E-newsletter of Investing for the Soul March 30, 2016
Top ethical investing news for March 2016
Links may only be valid a limited time Commentaries by Ron Robins
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Morningstar Sustainability Ratings Now Available to Individual Investors Globally. "The new Morningstar Sustainability Rating™ for funds is now available on its North American and European websites as well as in Morningstar® Advisor WorkstationSM, the company's web-based practice management platform for advisors."
[COMMENTARY] So it has come to pass!
It will be fascinating to watch the reaction of individual investors to
this option. Will they gravitate to higher rated sustainable funds?
Introducing MSCI ESG Fund Metrics. "We leverage our ESG Ratings coverage of more than 6,000 companies (11,000 total issuers including subsidiaries) and more than 350,000 equity and fixed income securities globally to create ESG scores and metrics for approximately 21,000 multi-asset class Mutual Funds and ETFs globally."
[COMMENTARY] It seems that MSCI is
determined to create competition to the new Morningstar/Sustainalytics
company/fund ratings' system. This is great news for investors and fund
managers. They'll be able to compare funds' ESG performance using these
two different approaches.
Sustainable Funds Are Walking the Walk. "The results are impressive, if not surprising, and clearly support the notion that ESG funds are investing in companies with strong sustainability performance to a much greater degree than funds in the overall universe.
Nearly half of the ESG funds--45%--received the highest Sustainability Rating. That compares with only 10% of funds in the overall universe (the ratings are normally distributed within each Morningstar Category, with 10% receiving the highest--and lowest--ratings). And 80% of intentional ESG funds have ratings of High or Above Average, compared with only a third of the overall universe."
[COMMENTARY] This is a relief for
most ethical fund managers! As mentioned before, it could give these
fund managers a new advantage as investors noting the differences in ESG
fund scores possibly begin switching to funds with higher ESG scores.
Is Your Mutual Fund a Climate Change Denier or Climate Champion? "Among 42 mutual fund companies whose voting we analyzed, nine companies, including the world’s largest mutual fund company Vanguard, failed to support a single climate-related shareholder resolution in 2015. The other eight are American Funds, American Century, Blackrock, Fidelity, ING (Voya), Lord Abbett, Pioneer and Putnam."
[COMMENTARY] The data that Rob
Berridge and Jackie Cook present is not surprising, though somewhat
disappointing that some of the world's largest mutual fund companies are
so disengaged in the climate issue. However, with the growing interest
among investors in ESG and that Morningstar and MSCI have fund rankings
according to ESG criteria it's likely that such fund companies will need
to change their perspective -- or risk losing clients and assets.
The study of socially responsible investing. "'It seemed like institutional investors don’t necessarily care about a company having a good rating on an environmental or social parameter. But, they do care if the company has a poor rating.' [Quoting Associate Professor Abhishek Varma, Illinois State University]."
[COMMENTARY] This study looks
interesting, but I have few details on it so far. The article cited is
worth reading by ethical investors as it might provide additional
information they might consider in their stock and portfolio selection
G&A Institute & Trust Across America Partner to Examine Trustworthiness for S&P 500® Companies Not Reporting on Sustainability. "Results Show Higher Trust for Firms Reporting on Their Sustainability Journeys."
[COMMENTARY] The results of this
survey are unsurprising to me. In fact, I'm surprised that the data
didn't show an even larger difference of trust between those companies
reporting on sustainability compared to those that didn't. Nonetheless,
it still makes a good case for non-reporting companies to report on
sustainability and I congratulate the survey sponsors for conducting the
study and making the data public.
Top Index Funds Showing Significant Interest In ESG. "Top index funds are showing significant interest in environmental, social and governance issues, said Bob McCormick, chief policy officer for Glass Lewis, the large proxy advisory services... He added a reason index funds have a greater incentive to consider ESG issues than other investors is because they can’t sell their shares short term so they have to focus on long-term environmental and governance matters that could impact the value of their holdings."
[COMMENTARY] An interesting
perspective is suggested here that as index funds generally have a
longer-term time horizon than most other funds, they could be more
amenable to engaging with companies on ESG issues.
Eighty One Percent (81%) of the S&P 500 Index Companies Published Corporate Sustainability Reports in 2015. "G&A Institute charted the rapid and significant uptake in corporate sustainability reporting among the 500 companies -- over the years, sustainability reporting rose from just 20% of the companies reporting in 2011 to 81% in 2015."
What Motivates Companies to Do Good—Altruism, or Guilt? "The researchers’ analysis suggested that most CSR programs are implemented as a matter of good management practice, or to atone for past bad behavior. The researchers found that for many companies, investing in CSR because they think it’s the right thing to do or a good move for the business overall pays off by improving the overall financial performance of the company.
When looking at market-based measures of performance, firms that made decisions to incorporate these programs into their business strategies saw a boost. That gives some credence to the theory that firms can in fact 'do well by doing good.'"
[COMMENTARY] Well, chalk this one up
as another plus for CSR! This study -- by researchers at respectable
universities reviewing the CSR activities of 4,500 companies over 19
years -- has credibility. (See it
Does CSR create shareholder wealth? "In our recent study, we attempt to answer this question that has troubled managers and scholars for the better part of the last four decades. And what we observe after rigorously analyzing data from a large sample of 1725 firms in the United States for the years 2000-2009, is that the answer is a characteristically academic one – 'it depends!'"
[COMMENTARY] Their findings are worth a read by all ethical investors. They truly make some fascinating observations, particularly the role of marketing departments in promoting key corporate efforts to certain key stakeholders.
However, I wonder if their findings would've been any different if they
looked at the years 2010 to 2014 inclusive (five full years)? The
outperformance of companies leading with ESG in that period has been
generally noteworthy. Also, consider that the largest review ever
compiled -- on
2200 individual ESG studies -- found a significant positive impact
of ESG on corporate financial performance.
Ethisphere Announces the 2016 World’s Most Ethical Companies®. "The World’s Most Ethical Companies program honors companies that excel in three areas – promoting ethical business standards and practices internally, enabling managers and employees to make good choices, and shaping future industry standards by introducing tomorrow’s best practices today. Honorees have historically out-performed others financially, demonstrating the connection between good ethical practices and performance that’s valued in the marketplace.
In 2016, 131 honorees were named spanning 21 countries and five continents and representing over 45 industries. In its 10th year, the list includes 14 ten-time honorees and 13 first-time honorees."
[COMMENTARY] This is a good list
with a great pedigree. However, I do wonder why the vast majority of
companies honoured are American! It could be that not many companies
outside the USA bother completing Ethisphere's Ethics Quotient
questionnaire. If they don't complete it they don't appear considered
for the honoree title.
Bond Market Asking `What Is Green?' Curbs Climate-Friendly Debt. "Companies are second guessing whether to participate in green-bond markets as scrutiny by environmental groups raises the bar on what constitutes a climate-friendly security.
After quadrupling in size from 2012 to 2014, lifted by investors tracking environmental performance in addition to yield, the green bond market is expected to slow for a second consecutive year, according to Bloomberg New Energy Finance. Growth moderated to 28 percent last year and in 2016 may nudge ahead just 4 percent, to $50 billion, the London-based researcher said."
[COMMENTARY] I'm not sure if this is
happening, but perhaps groups like Friends of the Earth, Banktrack, and
other environmental groups should work with the Climate Bonds Initiative
and Green Bond Principles to decide acceptable environmental criteria
for green bonds. So far, it seems this hasn't happened. Until it does,
the green bond market is restrained in attaining its potential. Perhaps
there could be different grades of green bonds depending on their
New Research Studies
Corporate Social Responsibility and Shareholder Wealth: The Role of Marketing Capability, by Saurabh Mishra, McGill University, Canada, and Sachin Modi, Iowa State University, USA. Journal of Marketing, January 2016, USA.
Washing Away Your Sins? Corporate Social Responsibility, Corporate Social Irresponsibility, and Firm Performance, by Charles Kang, Tulane University; Frank Germann, University of Notre Dame; and Rajdeep Grewal, University of North Carolina. Marketing, March 2016, USA.
Metrics for Sustainable Business: Measures and Standards for the
Assessment of Organizations, by Scott R. Herriott, Routledge 2016.
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Disclaimer: Neither The Soul Investor nor Ron Robins make investment recommendations. Nothing in this newsletter should be interpreted as a recommendation or solicitation to buy/sell any securities or investments. The Soul Investor 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 professional advisers prior to taking any investment action. The Soul Investor does not necessarily agree with the opinions expressed in articles in its newsletter or offered on the web pages to which it might be linked. Such opinions are the responsibility of the writers themselves. Furthermore, The Soul Investor 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 in this e-newsletter, or other sites, to which it might be 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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