Why FAs Are Still Reluctant to Jump on
ESG Bandwagon. "Asset managers and
major brokerages think there’s big money to be made
shilling these funds to advisors, with the likes of
BlackRock, Bank of America and UBS highlighting the
growing acceptance and mainstream popularity of SRI
and 'impact investing' strategies. But many advisors
don’t seem to be biting. A survey of advisors from
the Financial Times’ list of top RIAs last year
showed just 4% of firms were focused on SRI
Advisors in this piece argue there's little demand
by clients for SRI products. However, I wonder if
they even ask their clients about potential interest
in SRI/ESG investing? In most investor-advisor
surveys the advisors fail to ask that question.
Why FAs Are Still Reluctant to Jump on ESG
Bandwagon, by Murray Coleman, August 16, 2017,
Financial Advisor, USA.
The Carbon Clean 200 2017 Q3 Update is
now available. "A growing movement of
investors representing more than $5.2tn in assets
under management have signed a pledge to divest some
portion of their fossil fuel holdings. But where to
invest this capital?
The Clean200 list ranks the largest publicly
listed companies by their total clean energy
revenues, with environmental, social, and governance
screens to help ensure the companies are indeed
building the infrastructure and services needed for
the 'Great Energy Transition' in a just and
equitable way. Notably, this new report highlights
the fact that clean energy investments greatly
outperform stagnating fossil fuel stocks."
The Clean 200 is an important listing for ethical
investors of the leading carbon clean
companies globally. Perhaps one of the most
surprising findings is that China leads with 68
companies, double that of the USA!
Click here for
The Carbon Clean 200 2017 Q3 Update, August 15,
2017, Corporate Knights/AS YOU SOW.
Millennials are driving a $9 trillion
change in investing. "Millennials are
driving the nearly $9 trillion sustainable investing
market, according to a survey of 1,000 investors by
Morgan Stanley's Institute for Sustainable
Morgan Stanley's research confirms the results of
other surveys. (And still, too many advisors and
brokers aren't aware of this.)
Millennials are driving a $9 trillion change in
investing, by Frank Chaparro, August 10, 2017,
Business Insider, USA.
20 Undervalued, Sustainable Stocks --
Morningstar. "We screened the
Morningstar US Sustainability Index to find some
undervalued stocks that score well on ESG metrics.
Sustainability assessments are provided to
Morningstar by researcher Sustainalytics (of which
Morningstar has a 40% ownership stake)."
I'm delighted to see that Morningstar is starting to
freely share some of the individual Sustainalytics
stock ratings. This is good news for all investors
who don't have access to Sustainalytics individual
stock ratings' services.
20 Undervalued, Sustainable Stocks -- Morningstar,
by Karen Wallace, August 9, 2017, Morningstar, USA.
The race to embrace ESG ratings.
"Major investment firms are snapping up
environmental, social and governance (ESG) ratings
companies at a rapid clip — three hookups within
just the past year."
It's to be expected that many of the rising ESG
raters would be acquired by somewhat related and
established firms. It demonstrates ESG's
coming-of-age. Is it good or bad for investors? Only
in five, ten, or more years will we know.
The race to embrace ESG ratings, by Anya
Khalamayzer, August 10, 2017, GreenBiz, USA.
More Evidence of Solid Performance From
Sustainable Funds. "Investors in funds
that incorporate environmental, social, and
governance factors into their process appear not to
suffer a performance penalty."
Morningstar's Jon Hale has another insightful post
reviewing the recent performance of ESG funds. And
he says these funds continue to demonstrate good
More Evidence of Solid Performance From Sustainable
Funds, Jon Hale, August 3, 2017, Morningstar,
New study suggests
screening for SRI costs 4.8% annually in stock
performance. Is this an outlier?
"Using a sample of 1000 firms from the U.S., Europe,
and Asia, between 2005 and 2014, we find evidence
for the taste effect [for SRI] and estimate the
associated under performance at 4.8% annually. Our
results are robust against different model
specifications and test assets."
This study reminds me of one or two others that also
show that screening for SRI/CSR delivers poor
relative stock performance. My concern with these
few studies is how they define SRI/CSR. Studies
looking at ESG -- as distinct from SRI/CSR -- almost
universally indicate positive or outperformance in
regards to stock or portfolio performance. It'll be
good for the academics to have a public debate on
The Price of Taste for Socially Responsible
Investment, by Rocco Ciciretti University of
Rome II, Ambrogio Dalo University of Rome, and
Lammertjan Dam University of Groningen, CEIS Working
Paper No. 413, July 2017, Italy.
Integrated Reporting: The South African
Experience. "Few countries can claim
that integrated reporting (IR) is common among
domestic companies. An exception is South Africa,
with many listed and public organizations having
produced integrated reports for over six years. The
emergence of IR as the dominant form of corporate
reporting in South Africa has produced a significant
number of internal and external benefits for the
companies that have adopted it."
I've been observing and writing about the development of ESG and IR in
for some time.(See
Ethical Investing Shines in Africa As Economy Grows,
June 18, 2010.)
This CPA Journal article
illustrates the benefits of IR to companies and
investors. Hopefully, South Africa's beneficial
experience with IR will hasten its adoption
Integrated Reporting: The South African Experience,
by Leigh Georgia Roberts, July 2017, The CPA
Current State of Assurance on
Sustainability Reports. "Corporate
sustainability reporting is becoming more widespread
with each passing year, and with that growth comes
the need for companies to back up their
sustainability claims. The author surveyed
sustainability assurance reports from 2013, and the
subsequent analysis provides advice for
professionals and users.
63% of the world’s 250 largest companies by
revenue get their sustainability reports assured,
and 70% of those choose a major accounting firm to
do so (KPMG Survey of Corporate Responsibility
It's good to see so many companies getting their
sustainability reports assured. Hopefully,
sustainable reporting assurance will become
universal in the not-so-distant future. However, in
the current deregulatory environment, this might be
a challenge. Nonetheless, companies
wanting to see their stock outperform will
need to satisfy the rapidly growing and large ESG
Current State of Assurance on Sustainability
Reports, by Sunita Rao, July 2017, The CPA
Passive managers are increasingly
interested in ESG. "Passive managers
are no longer treating stewardship responsibilities
as a ‘box-ticking’ exercise, but are actively
looking to influence investee companies and help
improve environmental, social and governance (ESG)
standards across the board. They vote and engage
directly with firms on prominent issues such as
executive pay, board diversity and climate change."
Many investment industry professionals have been
concerned about the effects of passive funds on the
health of stock markets. In particular, their
indiscriminate buying stocks -- whether a stock is
'good or bad.' Incorporating ESG in defining a
passive fund goes some way in resolving this
Passive managers are increasingly interested in ESG,
by Passive managers are increasingly interested in
ESG Hortense Bioy, July 24, 2017, FT Advisor, UK.
Are Sustainability Rankings Consistent
Across Ratings Agencies? "As more and
more companies begin to devote serious attention to
sustainability reporting, many different systems of
rating the depth and effectiveness of sustainability
efforts have arisen. The authors compare three
leading sustainability rankings, examining their
methodologies and results. Unfortunately, a lack of
consistency and transparency from these rating
agencies currently exists, impeding greater
efficiency in the capital markets."
The studies findings will not surprise most ethical
investors. Nonetheless, it's good to see such
academic support for what we know.
Are Sustainability Rankings Consistent Across
Ratings Agencies? By Beixin (Betsy) Lin, PhD,
Silvia Romero, PhD, Agatha E. Jeffers, PhD, CPA,
Laurence DeGaetano, CPA and Frank Aquilino, CPA,
July 2017, The CPA Journal, USA.
Morningstar, MMI Launch Sustainable
Investing Initiative. "The Money
Management Institute (MMI) announced today a joint
initiative with Morningstar called The
MMI/Morningstar Sustainable Investing Initiative,
aimed at educating advisors about sustainable
investing and how to better incorporate it into
Most financial advisors need some training in ESG
related investing. This is one of many initiatives
now happening globally. Well done Morningstar and
Morningstar, MMI Launch Sustainable Investing
Initiative, by David H. Lenok, July 17, 2017,
Green not the only colour for ethical
bond investors. "The green bond market
has boomed in the past decade but now a host of
other financial products have begun to emerge,
promising to tackle social issues including
homelessness, access to education, clean water,
crime prevention and helping disadvantaged
A good review of the
market and growth of social bonds. This will
interest many ethical investors.
Green not the only colour for ethical bond
investors, by Kate Allen, July 17, 2017,
Financial Times, UK.
Transition risk for oil & gas in a low
carbon world. "This new analysis
provides a way of understanding whether the supply
options of the largest publicly traded oil and gas
producers are aligned with demand levels consistent
with a 2 degree Celsius (2D) carbon budget. By
allocating the carbon budget to potential oil and
gas projects, through applying the economic logic of
a carbon supply cost curve, it is possible to
identify which companies have the highest exposure
to potential capital expenditure (capex) to 2025.
This report provides a snapshot of the
potentially unneeded capex spend for 69 global oil
and gas companies – highlighting for the first time,
the wide-ranging degree of exposure amongst
companies in the sector."
This is an important report for investors! The above
quotes provide the explanation of what's in it. Well
done Carbon Tracker and PRI!
risk for oil & gas in a low carbon world, press
release, July 2017, UK.
ESG Reports and Ratings: What They Are,
Why They Matter. "Report and ratings
methodology, scope and coverage, however, vary
greatly among providers. Many providers encourage
input and engagement with their subject companies to
improve or sometimes correct data. Third party ESG
report and ratings providers include: (i) Bloomberg
ESG Data Service; (ii) Corporate Knights Global 100;
(iii) DowJones Sustainability Index (DJSI); (iv)
MSCI ESG Research; (v) RepRisk; (vi) Sustainalytics
Company ESG Reports; and (vii) Thomson Reuters ESG
Research Data. This memorandum provides an overview
and analysis of these providers."
Davis Polk provides a good overview of ESG raters
and their methodologies. The review also covers ESG
ETFs and portfolios.
ESG Reports and Ratings: What They Are, Why They
Matter, by Davis Polk, July 12, 2017, 7 Davis
Polk & Wardwell LLP, USA.
10 studies that show how and why ESG
investing works. "How do ESG, or
environment, social, and governance investments,
perform? When do these strategies work, and why?
Here’s a look at the circumstances under which
ESG-related investing works the best, across
different asset classes such as stocks and bonds."
Great compilation of studies relating the benefits
of ESG to corporate financial performance and stock
10 studies that show how and why ESG investing
works, by TruValue Labs, July 10, 2017, USA.
CDP launches first climate impact fund
rating platform. "The platform lists
2,500 European funds – equal to €2.5 trillion – and
aims at helping investors in their investment
decision-making taking the climate change impact of
the funds into account."
A terrific new fund rating product for European
investors! It's ground-breaking in that it rates
funds specifically on aggregate climate impacts
of their holdings. Hopefully, this type of ratings'
service will develop for funds globally.
CDP launches first climate impact fund rating
platform, press release, July 7, 2017, UK.
PRI finds disconnect between investors,
ratings agencies on ESG factors.
"'Investors and (rating agencies) struggle to agree
on what is a reasonable time horizon to consider,'
said the report. 'Investors tend to align their time
horizons with their investment objectives: some buy
and hold long-term bonds until maturity (while)
others trade more frequently.'"
An interesting point is raised here. Should ratings
agencies assign to companies different ratings over
varying time periods? Would you like to see how the
agencies rate a company over, say, one, three, five
or ten years? It certainly would provide a fuller
picture for investors. I know ratings agencies read
this site so I wonder if any of them have an opinion
on this? Let me know!
PRI finds disconnect between investors, ratings
agencies on ESG factors, by Sophie Baker, July
5, 2017, Pensions & Investments, USA.
ESG ‘best signal’ for future risk in
equities. "But ESG appears to isolate
non-fundamental attributes that have real earnings
impact: these attributes have been a better signal
of future earnings volatility than any other measure
we have found... US financials that did not survive
the global financial crisis saw disproportionate
ranks for diversity, shareholder rights and
Finally, what is common sense --that poor ESG factors
can have a negative influence on corporate financial
performance -- has been found to be true in this
Bank of America Merrill Lynch study.
ESG ‘best signal’ for future risk in equities,
by Jessica Tasman-Jones, June 29, 2017, Fund
European Commission takes further steps
to enhance business transparency on social and
environmental matters. "These
guidelines will help companies to disclose relevant
non-financial information in a consistent and more
comparable manner. The aim is to boost corporate
transparency and performance, as well as encourage
companies to embrace a more sustainable approach."
Europe again leads in the implementation of ESG.
These new guidelines reinforce and expand upon the
earlier ones dating back to 2014.
European Commission takes further steps to enhance
business transparency on social and environmental
matters, press release, June 26, 2017, European
Canadian companies among the most carbon
intensive in the developed world.
"Genus Capital Management today released 'The Carbon
Emissions Report: The Effect of Carbon Emissions on
Investment Returns,' which concluded that an
investment portfolio's carbon intensity negatively
impacted returns by 9.2 per cent over the past seven
years, after adjusting for other variables and risk
High intensity emitters tend to be penalized
by the market because their businesses are neither
efficient nor forward facing. Divesting from fossil
fuels is one way to minimize the carbon intensity of
a portfolio. By conducting this research, we're
pleased to see that the results support the case for
divestment and sustainable investing."
I've seen several studies of this nature. As ESG
criteria are implemented by money managers, this type
of outcome is to be
Canadian companies among the most carbon intensive
in the developed world, press release, June 28,
2017, Genus Fossil Free funds, Canada.
More Companies Reporting on ESG.
"Around 82% of S and P 500 companies published
corporate sustainability reports in 2016, according
to the Governance and Accountability Institute, up
from 20% in 2011 and 72% in 2013."
These are great numbers and demonstrate how
companies are responding to investor demands for
increased ESG reporting. For companies, there's the
additional benefit of measuring themselves on ESG
variables, many of which are material to their
operations and can help improve their financials.
More Companies Reporting on ESG, by Leila Mead,
June 27, 2017, International Institute for
Sustainable Development (IISD), USA.
Institutional Investors More Likely to
Invest in Companies with Business-Driven ESG
Disclosures, According to New White Paper.
"Ninety-eight percent of institutional investors
say a company with strong environmental, social and
governance (ESG) initiatives makes for a more
attractive investment, according to the newly
released white paper, Is Your ESG Report Getting
Noticed?, developed by Burson-Marsteller, a
strategic communications and global public relations
firm, and research firm PSB."
Wow. Such studies and surveys are coming thick and
fast. They demonstrate how ESG has become popular in
finance today. It's been a long time coming.
Institutional Investors More Likely to Invest in
Companies with Business-Driven ESG Disclosures,
According to New White Paper, press release,
June 26, 2017, Burson-Marsteller, USA.
Can Good Corporate Citizenship Be
Measured? "A new study that tries to
quantify and correlate stock performance with E.S.G.
factors is generating a lot of chatter among the
investor class. The study, developed by a team of
quantitative strategists led by Savita Subramanian
at Bank of America’s Merrill Lynch Global Research
unit, appears to be the most expansive, looking at
several hundred companies over a decade starting in
Interesting analysis. Largely supportive that a
focus on ESG may provide improved returns. However,
I'd appreciate it if the study mostly discussed in
this article were published in a recognized
financial journal with proper peer review. For me,
the 'gold standard' in ESG - financial performance
ESG and Financial Performance: Aggregated Evidence
from More than 2000 Empirical Studies.
Admittedly, it only looks at ESG and corporate
financial performance, whereas, Subramanian's et al
study above relates ESG to stock performance.
For another view on ESG and
investment performance, see,
From the Stockholder to the Stakeholder: How
Sustainability Can Drive Financial Outperformance,
by Arabesque Asset Management and Oxford University.
Can Good Corporate Citizenship Be Measured? By
Andrew Ross Sorkin, June 26, 2017, The New York
95% of European pension funds ignore
climate change impact: Mercer. "With
NASA stating that April 2017 was the second hottest
since records began in 1880 (with 2016 the hottest),
Mercer’s recent report has found that only 5% of
1,241 European pensions schemes have considered the
investment risk posed by climate change. As a result
the consultancy has called for 'more urgency from
the industry' to address the issue. The 2017 report
– Mercer’s 15th edition – gathers information from
1,241 institutional investors across 13 countries,
reflecting total assets of around €1.1 trillion."
These findings are surprising given the relatively
high level of purported integration of ESG by
European money managers. It would be interesting to
hear from Mercer and the compilers of other relevant
studies as to why there is this apparent
95% of European pension funds ignore climate change
impact: Mercer, by Gary Robinson, June 26, 2017,
International Investment, UK.
Individuals and institutions split on
benefits of ESG investing: survey.
"Individuals believe the environmental, social, and
ethical records of the companies they invest in are
important, said Natixis, while professionals at
institutions and within 'the investment community'
were more sceptical about the efficacy of these
strategies, for example having concerns about
The findings of this Natixis Global Asset
Management survey highlight -- in part -- why the
financial industry has taken so long to respond to
client ESG interests. Despite the arguments made in
this article, I suggest that investment
professionals not only disregarded their clients
interests but have taken an extraordinarily long
time to understand what ESG is and its potential
alpha. Another issue is that most investment
professionals have become short-term oriented,
whereas, ESG investing is more about performance
over the long-term.
Individuals and institutions split on benefits of
ESG investing: survey, by Susanna Rust, June 15,
2017, IPE, UK.
Millennials Think About Charity Entirely
Differently -- they invest in companies making a
positive impact and "social entrepreneurism."
"A study by Bank of America-owned U.S. Trust
showed the youngest of the three generations isn't
as interested in writing a check for a good cause —
millennials would rather contribute in other ways,
which could affect how an advisor manages their
wealth. Only 36 percent of millennials defined
'giving' as making a charitable financial donation,
versus 61 percent of Gen X participants and 83
percent of Boomers."
This is good news for advisors and the financial
markets. It assists the overall orientation towards
ESG and is positive for improved ethical behavior
in all financial market participants.
Millennials Think About Charity Entirely
Differently, June 14, 2017, WealthManagement,
Americans Question Motives Behind CSR.
"According to the latest annual Harris Poll
Reputation Quotient study, which tracks the
perception of the 100 most visible companies in the
U.S. by asking consumers to rank their reputations
across a half-dozen key attributes, 45 percent said
they believe companies embark on CSR initiatives
because they believe it’s a role they should play as
leaders in their communities.
Conversely, a similar amount — 40 percent —
said they believe companies develop CSR initiatives
only to bolster their public image and establish
social value for stakeholders."
I believe it's a great thing that companies embark
on CSR activities. However, I wonder if the term CSR
has outlived itself? I find ESG a much better
differentiator between companies as I believe it
delivers a better corporate focus (organizationally
and financially) and possibly reduced 'greenwashing'
Americans Question Motives Behind CSR, by Jon
Gingerich, June 12, 2017, O'Dwyer's, USA.
16th annual Best 50 Corporate Citizens in
Canada report. "This year’s Best 50
Corporate Citizens in Canada ranking is a reflection
of this new disclosure climate. Corporate Knights
had maintained 12 key performance indicators for a
number of years due, in part, to how widely
disclosed these data points were on an industry-wide
scale. Additional metrics were not adopted because
of the limited value provided by assessing companies
on a metric that isn’t available for the majority of
companies in the research universe.
With sustainability disclosure practices
improving (albeit slowly), Corporate Knights was
able to add two new metrics to the ranking
methodology this year: the supplier score and the
clean air productivity score."
The Best 50 Corporate Citizens in Canada is always a
good read and helpful to ethical investors.
16th annual Best 50 Corporate Citizens in Canada
report, June 6, 2017, Corporate Knights, Canada.
Wegmans, Publix Super Markets, Amazon,
Tesla And USAA Draw Top Social Responsibility Scores
In Harris Poll. "Other companies
receiving 'excellent' corporate social
responsibility ratings are Lowe’s, UPS and L.L.
Bean. Monsanto, Wells Fargo and Goldman Sachs
garnered 'critical' corporate social responsibility
marks in the Harris Poll study, which asked more
than 23,000 consumers to rate the 100 most visible
companies in the U.S. on social responsibility
attributes such as: supports good causes,
environmental responsibility and community
Some of the names at the top of this list are
surprising. Wells Fargo has been engaged in some
unethical customer practices, while Monsanto is
criticized by a number of health
Wegmans, Publix Super Markets, Amazon, Tesla And
USAA Draw Top Social Responsibility Scores In Harris
Poll, press release, June 7, 2017, The Harris
Do SRI Funds Have a Future in [US] 401(k)
Plans? "SRI funds are slow to crack the
$6.7 trillion 401(K) market, even though investor
demand is strong."
This story covers the results of a survey with 600
US financial advisors. The numbers of advisors
claiming to be engaged with SRI funds makes me
question how the advisors might've interpreted that
and other questions. If the advisors are right, then
a large percentage of their client base should
already be in SRI products. However, I doubt that is
the case. Though, it's great to see these numbers!
Do SRI Funds Have a Future in [US] 401(k) Plans?
By Mark Miller, June 2, 2017, Wealth Management,
Sustainable Investment Market Report 2017
– Sustainable investment market in Germany, Austria
and Switzerland makes significant gains yet again.
"The strongest growth in sustainable investments
was recorded in Switzerland (+39%), followed by
Austria (+24%) and Germany (+15%). 'Each year, we
see increasing numbers of investors opting for
sustainability in the management of their assets,'
says Volker Weber, Chair of the Board of Directors
at FNG, commenting on the latest market figures.
'Institutional investors, in particular, are
increasingly being won over, while we know from
asset managers that more and more of them see
factoring in non-financial criteria as a normal part
of their fiduciary duties.'"
These are huge one-year growth figures. Quite likely
a few very large funds were particularly
responsible. Sustainable investing is now mainstream
Sustainable Investment Market Report 2017 –
Sustainable investment market in Germany, Austria
and Switzerland makes significant gains yet again,
press release, June 1, 2017, Eurosif, Europe.
Institutional Investors to Boost ESG
Investments. "Nearly 80% of asset
managers and asset owners incorporate environmental,
social and governance (ESG) factors into their
decision-making, according to a survey from BNP
Paribas Securities Services. The report, titled
'Great Expectations: ESG – What’s next for asset
owners and managers,' found that among the asset
owners incorporating ESG, 46% plan to invest at
least half of their assets into funds that
incorporate ESG by 2019."
This survey indicates tremendous growth for ESG
based institutional investing strategies in the next
few years. It's certainly a positive for all ethical
Institutional Investors to Boost ESG Investments,
by Michael Katz, June 1, 2017, Chief Investment
Now, this is controversial: FAU
Study Says Corporate Social Responsibility Does Not
Prove to Be a Profitable Investment for Most
Companies. "Companies that try to 'do
good' are likely to find that Corporate Social
Responsibility (CSR) is bad for their bottom lines,
according to a new study from Florida Atlantic
University's College of Business. 'We found that
emphasizing Corporate Social Responsibility is not
good for shareholders,' said David Javakhadze,
Ph.D., assistant professor of finance, who
investigated the relationship between CSR and
efficiency with which firms allocate their capital
resources. 'If you're an investor you should think
twice before you invest in those firms that
Since numerous studies including those from elite
universities such as Harvard and Oxford have shown
that companies excelling in ESG (CSR?) perform as
well or better financially and in stock returns,
this new study is an outlier. Nonetheless, it's
worth reviewing and critiquing.
FAU Study Says Corporate Social Responsibility Does
Not Prove to Be a Profitable Investment for Most
Companies, press release, June 1, 2017, Florida
Atlantic University College of Business, USA.
Canadian investors are interested in
responsible investments, and they want gender pay
equity and more women in corporate leadership.
"The report, sponsored by OceanRock Investments
Inc., found that while 77% of investors are
interested in RI, a staggering 73% know very little
or nothing about it. These results highlight the 'RI
awareness gap' – a significant gap between investor
interest vs knowledge about RI.
'A strong majority of investors told us that
they are more likely to choose responsible
investments if their advisor suggests suitable
options or if their financial institution, credit
union or online brokerage informed them about
responsible investments,' said Deb Abbey, CEO of the
At the beginning of Canada's 2017 RIA Conference in
Vancouver, the RIA announces some incredible survey
findings: Canadian investors want responsible
2017 RIA Investor Opinion Survey, press release,
June 1, 2017, RIA, Canada.
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