Ethical Investing News/Commentaries
Commentaries by Ron
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Ontario requiring pension funds to report
their ESG policies and practices. "The
statement of investment policies and procedures
shall include information as to whether
environmental, social and governance factors are
incorporated into the plan’s investment policies and
procedures and, if so, how those factors are
This is an important new step for ethical investing
in Canada. It's likely that all the other Canadian
provinces and territories will follow Ontario's
Pension's Benefits Act changes, November 26,
2014, Ontario, Canada.
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
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,
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."
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."
The numbers are great, though note the growth
in assets of "firms considering ESG issues"
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 are 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."
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."
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,
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."
The benefits of ethical investing are again seen in
this study, which analyzed the returns on
companies both included and dropped from the MSCI
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."
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
Barclays and MSCI announce launch of Green Bond
Index, press release, Barclay's/MSCI, November
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
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,
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
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."
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."
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
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."
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.
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