finance needs to include traditionally
‘dirty’ industries. "We need mechanisms
that finance climate-friendly projects, not only for
solar panels and transit tracks, but also for a massive
transition in carbon-intensive industries. The federal
[Canadian] government’s expert panel on sustainable
finance shares that view, and in October endorsed
“transition-linked financial products” to help channel
green investment to high-emitting industries."
[COMMENTARY] The
transition to a zero carbon future must include ways in
which carbon-intensive industries can finance their
transition to becoming 'greener.' With carbon-intensive
industries forming so much of the Canadian economy, it's
timely and necessary that Canada is a leader in this
endeavour. This is a very promising development.
Congratulations to all those involved.
Clean finance needs to include traditionally ‘dirty’
industries, by Toby Heaps and Annette Verschuren,
November 4, 2018, The Globe and Mail, Canada.
-------------------------------------------------------------
Big data, ESG ratings help find alpha.
"This has fundamental implications for how chief
sustainability officers and business leaders work with
the broader ecosystem. The higher price of corporate
sustainability poses a challenge for ESG investors: they
need to ask if they are getting good value for money. It
is not only a matter of the value of corporate
sustainability anymore, it is also a function of the
price you are paying for it. Value for price is key."
[COMMENTARY] Harvard
Business School professor George Serafeim continues his
outstanding research on ESG investing. As we see in the
above quote, in his latest paper,
"Public sentiment and the price of corporate
sustainability,” Professor Serafeim shows that the
stock prices of companies with higher ESG scores
frequently trade at premium
prices--and therefore ESG-ethically oriented investors
need to tread carefully to obtain alpha.
Big data, ESG ratings help find alpha, by George
Serafeim, November 2, 2018, Top 1000 Funds, USA.
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