Ethical Investing News/Commentaries
Commentaries by Ron
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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.
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