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Shareholder Values

 
"Thirty-eight percent of financial advisors express strong interest in recommending sustainable investments to their clients; 72% express some interest."
--
Calvert Foundation
   
(USA) June 2012

"Canadian investors are generally favourable towards SRI. A third (32%) said they are 'very' or 'somewhat' interested. [Another] 55 per cent indicated that they would consider SRI if the return was 'as good or better' than other investments... The majority of investors surveyed view SRIs as 'futuristic' (78%) and 'a win-win for the individual and society' (77%)."
--
Ipsos Reid/
    Standard Life
   
(Canada) October 2011

"78 per cent of UK investors are more likely to invest in a company with ethical practices, and 64 per cent are planning to invest in ethical funds in the next few years."
--
TD Direct Investing
   
(UK) October 2014

 
 

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        Links may only be valid for a limited time                                         November 27, 2014

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Deep Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation. "New research details an over-reliance on accounting metrics that do not measure capital efficiency, and how total shareholder return obscures a line of sight to the underlying drivers of economic performance... Only 12% of CEO Pay Determined by Economic Performance; More than 75% of S&P 1500 Companies Not Equipped to Measure, Manage Key Factors Driving Sustained Corporate Value."

[COMMENTARY] Echoing other researchers and commentators, these findings again demonstrate that reliance on total shareholder return (i.e. stock price increases and dividends) over durations of mostly one to three years -- the most common way of basing executive compensation -- is absurd. Such measures only focus management on short-term stock market public relations and stock buybacks! Thus, medium and long term corporate prospects and profitability are frequently sacrificed for short term stock gains.

Ethical investors might want to scrutinize executive compensation when selecting investments.
Deep Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation, press release, November 24, 2014, USA.

Analysis Shows Growing Support from U.S. Mutual Funds for Action on Climate Change Risks. "One-third of votes cast across 42 fund families supporting climate-related shareholder resolutions on average in 2014, according to an analysis by the sustainability advocacy group, Ceres... the 2014 proxy season saw one of the sharpest increases ever in support for climate-related resolutions in the past decade, with 11 fund groups – including GMO, John Hancock, Delaware and Oppenheimer – increasing their support for climate... Morgan Stanley, for example, supported climate resolutions 70 percent of the time in 2014 – a shift from supporting only 13 percent in 2013... however, eight fund families failed to cast a single vote in support of a climate-related resolution in 2014, the most noteworthy being Vanguard."

[COMMENTARY] Mutual fund managers -- increasingly applying ESG criteria to their investments -- are beginning to see the financial significance to companies incorporating climate change risks/mitigation and sustainability in their operations. It's strange that Vanguard is a hold out since it's a signatory to the UN's Principles for Responsible Investment (PRI) which demands adherence to ESG principles.
Analysis Shows Growing Support from U.S. Mutual Funds for Action on Climate Change Risks, press release, Ceres, USA.

US Sustainable, Responsible and Impact Investing Assets Grow 76 Percent in Two Years. "Sustainable, responsible and impact investing (SRI) assets have expanded 76 percent in two years: from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, according to the US SIF Foundation’s latest biennial survey, the Report on US Sustainable, Responsible and Impact Investing Trends 2014. As a result, assets managed with SRI strategies now account for more than one out of every six dollars under professional management in the United States...

The assets managed at the start of 2014 by investment firms considering ESG issues grew more than three-fold—from $1.4 trillion at the start of 2012 to $4.8 trillion."

[COMMENTARY] The numbers are great, though note that the growth in assets managed with an ESG orientation accounts for more than the entire growth in the headline number. Obviously, the proven relatively higher financial returns by integrating ESG factors into portfolio screening, is drawing ever more asset managers into ESG believers.
US Sustainable, Responsible and Impact Investing Assets Grow 76 Percent in Two Years, press release, November 20, 2014, US SIF Foundation, USA.

Green investment ‘nosediving.’ "Global investment in low carbon technologies fell for the second consecutive year in 2013 to $331bn from $359bn in 2012, according to a report by Climate Policy Initiative... The declining cost of solar PV accounted for a large part of the fall in private investment. Solar deployment cost $40bn less in 2013 than would have been the case with 2012’s solar investment costs, CPI said."

[COMMENTARY] The headline is a somewhat misleading. True, investment in low carbon technologies is not growing as fast as many would hope, but with declining costs for such energy systems, actual energy output continues to rise significantly.
Green investment ‘nosediving,’ November 20, 2014, RENews, UK.

Banking culture breeds dishonesty, scientific study finds. "A banking culture that implicitly puts financial gain above all else fuels greed and dishonesty and makes bankers more likely to cheat, according to the findings of a scientific study. Researchers in Switzerland studied bank workers and other professionals in experiments in which they won more money if they cheated, and found that bankers were more dishonest when they were made particularly aware of their professional role."

[COMMENTARY] I have seen similar research and findings before concerning financial industry employees. However, despite such observations, investors follow almost without question the financial recommendations from the financial/investment advisors at these institutions. Rarely do investors ask how independent and impartial (for instance, preferential fees for selling particular products) is the advice they're given.

Similarly, why do the media almost always go to the large (biased) financial institutions for comments on the economy and financial markets? I've investigated this before. The media say that economists in academia (who I argue are less likely to be biased) are difficult to reach, whereas economists at financial institutions respond on the first ring of the phone!
Banking culture breeds dishonesty, scientific study finds, by Kate Kelland, November 19, 2014, Reuters, UK.

New study: Are Ethical Investments Good? "We find that there are positive and statistically significant long-run abnormal returns for firms being included in the MSCI KLD400. These abnormal returns are associated with higher shareholdings by institutional investors (who are subject to higher public scrutiny), higher analyst coverage and higher growth opportunities."

[COMMENTARY] The benefits of ethical investing are again seen in this study, which analyzed the returns on companies both included and dropped from the MSCI KLD400.
Are Ethical Investments Good? By Gariet Chow (University of Western Australia), Robert B. Durand (Curtin University of Technology), and SzeKee Koh (Singapore Institute of Technology), November 13, 2014, Australian Journal of Management, Vol. 39, No. 4, 2014, Australia.

Barclays and MSCI announce launch of Green Bond Index family. "Barclays, a publisher of leading broad market bond benchmarks, and MSCI Inc., a leading provider of investment decision support tools worldwide, announced today the launch of a new green bond index family measuring the global market of fixed income securities issued to fund projects and initiatives with direct environmental benefits. The Barclays MSCI Green Bond Index family complements the existing Barclays MSCI ESG (Environmental, Social, and Governance) Fixed Income Index family, and is now available to clients.

Eligibility for the Barclays MSCI Green Bond Index family is based on an independent and objective assessment of securities by MSCI ESG Research along four dimensions closely tracked by green bond investors: use of proceeds, project evaluation, management of proceeds, and reporting. Additional fixed income index criteria are then applied to this screened universe to identify index membership on a monthly basis. These assessment criteria and thresholds for eligibility were finalized following a market consultation."

[COMMENTARY] This illustrates the fast growing interest and development of green bonds. It's a welcome sign. For too long ethical investors haven’t had the opportunities to invest in properly developed green bonds.
Barclays and MSCI announce launch of Green Bond Index, press release, Barclay's/MSCI, November 13, 2014.

Study Links SRI With Enhanced Portfolio Performance. "Harvard University professor Allen Ferrell and two colleagues at Tilburg University in the Netherlands won the 2014 Moskowitz Prize for Socially Responsible Investing, awarded yesterday at the 25th annual SRI Conference--The Conference on Sustainable, Responsible, Impact Investing--in Colorado Springs, Colo. Almost 600 financial professionals are attending the three-day event."

[COMMENTARY] Congratulations to Allen Ferrell, Hao Liang and Luc Renneboog for their insightful and valuable study that has won them the 2014 Moskowitz Prize! What's truly useful about their study is that they reviewed ESG activities of companies in 59 countries. Most studies of a similar nature were usually more regional. Also, their findings -- with such a huge dataset to use -- are really exciting, finding that "certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value."
Study Links SRI With Enhanced Portfolio Performance, by Leila Boulton, November 11, 2014, FA Magazine, USA.

Why companies should shelter in Sustainability Accounting Standards Board's (SASB) safe harbor. "People often ask me if SASB will replace the Global Reporting Initiative, compete with the International Integrated Reporting Committee or eliminate the need for research by socially responsible investment firms and other sources of sustainability information. Based on these questions, I have concluded that very few people actually understand what SASB is or how it fits into the world of sustainability metrics.

I personally believe that SASB is creating a 'safe harbor' for nonfinancial, sustainability-related reporting, meaning legal and regulatory protection for companies regulated by the U.S. Security and Exchange Commission."

[COMMENTARY] Most of you are aware of 'generally accepted accounting principles,' or GAAP, which underpins the structure for financial reporting. So SASB is trying to do the same for non-financial reporting, such as what to, and how to, report on environmental and social issues that might materially affect corporate performance and financial affairs. All ethical investors should read this article.
Why companies should shelter in SASB’s safe harbor, by Bahar Gidwani, November 11, 2014, GreenBiz, USA.

Charities prefer active investments says Newton survey. "Respondents from 74 UK charities with just under £6bn of combined investment assets took part. Broadly, the survey found that 65% choose a purely active management approach to investing; 67% are either exclusively or predominantly invested in pooled funds; Just over a quarter (25.7%) are invested in alternative assets; 60% apply a socially responsible policy, but appetite for social-impact investment remains low; and finally portfolio returns and income are the biggest concerns for respondents."

[COMMENTARY] The data speaks for itself. What I find both surprising and happy about is that 60% of the charities are now investing with an SRI orientation. However, it's uncertain if these findings are applicable to any other country.
Charities prefer active investments says Newton survey, press release, November 5, 2014, FTSE Global Markets, UK.

Conservation impact investing is about to boom. "The conservation impact investing market totalled $23 billion from 2009 to 2013 and is expected to increase to $37.1 billion over the next five years, according to a report released Thursday by The Nature Conservancy’s NatureVest division and EKO Asset Management. Conservation impact investments are intended to return principal or generate profit while driving a positive impact on natural resources and ecosystems.

In April, with support from JPMorgan Chase & Co., the Conservancy launched NatureVest, a dedicated division focused on deploying $1 billion in impact capital for conservation over the next three years by convening investors, developing and executing innovative financial transactions and building an investment pipeline across multiple sectors."

[COMMENTARY] It seems a whole new area of investing is opening up for ethical investors--that of conservation impact investing. Investing for profit in projects benefiting the environment. This could be a truly win win situation both for investors and the environment.
Conservation impact investing is about to boom, by Mike Hower, November 5, 2014, GreenBiz, USA.

UN calls on pension funds to cut investments in fossil fuels. "The United Nations is calling on pension funds to cut investments in oil companies and other fossil fuel businesses in a bid to tackle climate change.

Speaking at a climate change summit in Copenhagen yesterday, UN secretary-general Ban Ki-moon said big investors such as insurers and pension funds should cut their investments in fossil fuels and focus on renewable energy sources instead."

[COMMENTARY] Ban Ki-moon's advocacy for fossil fuel divestment is in some ways significant--but also' ceremonial.' It's significant in that the head of the UN is advocating for fossil fuel divestment but ceremonial in that it largely falls on deaf ears until governments enact carbon caps and limits. However, carbon caps and limits will (must) happen eventually, so ethical investors taking his advice could be rewarded over the long-term.
UN calls on pension funds to cut investments in fossil fuels, by Samuel Dale, November 4, 2014, Money Marketing, UK.

Emerging Markets Are Leading The Way On Clean Energy Growth. " Climatescope 2014, looks at what is happening in 55 emerging markets in Africa, Asia, Latin America and the Caribbean. The results suggest renewable technologies can be just a cost competitive solution in developing countries just as they are in the industrialised world."

[COMMENTARY] For those who might not know, China is now the world's largest manufacturer of wind and solar generating equipment while also having the highest demand for those products. Renewable energy is becoming competitive around the world with conventional energy production. Given the warnings of the latest IPCC report--that's just as well! For ethical investors, the expansion of renewable energy globally offers many potentially profitable opportunities in the sector.
Emerging Markets Are Leading The Way On Clean Energy Growth, by Mike Scott, October 31, 2014, Forbes, USA.

Europe retail market for socially responsible investing up 18 pct. "The European retail market for funds focused on socially responsible investing grew 18 percent to 127 billion euros ($161.82 billion) in the 12 months to June 2014, a report on Wednesday showed. The number of funds also rose, to 957 from 922 in the year earlier period, the report by Vigeo, which evaluates corporate responsibility, and fund analyst firm Morningstar said."

[COMMENTARY] France and the UK led the growth. It's great to see the SR-ethical retail funds significantly outpacing conventional funds in asset growth rates. This is a further sign that ethical investing is moving into the mainstream investing arena.
Europe retail market for socially responsible investing up 18 pct., October 29, 2014, Reuters, UK.

Are Canada's Corporate Giants Re-engineering US Politics? "Canadian corporations helped raise significant amounts of money for political parties in the United States and spent big bucks on lobbying efforts, according to a paper released Wednesday.

The report, from the Shareholder Association for Research and Education (SHARE), details involvement of Canadian corporations in Political Action Committees (PACs) and lobbying in the U.S. this year. The group is an advocate for ethical investment."

[COMMENTARY] It seems anyone, whether you are American or of some other nationality, can provide 'influence money' to US politicians. Though, when you read the actual numbers provided for this endeavour by Canadian companies, it's quite small. SHARE estimates it's about $1.2 million for the 60 large Canadian companies it investigated. A further $15 million was spent on their lobbying efforts. However, SHARE believes it's a lot more than the publicly available information provides and suggests Canadian laws need to be changed to make full disclosure of these sums. Investors should have the right to know this information too!
Are Canada's Corporate Giants Re-engineering US Politics? By Jeremy J. Nuttall, October 30, 2014, The Tyee, Canada.

Good for Harvard, good for the world: Why HMC embraced ESG with a passion. "Harvard Management Corporation (HMC) signed up to the UN-supported Principles for Responsible Investment (PRI) less than a year ago, but the company that manages the $36 billion Harvard University endowment is already moving rapidly to build environmental, social and governance (ESG) factors into every investment decision it makes."

[COMMENTARY] Harvard's endowment fund integrating ESG into all its investment decisions sends a strong message to all asset managers that they should do it too! For ethical investors, it means more money flowing into the stocks and bonds they're already invested in. It's good news ethical investors.
Good for Harvard, good for the world: Why HMC embraced ESG with a passion, by Simon Hoyle, Top 1000 Funds, USA.

Green bonds to exceed $40 billion in 2014. "The market for green bonds has existed in one form or another since about 2007, but only recently exploded. According to Bloomberg, $18 billion of green bonds has been issued as of early August 2014. That already matches, in seven months, the total volume done from the inception of the market in 2007 to the end of 2013, a six-year period. At this pace, the market will exceed $40 billion this year."

[COMMENTARY] This article provides a good overview of what's happening with the green bond market.
Green bonds to exceed $40 billion in 2014, by Suzanne Buchta, October 27, 2014, GreenBiz, USA.

Survey: half of surveyed financial professionals have offered SRI options to clients. "But Major Perception "Gender Gap" About SRI Seen Among Brokers, Investment Advisors; Broad Agreement Found that 'Millennial Investors' Will Require Major Changes by Financial Industry."

[COMMENTARY] This surveys findings are valuable reading for all financial professionals. What is also interesting is that most of the financial professionals who offered SRI options did so because clients requested it. Again, it's the market (clients) who lead and not the mainstream investment industry! In any case, it's great that it is happening regardless of the reticence exhibited by most investment professionals.
Survey: half of surveyed financial professionals have offered SRI options to clients, press release, October 23, 2014, First Affirmative Financial Network, USA.

Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations. "Amid growing evidence that climate change is having wide-ranging global impacts that will worsen in the years ahead, Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations, ranks the nation's 330 largest insurance companies on what they are saying and doing to respond to escalating climate risks. The report found strong leadership among fewer than a dozen companies but generally poor responses among the vast majority."

[COMMENTARY] Anyone who invests in insurance companies or who has insurance policies (probably everyone) might want to read this review. Obviously, if a costly climate event occurs and the company can't payout your policy, you might want to know the financial preparedness of the insurer before continuing to pay their premiums!
Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations, Ceres, USA.

Mark Carney (Governor of the Bank of England): most fossil fuel reserves can't be burned. "The governor of the Bank of England has reiterated his warning that fossil fuel companies cannot burn all of their reserves if the world is to avoid catastrophic climate change, and called for investors to consider the long-term impacts of their decisions. According to reports, Carney told a World Bank seminar on integrated reporting on Friday that the 'vast majority of reserves are unburnable' if global temperature rises are to be limited to below 2C."

[COMMENTARY] I just saw (October 23) this report courtesy of The Responsible Investment Association (Canada). As one of the world's top central bankers, this is truly astonishing! Can anyone imagine Janet Yellen, Chair of the Board of Governors of the Federal Reserve, ever making a remark like that! She'd be 'fried alive.' As readers here know, I've long argued that many fossil fuel companies could have significant write-downs and losses as the affects of climate impact government policies entailing the reduction of our carbon footprint.
Mark Carney: most fossil fuel reserves can't be burned, by Jessica Shankleman, October 13, 2014, The Guardian, UK.

SRI in Latin America: early stages. "The financial world of socially responsible investing (SRI) is gaining support in Latin America. Governments, banks and investors are beginning to understand the importance of shifting assets into activities which support the triple bottom line. Sustainalytics, a sustainability research and analysis firm, recently published Inversión Responsabley Sostenible, a report that describes the context, growth and opportunity for SRI in Latin America, dividing it into three levels of involvement: Brazil as the first group, Chile, Colombia, Perú and México as the second, and the remaining countries in the third."

[COMMENTARY] Latin America could be become a significant area for ethical investing. This is a brief overview of the current state of affairs there for SR-ethical investing.
SRI in Latin America: early stages. By Julie Fahnestock, October 21, 2014, 3BL Media and Just Means, USA.

Good Money Week: 83% of young Brits not familiar with sustainable investment. "A poll commissioned by the UK Sustainable Investment and Finance Association (UKSIF) has revealed that the majority of 18-24 year olds do not know what sustainable investment is – with 37% even unsure of what a bank actually is."

[COMMENTARY] A mammoth hole in developed countries' education is that of money management. It's truly startling that one of the most important areas of life is not taught in school. Mind you, where money education exists, the curriculum is hugely influenced by establishment interests such as banks! Thus, though I'm in favour of money education, I'm not if it's a one-sided viewpoint promoting establishment interests.
Good Money Week: 83% of young Brits not familiar with sustainable investment. By Ilaria Bertini, October 20, 2014, Blue & Green Tomorrow, UK.

The 2014-2015 Ethics In Finance - Robin Cosgrove Prize For People Under 35. "The global Prize aims to promote greater awareness of the importance of ethics in finance among young people with an interest in accountancy, banking and financial services. This is the fifth edition of the Prize, originally launched in 2006, well before the topic of 'ethics in finance' became fashionable. The global financial crisis has since shown the relevance of the theme and the significance of the Prize. The Prize for Innovative Ideas for Ethics in Finance is open to young people, aged 35 years or younger, from throughout the world."

[COMMENTARY] This is a very worthy endeavour and I encourage those under 35 with an interest in this subject to submit their ideas. See press release: Global Ethics Prize Builds on Success. Website: Robin Cosgrove Prize.

(UK) ‘Ethical’ funds still pouring money into coal, oil and gas, new report finds. "Report by advisers Barchester Green names winners and sinners of ethical and environmental funds industry."

[COMMENTARY] I suspect this is the same in most countries. Ethical funds do this sometimes because some energy companies are diversifying into renewable/alternative energies and also by holding shares ethical funds may have some influence on how these companies operate. However, with the fossil fuel divestment movement growing, the potential for carbon taxes or caps as climate change advances, and the possibility of balance sheet write-down's due to 'stranded assets,' fossil fuel investments might become problematic for many ethical funds.
‘Ethical’ funds still pouring money into coal, oil and gas, new report finds, by Rupert Jones, October 18, 2014, The Guardian, UK.

Why clean energy might be cheaper than you think. "Wind and solar power often get a bad rap for being more expensive than energy produced from fossil fuels. But what happens when you factor in, say, the health costs of people breathing smoggy air? Or the financial impact of climate change’s effect on ecosystems and precious resources like water?

Those are some of the questions the European Commission sought to answer. A new report written for the EC includes those environmental costs and more in calculations of the total costs of producing electricity from various renewable and nonrenewable sources. The result? Wind and water are the best bargains for making megawatts."

[COMMENTARY] It's great that a major governmental body has finally produced these calculations! Of course, the input data will be controversial, but the discussion has to start somewhere. This study provides governments with some firepower for renewable energy. Incidentally, in their calculations, solar is not that much expensive than wind. Gas and coal powered plants are much more expensive.
Why clean energy might be cheaper than you think, by Sam Bliss, October 14, 2014, grist, USA.

Are Companies Still Committed to Sustainability? "New Business Models: Shared value in the 21st century, commissioned by Enel Foundation, finds that 66 percent of companies believe there is a link between sustainability and long-term financial performance (see chart). More managers also understand the wider importance of sustainability and increasing efforts to embed it into their strategies.

The report also shows an increasing minority of business managers who do not believe there is a link between sustainability and long-term financial performance. This is up to 11 percent — an increase from 6 percent in a similar survey carried out in 2011."

[COMMENTARY] The article's headline gives the impression that many or most companies were committed to sustainability, but now might be faltering in that commitment. I would argue that it is only a small percentage of companies that have ever been really committed to sustainability and that number is growing, but not nearly as fast as is necessary to help mitigate or stem the problems of climate change. In the US particularly, among corporate leaders--who are mostly Republican--only a minority believe in climate change.
Are Companies Still Committed to Sustainability? October 14, 2014, Environmental Leader, USA.

Fortune 500 companies spend more than $15bn on corporate responsibility. "The research, carried out by economic consulting firm EPG, found that there was a clear difference in how US and British companies approached CSR, but that on both sides of the Atlantic spending was dominated by only a handful of groups. In-kind donations, such as donating free drugs to health programmes or giving free software to universities, accounted for 71 per cent of the $11.95bn US spending on CSR.

In the UK, while donating goods and services in kind was the largest component of the $3.25bn CSR activity, it totalled just 46 per cent of the total. Employee volunteering and fundraising made up 34 per cent and cash contributions 20 per cent."

[COMMENTARY] This study had a very narrow definition of CSR: mostly how much companies and employees give to outside groups. I don't think the researchers nor the FT should've used the term CSR, but rather, 'philanthropic contributions' would've been a more appropriate term. There are many definitions of CSR, but one that is frequently used is from Mallenbaker. Quote, "CSR is about how companies manage the business processes to produce an overall positive impact on society."

Though CSR spending using this definition would be extraordinarily difficult to calculate, it will be hugely greater than the $15bn mentioned in this study!
Fortune 500 companies spend more than $15bn on corporate responsibility, by Alison Smith, October 12, 2014, The Financial Times, UK.

Ron Robins appeared on America Meditating radio show, interviewed by Sister Jenna. In the show I discuss the relevance of spirituality and Transcendental Meditation® to investing and economics. I emphasize that gaining individual inner fulfillment is the only means to solving our individual and collective financial and economic difficulties.
Ron Robins on America Meditating radio show, October 7, 2014, USA.

Impact investing market grows 132% from 2011-2013. "Responsible investment strategies grew at a much faster rate than the European market as a whole between 2011 and 2013, according to research by the European Sustainable Investment Forum (EUROSIF)."

[COMMENTARY] The study is useful reading for everyone in the investment industry. Though you might want to read it on the weekend! It's a large and extensive report. I find it particularly interesting that portfolio strategies excluding particular stocks or industries involve "41% (€7 trillion) of European professionally managed assets." Many people might think it's tobacco and alcohol stocks that are the largest excluded segments, but no, its cluster munitions and anti-personnel landmines that are. It'll be interesting to follow how fossil fuel divestments gain traction in future years.
Impact investing market grows 132% from 2011-2013, by Stephanie Baxter, October 9, 2014, Professional Pensions, UK.

Japanese Investors Adopting New Stewardship Code (Principles for Responsible Institutional Investors). "Japanese Financial Service Agency (FSA) launched a Japanese version of 'Stewardship Code' in February 2014, inviting institutional investors to sign up. Modeled on the British Stewardship Code adopted in 2010, these Principles for Responsible Institutional Investors were set out as a code of behavior for institutional investors who hold corporate stocks...

As of May 2014, three months after it was launched, 127 institutional investors had announced their intention to adopt it. The number of the investors increased to 160 as of August 2014. The Government Pension Investment Fund (GPIF), managing about 130 trillion yen (about U.S.$1.29 trillion), is the biggest among them."

[COMMENTARY] Unlike some other 'stewardship codes' the Japanese version does not explicitly cover environmental or sustainability issues. Nor is the code legally binding. Nonetheless, it does codify important governance factors regarding corporate behaviour that should be helpful for ethical investors.
Japanese Investors Adopting New Stewardship Code (Principles for Responsible Institutional Investors), by Junko Edahiro, October 6, 2014, Japan for Sustainability, Japan.

War – a minefield for ethical investors. "'The world is changing,' says Ron Robins, a Niagara Falls, Ont.-based analyst who founded an ethical investing advice website called Investing for the Soul. 'Investors in sin industries may see their returns suffer due to government austerity programs,' he says.

Governments facing deficits, unfunded pension liabilities and rising health-care costs find it irresistible to boost taxes on the sin industries, particularly tobacco, alcohol and gaming, he says, eventually driving away consumers. Meanwhile, more socially responsible portfolios typically include sectors that are on the rise in the 21st century, he adds – finance, technology, medical equipment, clean energy, consumer gadgets and so on."

[COMMENTARY] I was pleased the writer, David Israelson, used these quotes of mine, especially because I believe most conventional investors seriously underestimate the ramifications of most governments' mammoth unfunded liabilities as well as the financial impacts of required adjustments concerning climate change. Thus I suggest that ethical investors are in a superior position to 'sin' or conventional investors with regards to long-term investment returns.
War – a minefield for ethical investors, by David Israelson, October 6, 2014, The Globe & Mail, Canada.

New Numbers Show Increased Profits from ESG, Climate Action, and Sustainability Communications. "A recent study by New Amsterdam Partners finds that stocks with higher ESG ratings deliver superior returns and lower price volatility... CDP, formerly the Carbon Disclosure Project, has released a study that shows... an 18 percent higher return on equity by companies addressing climate change over their peers, and a 67 percent higher return than companies that do not disclose on climate change. Dividends to shareholders were also higher, by 21 percent."

[COMMENTARY]  With report after report showing that companies rated highly on ESG factors perform better financially and offer superior stock returns, when will mainstream investors wake-up and fully integrate ESG criteria for picking stocks? This demonstrates how structurally impaired is the mainstream investment world. Ethical investors can now enjoy their 'superiority'.
New Numbers Show Increased Profits from ESG, Climate Action, and Sustainability Communications, by John Howell, October 2, 2014, 3BL Media, USA.

Pension funds still concerned activist stance could damage returns. "Two-thirds of the pension funds surveyed – 35 in total, with nearly €1.2trn in combined assets – agreed that the greatest ESG risk facing a board was that of underperformance due to ethical investment decisions."

[COMMENTARY] This is the central issue for getting pension funds onside for ESG-ethical investing. And it goes back to fiduciary duties and how they're interpreted. If they invest for ethical reasons and the investment turns sour, the pension fund boards feel they could be found irresponsible in their fiduciary duties. So, the real point is--and it depends upon jurisdiction and whom they're managing the funds for--they must be able to demonstrate financially sound reasons when investing with an ESG-ethical investing focus. And that, in most cases, should not be too hard to do. Let's face it, many boards are just too conservative and don't want to 'rock-the-boat' to reorient themselves even to potentially higher returns by investing with an ESG-ethical orientation.
Pension funds still concerned activist stance could damage returns, by Dominic Gane and Jonathan Williams, October 1, 2014, IPE, UK.

Will There Be Enough ESG Opportunities To Meet Demand? "But even as 87% of asset managers surveyed in the report, The Cerulli Edge: U.S. Monthly Product Trends (August 2014), said they viewed the growing awareness about ESG investing as a secular trend, the vast majority of them said it’s only somewhat important to offer it. Does that mean they’ll be slow to roll out products or invest in the space?"

[COMMENTARY] It seems a strange headline, but what they're saying is that if most asset managers go for ESG screened portfolios, there might not be enough ESG eligible stocks around. Well, what a great day that'll be! I think the study authors might be overlooking the fact that when company's see their peers with higher ESG ratings and higher stock prices, they will gravitate to improve their own ESG performance. Ideally, the majority of companies would then also become high ESG performers. True, this would likely have the effect of lowering ESG stock premiums--but hey, it'll mean higher profits too for most companies, and thus, higher stock prices everywhere.
Will There Be Enough ESG Opportunities To Meet Demand? October 1, 2014, FA Magazine, USA.

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Disclaimer: This website does not make investment recommendations. Nothing in this site should be interpreted as a recommendation or solicitation to buy/sell any securities or investments. Investing for the Soul is a source of general information and resources for spiritual investing, ethical investing, and socially responsible investing (SRI). Investors should consider their actions thoroughly and consult their financial advisers and other professionals, prior to taking any investment action. This website does not necessarily agree with the opinions expressed in articles on its pages or offered on the web pages to which it might be linked. Such opinions are the responsibility of the writers themselves. Furthermore, this site does not offer or provide any warranties, representations, guarantees, implied or otherwise, as to the accuracy, legality, copyright compliance, timeliness or usefulness of the information, materials or services on this, or other sites, to which it is linked. Also, Mr. Ron Robins is not an investment advisor, nor is he licensed with any professional investment related body, and thus is not able to, nor does he make, any investment recommendations.

 

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