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Latest Podcast:
The World's Most Sustainable Companies. Plus...
Includes these articles: "Corporate Knights' 100 most
sustainable companies"; "How a one-man scrap metal
recycler became the world's most sustainable
corporation," by Mike Scott; "5 Renewable Energy
Companies To Support In 2023," by Lei Nguyen; and "4
Solar Stocks Seeing Explosive Growth," by Sejuti
Banerjea. Plus, links to more...
-- By Ron
Robins
------------------------------------------------------------'
Everything You Need To
Know About the New Nature-Related Risk Disclosures.
"The United Nations Environment Program (UNEP) and
S&P Global announced the Nature Risk Profile, a
methodology to analyze companies' impacts
and dependencies on nature, at the World Economic Forum
annual meeting in Davos, Switzerland, on Tuesday. It
comes on the heels of the
agreement made in December at the U.N.
Biodiversity Conference (COP15) held in Montreal."
[COMMENTARY]
Hooray, hooray! I've been waiting decades for this to
come about. It's about time that society, consumers,
companies, and governments began understanding the costs
of environmental use and degradation. Beginning by
applying the understanding to companies will bring awareness of such costs to everyone.
Everything You Need To Know About the New Nature-Related
Risk Disclosures, by Andrew Kaminsky, January 20,
2023, Triple Pundit, USA.
-------------------------------------------------------------
The 100 most sustainable
companies of 2023 by Corporate Knights.
"Meet the latest Global 100 companies driving the
transition to a low-carbon, circular economy."
[COMMENTARY]
This is my favorite annual listing of the top global
sustainable companies!
The 100 most sustainable companies of 2023 by Corporate
Knights, by Corporate Knights, January 2023,
Canada.
-------------------------------------------------------------
Time to place ESG
'underperformance' in context. "But looking
at a three-year time horizon is different. Seventy-four
percent of ESG products outperformed the benchmark, with
a median return of 5.9%. While environmentally focused
products account for 30% of the global ESG universe --
they accounted for 40% of the products that outperformed
-- again driven by clean energy/energy transition."
[COMMENTARY]
Recently ESG critics have enjoyed pointing to ESG
investment underperformance. This article rightly points
out that its long-term performance that ultimately
matters, and that's where ESG-favored investments have
generally flourished.
Time to place ESG 'underperformance' in context, by
Brendan Cooper, January 17, 2023, ESGClarity, UK.
-------------------------------------------------------------
Does Good Governance
Mean Better Returns? "We take a look at the
returns of companies that score well for governance
risk."
[COMMENTARY]
This is an interesting analysis of governance in
relation to market returns, in the London market.
Generally, good governance is the key to corporate
success. It's illogical it could be otherwise.
Does Good Governance Mean Better Returns?
By Sunniva Kolostyak, January 16, 2023, Morningstar, UK.
-------------------------------------------------------------
Paul Tudor Jones, hedge
fund billionaire, wants to do away with 'ESG'.
"Paul Tudor Jones, billionaire hedge fund manager
and the co-founder of nonprofit Just Capital, says
workers should be the focus of ESG discussions, not the
environment."
[COMMENTARY]
His main point is that ESG is mischaracterized by many
critics. I completely agree with him. When I first
became aware of the term, I believed it to be all about
a company's operational and financial performance. The
environmental aspect, though important, was secondary,
and that's how ESG should be presented to ESG naysayers.
Paul Tudor Jones, hedge fund billionaire, wants to do
away with 'ESG', by Ian Thomas, January 11, 2023,
CNBC, USA.
-------------------------------------------------------------
(New research paper)
Shifting the Focus to Measurement: A Review of Socially
Responsible Investing and Sustainability Indicators.
"We (1) outline the history of the concept, (2)
concisely define SRI and related terms, (3) propose a
trinomial sustainability indicator framework (the
Cambridge SRI indicator framework) for
conceptualisation, and (4) use this framework to provide
a structured overview of sustainability indicators for
SRIs."
[COMMENTARY]
In this paper, the researchers attempt to define
socially responsible and sustainable investing by
investigating a wide range of studies on the subject.
Furthermore, they try to ascertain what are the best
measurement indicators. The authors argue that without
such definitions research into performance, etc., is
non-comparable.
Shifting the Focus to Measurement: A Review of Socially
Responsible Investing and Sustainability Indicators,
by Markus Koenigsmarck, Universitat Darmstadt, Germany,
and Martin Geissdoerfer, University of Cambridge,
Cambridge, UK, Sustainability, 2023, vol. 15.
-------------------------------------------------------------
Need more clarity on
sustainable investing (even with DOL's final ESG rule)? "While
the latest DOL ruling on ESG implementation in
retirement plans is an enormous step forward, more
guidance is needed. However, there are several
approaches and options that are essential for plan
sponsors to keep in mind."
[COMMENTARY]
A good overview of what US plan sponsors need to
understand and decide upon concerning the adoption of
sustainable investing in their plans.
Need more clarity on sustainable investing (even with
DOL's final ESG rule)?
By Lazaro Tiant, January 3, 2023, Benefits Pro, USA.
-------------------------------------------------------------
The end of ESG.
"There is not really such a thing as ESG investing,
only ESG analysis."
[COMMENTARY]
This is a sound argument about the nature of ESG by a
London Business School professor.
The end of ESG, by Alex Edmans, January 3, 2023,
ETFstream.com, UK.
-------------------------------------------------------------
5 Threats to Sustainable
Investing in 2023. "Sustainable investing
is in the mainstream now but navigating ESG will remain
a challenge in the New Year."
[COMMENTARY]
This is a good review of the situation surrounding ESG
investing.
5 Threats to Sustainable Investing in 2023. by Sara
Silano, December 30, 2022, Morningstar, UK.
-------------------------------------------------------------
ESG Is Not About Ethical
Standards And Ethical Values. "It's (ESG)
simply about companies and investors managing material
risk factors to ensure long-term value creation."
[COMMENTARY]
Harvard Business School and Oxford University professor
Robert Eccles elaborates on why the criticism of ESG is
misplaced.
ESG Is Not About Ethical Standards And Ethical Values,
by Robert G. Eccles, December 29, 2022, Forbes, USA.
-------------------------------------------------------------
ESG investing faces
challenges from all sides. Can it survive?
"The problem with ESG as an investment approach is the
lack of standardized criteria for what makes an
investment sustainable... A recent paper from
researchers at MIT and the University of Zurich, for
instance, found very little consistency in the
assessments of ESG rating agencies, making it tricky to
evaluate the ESG performance of companies, funds, and
portfolios."
[COMMENTARY]
I agree that company reporting of ESG information and
metrics needs standardization. However, ESG raters
should be free to develop their own evaluative
techniques -- and ratings --concerning the reported
data. Similarly, investors should feel free to use
whatever ESG raters they feel reflects their goals and
objectives.
ESG investing faces challenges from all sides. Can it
survive? By Laurie Clarke, December 19, 2022,
FORTUNE, USA.
-------------------------------------------------------------
The Coming Wave of
"Natural Capital" and Biodiversity Shareholder Activism
and Stewardship Pressure on Boards. "With
natural capital depletion and biodiversity loss
estimated to result in a decline in
global GDP of $2.7 trillion annually by 2030,
institutional investors are increasingly defining and
grappling with these issues, forming organized
coalitions, and deciding to press public companies for
action, enhanced board oversight and new disclosures."
[COMMENTARY]
Since the earliest days of my investing career, circa
the 1970s, I've been concerned that the pricing-in of
natural capital into product and economic costs had to
occur someday. Finally, it looks like it's beginning to
happen.
The Coming Wave of "Natural Capital" and Biodiversity
Shareholder Activism and Stewardship Pressure on Boards,
by Sabastian V. Niles, Carmen X. W. Lu, and Allison
Rabkin Golden, December 17, 2022, Harvard Law School
Forum on Corporate Governance, USA.
-------------------------------------------------------------
Follow the Demographics:
Why ESG Investing Wins. "The up-and-coming
workforce of today is simply not interested in aiding
and abetting the very industries that threaten their
health, their safety and the welfare of the planet."
[COMMENTARY]
Since younger people care more about
the long-term health of the planet -- and their ability
to live comfortably on it -- the opposition to ESG and
sustainability is a losing proposition.
Follow the Demographics: Why ESG Investing Wins, by
Tina Casey, December 14, 2022, Triple Pundit, USA.
-------------------------------------------------------------
Why ESG Investing Is 'a
Mess' and What to Do About It. "The world
of investing with environmental, social and governance
factors is in a shakeup."
[COMMENTARY]
The author of this article cites the recent announcement
of the big reduction in US sustainable assets given by
the US SIF Foundation. The big takeaway for me in their
announcement is something I've long desired: segregating
the real sustainable funds from the rest.
Why ESG Investing Is 'a Mess' and What to Do About It,
by Janet Levaux, December 14, 2022, Think Advisor, USA.
-------------------------------------------------------------
How Devoted Is Your Fund
Manager to Sustainable Investing? "The ESG
Commitment Level is a qualitative measure that aims to
help investors better understand which asset managers
are committed to delivering the sustainability outcomes
that best meet investors' preferences."
[COMMENTARY]
This Morningstar article is important reading for all
ethical and sustainable investors. It provides insight
into the commitment to sustainability of many fund
managers.
How Devoted Is Your Fund Manager to Sustainable
Investing? By Alyssa Stankiewicz, December 12, 2022,
Morningstar, USA.
-------------------------------------------------------------
A Suggested Corporate
Target For House Hearings On ESG: NextEra Energy.
"I'll bet a breakfast at that West Village
cafe that NextEra Energy will be publishing an ESG
Report and getting a Perfect 10 Woke Score in the years
to come. And continuing its excellent financial
performance while helping America get to net zero."
[COMMENTARY]
Professor Eccles at the University of Oxford pokes fun
at the right-wing criticism of ESG!
A Suggested Corporate Target For House Hearings On ESG:
NextEra Energy, by Robert G. Eccles, December 10,
2022, Forbes, USA.
-------------------------------------------------------------
At least 40 UCITS ETFs exposed to Uyghur repression.
"A minimum of 40 European-listed equity ETFs, including
ESG and SRI products from BlackRock, Amundi, BNP Paribas
Asset Management, Vanguard and DWS, are exposed to
Uyghur imprisonment and forced labour, research from ETF
Stream has found."
[COMMENTARY]
There are probably numerous ESG funds in the US, Canada,
and other countries that are likely having the same
issue. Also, as you may know, the new EU ESG fund
regulations are requiring many hitherto labeled ESG
funds to change their 'labels' and marketing
presentations! Increasingly, ESG fund greenwashing is
gaining attention.
At least 40 UCITS ETFs exposed to Uyghur repression,
by Jamie Gordon, December 7,
2022, ETFstream, UK.
-------------------------------------------------------------
The Flaw in Anti-ESG
Logic: Financial Interests of Companies Like Meta Don't
Always Align with Those of Its Shareholders.
"In the last few months, there has been an organized
effort to falsely argue that companies and institutional
investors are inappropriately prioritizing social and
environmental responsibility over financial returns."
[COMMENTARY]
This is a fascinating article in regard to emphasizing
the importance of ESG for maximizing portfolio returns.
The Flaw in Anti-ESG Logic: Financial Interests of
Companies Like Meta Don't Always Align with Those of Its
Shareholders, by Frederick Alexander, December 5,
2022, Harvard Law School Forum on Corporate Governance,
USA.
-------------------------------------------------------------
Sustainable mine design
starts with a cultural shift. "In
overcoming negative historical perceptions, mine
operators recognize that stakeholders want to see a
positive return. This return is not just on financial
performance, but also on what is called the triple
bottom line: people, planet, and profit. The growing
consensus is that companies with a strong triple bottom
line are more resilient and reliable investments."
[COMMENTARY]
Mining companies are increasingly adopting
ESG/sustainability into their operations. This should
encourage ethical and sustainable investors to invest in
them. Without a vast increase in minerals and metals
mined there will be no carbon-free world. Now that
mining companies are getting serious about ESG bodes
well for the climate -- and for investors!
Sustainable mine design starts with a cultural shift,
by Nicolette Taylor, December 4, 2022, Canadian Mining,
Canada.
-------------------------------------------------------------
Linking Executive
Compensation to ESG Performance. "The vast
majority of S&P 500 companies are now tying executive
compensation to some form of ESG performance—growing
from 66 percent in 2020 to 73 percent in 2021.
The most significant
increase was found in companies’ use of diversity,
equity & inclusion (DEI) goals, rising from 35 percent
in 2020 to 51 percent in 2021, as investors and other
stakeholders continue to focus on diversity."
[COMMENTARY]
Seeping through into C-suite thinking is the realization
that different perspectives on issues have proven to be
more profitable. Diversity also improves a company's ESG
ratings!
Linking Executive Compensation to ESG Performance,
by Merel Spierings, The Conference Board, Inc., November
28, 2022, Harvard Law School Forum on Corporate
Governance, USA.
-------------------------------------------------------------
Britain takes first step
to regulate company ESG raters. "Providers
of environment, social and governance (ESG) ratings on
companies will be asked to apply a voluntary best
practice code as a first step to regulating the sector,
Britain's Financial Conduct Authority said on Tuesday."
[COMMENTARY]
With the maturation and the rising importance of ESG
it's to be expected that some regulation of ESG raters
will occur. My sincere hope though is that it doesn't
stifle differing perspectives concerning the evaluation
of companies rated.
Britain takes first step to regulate company ESG rater,
by Reuters, November 22, 2022, UK.
-------------------------------------------------------------
The Evolution of ESG
Reports and the Role of Voluntary Standards.
"In
our paper, we examine the evolution of ESG reports
for S&P 500 companies and explore how the content of ESG
reports has evolved in the absence of regulation. We
also document how this content changed around the
introduction of voluntary disclosure standards that
defined a comprehensive set of financially material ESG
issues...
We also find evidence that
firms in the same sector increasingly use similar
language over time, as do firms across sectors, meaning
that firms may be coalescing around a common ESG
vocabulary."
[COMMENTARY]
The research shown in this article is highly encouraging
in that it shows not only are companies providing much
greater ESG metrics but that the metrics used tend to
become somewhat standardized within each industry. This
allows -- even without regulation -- for increasingly
greater insight into ESG relationships on an
intra-industry basis.
The Evolution of ESG Reports and the Role of Voluntary
Standards, by Ethan Rouen, Kunal Sachdeva, and Aaron
Yoon, November 21, 2022, Harvard Law School Forum on
Corporate Governance, USA.
-------------------------------------------------------------
Here comes the "S" in
ESG. "As a constellation of social risks
emerge, research points to opportunities for investors."
[COMMENTARY] As
Mr. Lanz states, social risks for companies are growing
and he provides terrific insight into them and how they
can be managed. He also indicates that companies
managing these risks well might provide better returns
for investors.
Here comes the "S" in ESG, by Dustyn Lanz, November
16, 2022, Investment Executive, Canada.
-------------------------------------------------------------
It's Time to Focus on
the "G" in ESG. "For all the debate
surrounding the use of ESG for investing, virtually no
attention has been paid to a core tension in the ESG
policies of major investors and rating agencies -- the
discordance of the 'G' from the 'E' and 'S.'"
[COMMENTARY] Some
years ago I remember reading research showing that most
investment analysts considered the "G" -- governance --
as being the most important in the ESG framework. I
believe as this article suggests that it's foundational
to engaging all the components of "E" and "S"!
It's Time to Focus on the "G" in ESG, by Leo E.
Strine, Jr., Justin L. Brooke, Kyle M. Diamond, and
Derrick L. Parker Jr., November 18, 2022, Harvard
Business Review, USA.
-------------------------------------------------------------
ESG advocates run the
risk of limiting their choices of investments | Retire
on Track. "For example, take a look at ESG
ratings from MSCI, an attempt to provide objective
scores for socially aware investing. Many of the
companies fall into just a limited number of industries:
lots of semiconductor suppliers, banks, internet firms,
software companies, and so on. I doubt you'd want a
portfolio with that little diversification. (To be fair,
there are a few steel producers, automakers, and other
traditional manufacturers.)"
[COMMENTARY] Mr.
Guido makes the usual 'woke' criticisms. But let's
understand that most ESG investors invest for the long
run and aren't necessarily concerned about missing out
on the possible 'short-run' profits of say, the oil
industry. Also, activist ESG investors will often invest
in companies and industries with poor ESG-carbon metrics
to encourage them to perform better.
It's shown that the greatest stock capital gains can be
achieved by investing in companies that start on the
'low ESG' spectrum and make rapid gains in their ESG
activities.
ESG advocates run the risk of limiting their choices of
investments | Retire on Track, by Evan Guido,
November 14, 2022, Herald-Tribune, USA.
-------------------------------------------------------------
Internal Audit's Role
Within ESG. "As companies are undertaking
environmental, social, and governance (ESG) initiatives,
there is often the question on what should, and even
what can, an internal audit (IA))department do in
relation to these seemingly new areas. IA's role within
an organization has always been to help monitor and
address its risks, whether financial, regulatory,
technology, or operational. Thus, IA is uniquely posed
to tackle ESG."
[COMMENTARY] This
article offers a good insight into the important role
that internal auditing can play in a company's success
with its ESG activities.
Internal Audit's Role Within ESG, by Nina Kelleher
and R. Charles Waring, November 14, 2022, EisnerAmper,
USA.
-------------------------------------------------------------
It's Time for ESG to
Fight Back. "But despite the momentum, the
anti-ESG crowd has handed a gift to ESG proponents,
crossing a line free-market purists had not previously
stepped over. Anti-ESG activists have legitimated
consideration of values, not just value, in making
investment choices. Unfortunately, ESG champions are
squandering this gift, sticking to a risk-based
financial argument and not embracing the more
values-based line of attack that will resonate with more
Americans."
[COMMENTARY] Yes,
the anti-ESG crowd is proclaiming that values other than
strictly financial returns are fine to include in
pension fund strategies! How ironic! So, we in the 'ESG
community' need to point this out to them!
It's Time for ESG to Fight Back, by David H. Webber,
November 11, 2022, Barron's, USA.
-------------------------------------------------------------
Investment Update:
Majority Of Financial Advisors Unconvinced About Funds'
Sustainability Claims. "The vast majority
of financial professionals are unwilling to back
completely the sustainability claims made by investment
funds, according to research from the Association of
Investment Companies (AIC), writes Andrew Michael."
[COMMENTARY] In
reality, claims by individual passive ESG funds that
they're influencing -- for the better -- actions of
companies in the economy and that their funds are bound
to outperform conventional funds, are hard to prove.
Hence, advisors and investor skepticism .
Nonetheless, the entire ESG phenomenon is having
significant beneficial impacts on the economy from many
angles. For instance, higher stock valuations of
companies engaging in ESG initiatives spur companies to
perform better on ESG measures, etc.
Investment Update: Majority Of Financial Advisors
Unconvinced About Funds' Sustainability Claims, by
Andrew Michael and Jo Groves, November 8, 2022,
Forbes.com, USA.
-------------------------------------------------------------
Why we need to
prioritise nature alongside the climate transition.
"As Schroders publishes its Plan for Nature, here'
why it matters... The world has woken up to the vital
role that nature plays in supporting our economy and
society. With more than half of our global GDP dependent
on the natural world, we believe that the reality is
stark: nature risk is fast becoming an integral factor
to investment risk and returns."
[COMMENTARY] Many
ethical and sustainable investors have long wondered how the contribution of our natural endowment can be
'costed' into our products and services. A time is coming
when we will have clearer insights into that. This paper
by the UK investment firm Shroders presents a related
perspective on this subject.
Why we need to prioritise nature alongside the climate
transition, by Schroders, November 2, 2022, UK.
-------------------------------------------------------------
IBD's 100 Best ESG
Companies For 2022. "IBD presents its
fourth annual Best ESG Companies list. Public companies
that made our 2022 list combine high Dow Jones
sustainability scores with superior IBD technical and
fundamental stock ratings. They are standouts for ESG
investing."
[COMMENTARY] In
most lists of this nature you can almost always guess
the top names. However, that's not the case with this
IBD list! You might find in it some new suggestions of
companies that you might want to review.
IBD's 100 Best ESG Companies For 2022, by Kathleen
Dohler, October 24, 2022, Investor's Business Daily,
USA.
-------------------------------------------------------------
The Humankind 100 list.
"The Humankind 100 companies are ranked based on
Humankind Value, a proprietary metric
that provides an estimate of the overall dollar amount a
company creates for investors, consumers, employees, and
society at large, and are therefore among the most
ethical companies in the United States, according to our
research."
[COMMENTARY] Though
Humankind purports a unique methodology, they arrive at
pretty much the same companies as most other 'best ESG'
lists. Nonetheless, they have an interesting concept
that will appeal to many ethical and sustainable
investors.
The Humankind 100 list, by
Humankind, October 2022.
The Importance of
Corporate Political Responsibility.
"Engaging on political policy requires courage when it
goes against industry dogma."
[COMMENTARY] The
article promotes the concept of corporate political
responsibility (CPR). A broader look at how companies
should interface with the political environment. This is
of interest to ethical and sustainable investors.
The Importance of Corporate Political Responsibility,
by Andrew Winston, Elizabeth Doty, and Thomas Lyon,
October 24, 2022, MIT Sloan Management Review, USA.
-------------------------------------------------------------
How Much Do Investors
Care About Social Responsibility? "Together
these findings suggest that there is no clear consensus
among investors that corporations should, or should not,
promote social causes at the expense of their financial
gains. More than anything, the split in investors'
social preferences that we observe is a reflection of a
political divide between individuals who support
relatively progressive causes and those who support more
conservative causes."
[COMMENTARY] The
article focuses on a new research paper investigating
these issues.
How Much Do Investors Care About Social Responsibility?
By Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz,
October 24, 2022, Harvard Law School Forum on Corporate
Governance, USA.
-------------------------------------------------------------
Markets or Regulators:
Who Decides on ESG? "The current discourse
on environmental, social, and governance investing
yields two irresistible conclusions. The first is that
fiduciary duty prohibits ESG investing. The second is
that fiduciary duty mandates ESG investing. Wait, what?
The situation is confusing, to say the least."
[COMMENTARY] It
seems to me that fund fiduciaries must account for ESG
effects on the companies they own. Otherwise, they're
not looking out for their stockholders or beneficiaries!
Markets or Regulators: Who Decides on ESG?
By Max M. Schanzenbach and Robert H. Sitkoff, October
20, 2022, Barron's, USA.
-------------------------------------------------------------
The Relevance and
Reliability of ESG Reporting. "This and
other non-GAAP reporting is expanding, with virtually no
generally accepted guidance and little assurance. The
reports are not comparable, are prepared using multiple
guiding frameworks, and are generally unaudited. The
accounting profession must address the relevance of
these reports and the reliability of this new
information."
[COMMENTARY] This
article stresses the urgent need for the accounting
profession to 'fix' the situation regarding the
reporting mess that ESG, sustainability reporting, etc.,
is in. It provides good insight into the real state of
such matters.
The Relevance and Reliability of ESG Reporting, by
Craig Foltin and Mark Holtzblatt, October 2022, The CPA
Journal, USA.
-------------------------------------------------------------
Sustainability reporting
neglects biodiversity and social issues.
"There is a need to catch up in reporting on risks
related to the diversity of species and ecosystems
(biodiversity): Here, only 29 percent of the German 'Top
100' see a loss as a business risk (worldwide: 40
percent)."
[COMMENTARY] Most
investors do not demand that companies measure how
declining biodiversity, in particular, may affect
corporate operations and profits. In the future, this
will be a major issue!
Sustainability reporting neglects biodiversity and
social issues, press release, October 18, 2022,
KPMG, Germany.
-------------------------------------------------------------
Navigating the ESG
landscape: Comparison of the "Big Three" Disclosure
Proposals. "After years of increasingly
vocal demand for enhanced transparency about ESG matters
from investors and other stakeholders, regulators and
standard setters in various jurisdictions issued
definitive proposals to transform ESG reporting in 2022.
So far this year, proposed
ESG disclosures have been released in the European Union
(EU) as part of the Corporate Sustainability Reporting
Directive (CSRD), internationally by the International
Sustainability Standards Board (ISSB), and in the US by
the SEC."
[COMMENTARY] Another
great analysis of the new ESG disclosure proposals by
regulatory authorities.
Navigating the ESG landscape: Comparison of the "Big
Three" Disclosure Proposals, by Heather Horn,
Valerie Wieman, and Andreas Ohl, October 10, 2022,
Harvard Law School Forum on Corporate Governance, USA.
-------------------------------------------------------------
Switching to renewable
energy could save trillions, new study finds.
"This study,
first published on journal Joule on 13th September this
year, used a probabilistic modelling technique which
predicts how the cost of renewable energy technologies
will decrease over time, using the evolution in cost of
over 50 other technologies to test the model. This
estimate predicts trillions in savings, without
accounting for the savings from avoiding further climate
disasters."
[COMMENTARY] Many
assumptions are made in this study that may or may not
happen. One assumption seems to be that sufficient
metals and minerals will be readily available. See my
comment below under "What does ESG mean for the
mining industry?"
Switching to renewable energy could save trillions, new
study finds by Emily Hudson, October 5, 2022, The
Oxford Student, UK.
-------------------------------------------------------------
Comparing ESG disclosure
rules for funds in the EU, UK and the US -- SFDR, SDR
and SEC proposals. "Fund managers marketing
products into each of the jurisdictions will be likely
be set down a path of differentiated, not harmonised,
disclosures."
[COMMENTARY] A
good and detailed analysis and comparison of the
different ESG regulations in major global financial
jurisdictions.
Comparing ESG disclosure rules for funds in the EU, UK
and the US -- SFDR, SDR and SEC proposals, by Brent
L. Bernel, Rhys Davies, Erin Lachaal, Jesse Medlong,
Caroline Pimpaud, Catherine Pogorzelski, Deanna R.
Reitman, and Erin Sculthorpe. October 5, 2022, DLA
Piper, UK.
-------------------------------------------------------------
What does ESG mean for
the mining industry? "Many mining and
minerals businesses are already taking active steps on
their ESG agenda, identifying their priorities and
measuring their performance. In our experience, the real
benefits come when you move beyond measurement and take
action to improve."
[COMMENTARY] Ethical
and sustainable investors have few, if any, mining
stocks in their portfolios. They generally believe
mining is dirty and ruins the environment while
destroying Aboriginal communities.
This view is
outdated. Most modern mining companies are taking ESG
seriously and mining jurisdictions are mandating ESG
integration in mining operations. And where new mines
are permitted, they can take 7 - 15 years to build.
Because of outdated views about mining, capital
investment in new mines is woefully short of what the
green-electric revolution requires in terms of copper,
zinc, silver, etc. Without huge increases in metals and
minerals production, there will be no green economy.
So, read this article, and perhaps more of you will
reconsider investing in mining.
What does ESG mean for the mining industry? By David
Walker, October 3, 2022, Canadian Mining Journal,
Canada.
-------------------------------------------------------------
We Need to Create a
Shared Language Around ESG. "Billionaires
like Elon
Musk call it a 'scam,' consumers and
business leaders see it as a strategic
priority to develop more sustainable
business models, while governments are implementing ESG
standards as a way to act
in the public's interest."
[COMMENTARY] This
article provides a useful perspective on defining ESG
and how it might be understood from differing
perspectives.
We Need to Create a Shared Language Around ESG, by
Mark Horoszowski, September 26, 2022, Triple Pundit,
USA.
-------------------------------------------------------------
Nuclear Power Still
Doesn't Make Much Sense. "In a common
energy industry measure known as 'levelized cost,'
nuclear's minimum price is about $131
per megawatt-hour, which is at least twice
the price of natural gas and coal, and four times the
cost of utility-scale solar and onshore wind power
installations.
And the high price of
nuclear power doesn't include its extraneous costs, such
as the staggering price of disasters. Cleanup and other
costs for the 2011 Fukushima disaster, caused by an
earthquake and a tsunami off the Japanese coast, may approach
a trillion dollars."
[COMMENTARY] I've
been reading and listening to a lot of analysts say that
nuclear (fission) is going to be the answer to reaching
net-zero by 2050. However, this analyst's analysis makes
a cogent and coherent case for avoiding relying on
nuclear.
My principal concerns regarding
renewables are that the surface areas required as well
as the metals and materials needed will not be
sufficiently available. What do you think?
Nuclear Power Still Doesn't Make Much Sense, by
Farhad Manjoo, September 16, 2022, The New York Times,
USA.
-------------------------------------------------------------
Experts question
economic, environmental value of wind power. "Martis
explained to The Center Square that the manufacturing
and transportation of turbines to their destination
typically requires overseas shipping to U.S. ports,
followed by over-the-road transport requiring several
diesel-fueled 18-wheel semi-trucks per turbine."
[COMMENTARY] Though
this article makes some interesting points, they might
be invalidated due to the author's reliance on studies
many years old.
Experts question economic, environmental value of wind
power, by Bruce Walker, September 14, 2022, The
Center Square, USA.
-------------------------------------------------------------
Female directors improve
corporate social responsibility. "Companies
are more likely to take corporate social responsibility
seriously if they have more women on their board of
directors, new University of Sydney Business School
research reveals."
[COMMENTARY] Here's
another good quote from the article, "Our research
indicates that improving gender parity on corporate
boards reaps benefits by improving governance structure
in the form of effective CSR committees, which has
immediate and long-term benefits for companies, says Dr
Anish Purkayastha."
Female directors improve corporate social responsibility,
University of Sydney, September 8, 2022, Australia.
-------------------------------------------------------------
The Politics of
Values-Based Investing. "We do not expect
the controversy about ESG investing to disappear anytime
soon. Much of it is healthy, such as correcting for
excessive claims that an ESG fund 'will make the world a
better place' when there is no demonstrable way to show
that it will.
Conservatives who complain
that ESG investing is a way of forcing a social and
environmental agenda on companies that has nothing to do
with company profitability, perhaps even hurting it,
need to look in the mirror if they are creating anti-ESG
funds of their own. This is simply swapping out one set
of values for another. Both are forms of Socially
Responsible Investing."
[COMMENTARY] This
is an excellent article by someone at the pinnacle of
academia who studies corporate ESG and sustainability
performance.
The Politics of Values-Based Investing, by Robert G.
Eccles and Jill E. Fisch, September 7, 2022, Harvard Law
School Forum on Corporate Governance, USA.
-------------------------------------------------------------
100 Percent Renewable
Energy Systems Could Power the Globe By 2050. "A
new review from the Institute of Electrical and
Electronics Engineers (IEEE) analyses over 600
peer-reviewed articles on 100 percent renewable energy
systems. 'The main conclusion of most of these studies
is that 100 percent renewables is feasible worldwide at
low cost,'" the report determines."
[COMMENTARY] My
concerns about material shortages are apparently dealt
with in some studies.
100 Percent Renewable Energy Systems Could Power the
Globe By 2050, by Andrew Kaminsky, September 5,
2022, Triplepundit, USA.
-------------------------------------------------------------
Texas' Answer to 'Woke'
Investing Looks Kind of Woke. "The same day
Texas released its version of the index prohibitorum, it
emerged that California would ban gasoline-powered cars
by 2035. Now one can, of course, say that policy is
misguided or too costly; that is a valid debate. But to
say that firms lending to or investing in the oil
industry shouldn't factor in the biggest car market in
the US -- which also sets the regulatory agenda in many
other states -- banning the biggest source of demand for
oil is simply delusional."
[COMMENTARY] The
above quote from the article is telling. It implies that
by implementing the state's new financial guidelines,
it's 'telling' the state's pensions, etc., to not divest
assets/stocks that in the future might become stranded
assets, thereby harming financial returns. Texas is
doing the very thing it says it is trying to guard
against!
Texas' Answer to 'Woke' Investing Looks Kind of Woke,
by Liam Denning, August 30, 2022, Bloomberg, USA.
-------------------------------------------------------------
Why sustainable
investors may rue being too passive.
"Passive sustainable funds are growing strongly. But
investors in these funds are at risk of a mismatch
between what they expect and the reality of what they
receive."
[COMMENTARY] This
article's author makes a strong case for active
investing. That is where funds are actively managed
compared to passive management of, say, an index or most
ETFs.
Why sustainable investors may rue being too passive,
by Rory Bateman,
August 30, 2022, Schroders, UK.
-------------------------------------------------------------
Report Calls for
"Unbundling" ESG Metrics for Impactful Investment for
SDGs. "Util -- a financial technology
company with a focus on sustainability -- has published
a report ranking the top ten positive -- and negative --
contributing investment funds for each of the 17 SDGs."
[COMMENTARY] Two
of the most interesting points are that firstly, the
report finds that markets favor big companies as they
can provide more SDG-relevant data than smaller
companies. Secondly, fulfilling SDG goals requires a
massive expansion of the mining industry, an industry
that SDG-ESG investors mostly disdain!
Report Calls for "Unbundling" ESG Metrics for Impactful
Investment for SDGs, August 24, 2022, International
Institute for Sustainable Development.
-------------------------------------------------------------
ESG -- A Defense, A
Critique, And A Way Forward: An Evidence-Driven
Pragmatic Perspective. "The evidence
against claims related to 'woke' capitalism is thin.
Both sides of the ESG debate make valid points while
being simultaneously guilty of overstating their case
relative to the observed data."
[COMMENTARY] The
author is a professor at the Columbia School of Business.
He seeks in this and future articles to examine all
aspects of the debate surrounding ESG.
ESG -- A Defense, A Critique, And A Way Forward: An
Evidence-Driven Pragmatic Perspective, by Shivaram
Rajgopal, August 23, 2022, Forbes, USA.
-------------------------------------------------------------
Can High ESG Ratings
Help Sustain Dividend Growth? "To
summarize, the analysis found that companies with higher
initial ESG ratings experience greater subsequent
stability of dividends and a lower likelihood of cutting
or eliminating their dividends.
Low ESG ratings do not
necessarily mean poor dividend growth, but companies
with high ESG ratings appear to consistently deliver
higher dividend growth. Finally, equity ESG indices
integrating the ISS ESG Corporate Rating may potentially
offer better dividend growth over time."
[COMMENTARY] This is a case where initial higher ESG ratings appear
to have some predictive value! It gives comfort to those
who may some reliance on ESG ratings.
Can High ESG Ratings Help Sustain Dividend Growth?
By Subodh Mishra, August 18, 2022, Harvard Law School
Forum on Corporate Governance, USA.
-------------------------------------------------------------
On ESG Investing, The
Economist Offers The Right Diagnosis But A Faulty
Prescription. "Rather than proposing
improved definitions and metrics based on better data,
The Economist argues that 'it is better to focus simply
on the E,' for environmentally sound investments."
[COMMENTARY] I
agree with the writer of this article that The
Economist's proposal to focus on the environment at the
expense of the social and governance aspects of ESG is
too narrow. I'm not surprised by 'establishment'
publications arriving at such a conclusion, however.
ESG is all about looking at all aspects of a company
that relate to its activities and that promote its
financial well-being over the short, medium, and
long-term.
On ESG Investing, The Economist Offers The Right
Diagnosis But A Faulty Prescription, by Michael
Posner, August 17, 2022, Forbes, USA.
-------------------------------------------------------------
Doing Good: Where
Sustainable Investing Gets It Wrong. "A
high sustainability rating does not necessarily equate
to real sustainability impact (and profit)."
[COMMENTARY] The
article's authors suggest that "investors should pay
more attention to funds' policies and track records
around voting and engagement on sustainability issues
than to their sustainability ratings."
Doing Good: Where Sustainable Investing Gets It Wrong,
by Lucie Tepla, August 16, 2022, INSEAD, Singapore.
-------------------------------------------------------------
What's wrong with ESG
ratings? "'Is it possible for companies to
effectively report on the vast number of potential
stakeholder-related metrics that would be required
(carbon emissions, pollution and waste, human capital
management, supply chain practices, product use and
safety, etc.)?' Similarly, should ESG ratings be subject
to regulatory requirements similar to those applicable
to major credit rating agencies?"
[COMMENTARY] This
is a great review of the state of ESG ratings.
What's wrong with ESG ratings?
By Cooley LLP, August 8, 2022, J D Supra, USA.
-------------------------------------------------------------
How regulations are
moving ESG into the risk and compliance field.
"New regulatory rule-making around disclosure could
push companies and financial services firms to move
their ESG activities under the oversight of risk and
compliance teams"
[COMMENTARY] It's
easy to see that as ESG reporting becomes increasingly
regulated that it'll require compliance oversight.
How regulations are moving ESG into the risk and
compliance field, by Thomson Reuters Regulatory
Intelligence and Compliance Learning, August 5, 2022, J
D Supra, USA.
-------------------------------------------------------------
Could ESG Options
Undermine Participant Outcomes? "Overall,
the researchers comment that their analysis paints a
'mixed picture about the actual participant interest,
and drivers of demand, for ESG funds in DC plans and
suggests that plan sponsors should take a thoughtful
approach when considering adding ESG funds to an
existing core menu.'"
[COMMENTARY] It
seems that employees investing in DC plans weren't
motivated to invest in ESG funds. However, this could be
because of the number of funds plan holders invested in,
among other factors.
Could ESG Options Undermine Participant Outcomes?
By Nevin E. Adams, August 2, 2022, National Association
of Plan Advisors, USA.
-------------------------------------------------------------
ESG is having a hard
time but look to the long-term. "The future
of green investing still seems secure--performance has
been hit by a unique set of economic circumstances,
younger investors are at the forefront of the ESG push,
and managers are taking a second look at former no-go
energy stocks as decarbonisation plans march forward."
[COMMENTARY] Yes,
a unique set of circumstances has created a situation
where ESG funds are underperforming. However, should
global warming continue to pan out as per IPCC
forecasts, quality ESG funds should perform well over
the long-term as increasing efforts are made to reduce
the effects of climate change.
ESG is having a hard time but look to the long-term,
by Christopher Akers, July 28, 2022, Investors
Chronicle, UK.
-------------------------------------------------------------
ESG Underperformance
Will Be Its Undoing. "While ESG investing
gets promoted as a way for individuals to 'invest with
their principals,' such has been a windfall marketing
scheme by Wall Street firms."
[COMMENTARY] The
writer, Mr. Roberts, completely misses the whole idea of
ESG: that is for investors to invest in companies that
not only reflect high personal values but to invest in
companies that are dutifully applying ESG principles to
their operations for long-term shareholder returns.
Over time, companies that pay attention to the
environment, have good relations with all stakeholders,
and are exceptionally well governed, are likely to have
higher profits.
Yes, many financial firms have
engaged in greenwashing and this is now being addressed
by various regulatory authorities. But ESG investing
will survive because over the long-term it'll simply
make more money for investors.
ESG Underperformance Will Be Its Undoing, by Lance
Roberts, July 28, 2022, Advisor Perspectives, USA.
-------------------------------------------------------------
Investors Are Embracing
ESG But Avoiding Impact. What They're Missing.
"The belief that achieving positive social impact
automatically means sacrificing attractive return on
investment--drives many investors to avoid 'impact' but
embrace 'ESG.'"
[COMMENTARY] The
article quotes the Ford Foundation with achieving
significant impact investment financial returns and is
an encouragement for others to get into the impact
space.
Investors Are Embracing ESG But Avoiding Impact. What
They're Missing, by Roy Swan, July 27, 2022,
Barron's, USA.
-------------------------------------------------------------
They helped create ESG.
Two decades later, some see a mess. "The
goal of ESG investing was 'to try and create a positive
virus that we could plant in mainstream finance and
investment to start a different conversation that these
issues are real, they're material, and they affect your
long-term investments,' said Paul Clements-Hunt, the
former head of the U.N. Environment Programme Finance
Initiative, or UNEP FI, which played a crucial role in
popularizing the idea."
[COMMENTARY] Yes,
it is a mess. Nonetheless, ESG is seen by most investors
as something that is proving itself of value! Can you imagine a
world without it now?
They helped create ESG. Two decades later, some see a
mess, Avery Ellfeldt, July 26, 2002, E&E News
Climate Wire, USA.
-------------------------------------------------------------
Put short selling on the
ESG investing table, say hedge fund managers.
"The study of how short sales affect ESG objectives
has gained a lot of attention. According to a recent
white paper by the Managed Funds Association and Harvard
Management Company, short bets can lower capital
investment in the most polluting industries by 3 to 8%.
The white paper also states that short
selling can raise the cost of capital and exert
downward pressure on equity prices."
[COMMENTARY] Should
short selling be considered a legitimate ESG practice? I
think the answer is yes, provided certain well-known and
historic safeguards are employed.
Put short selling on the ESG investing table, say hedge
fund managers, by Jean Dondo, July 26, 2022, Wealth
Professional, Canada.
-------------------------------------------------------------
Amidst Criticism, ESG
Reporting Should Be Reformed, Not Abandoned.
"In response to the growing criticism of the rating
system, EY released a new
report on the state of ESG and recommended five
actions to strengthen the credibility of the metric."
[COMMENTARY] It's
good that one of the big accounting firms has issued
such a report.
Amidst Criticism, ESG Reporting Should Be Reformed, Not
Abandoned, by Andrew Kaminsky, July 21, 2022, Triple
Pundit, USA.
-------------------------------------------------------------
Have the merits of ESG
investment been overstated? "How times
change. A year ago, asset managers were trumpeting the
qualities of environmental, social and governance (ESG)
funds, as a slew of data showed that these had beaten
their conventional equivalents over several periods.
Today, they have toned down
their message after months of disappointing performance;
negative stories about firms exaggerating the benefits
of ESG; and the emergence of influential and
increasingly vocal sceptics."
[COMMENTARY] There
are two knowledgeable commentaries in this article about
the merits -- or lack of them -- concerning the
relevance of ESG based investing. I believe each side
makes valid points.
Have the merits of ESG investment been overstated?
By Tim Cooper, July 14, 2022, Raconteur, UK.
-------------------------------------------------------------
The End of the
'Technological Era' of Oil, Gas & Coal.
"The enaction of climate policies over the next decade
will lead to lost profits of at least $1.4 trillion in
the global oil and gas industry, finds a peer-reviewed
analysis published in Nature Climate Change, much of
which will impact private investors in Western Europe,
while generating financial volatility larger in scale to
the 2008 subprime mortgage crisis."
[COMMENTARY] After
the EU agreed to include gas and nuclear power in their
new 'green' taxonomy and Germany restarting coal-powered
electricity generation, I wonder exactly when the big hit
to fossil fuel assets will take place?
The End of the 'Technological Era' of Oil, Gas & Coal,
by Nafeez Ahmed, July 11, 2022, Byline Times, UK.
-------------------------------------------------------------
ESG questionnaires: why
you shouldn't use them with clients.
"Offering a questionnaire focused on ESG, and which
doesn't cover Responsible, Ethical, Impact, Transition,
UN's Sustainable Development Goals (SDGs) etc. is
building up future compliance problems... I suggest you
provide a document explaining how your firm arrived at
its definition of ESG and what it covers. It will then
be harder for the client to come back 3 years later and
say 'I thought they meant X or Y for ESG.'"
[COMMENTARY] The
title is misleading. What the author of this article is
saying is that you must define terms such as ESG, so
your client is clear about what they're agreeing to.
ESG questionnaires: why you shouldn't use them with
clients, by Annie Gomes, July 11, 2022,
ifamagazine.com, USA.
-------------------------------------------------------------
New litigation fears
driving expanded responsibilities for in-house lawyers
to prevent ESG risks. "Vincent Walden, CEO
of Kona AI and FRAUD Magazine columnist, says the
expanding ESG risk environment, including potential
concerns of fraud, is very real. 'When company
executives act in a different way that is counter to the
company's code of conduct or social norms, it can cause
significant financial harm to the company and thus
significantly increase pressure to cover up or misstate
certain facts,' Walden says, adding that while this may
not be outright fraud, the critical role of governance
comes into play."
[COMMENTARY] Many
countries have, or are likely to, adopt legislation that
either directly or indirectly allows individuals or
groups to sue for damages concerning a company's ESG
activities. This should promote greater corporate ESG
engagement while possibly enhancing shareholder value.
New litigation fears driving expanded responsibilities
for in-house lawyers to prevent ESG risks, by
Thomson Reuters Regulatory Intelligence and Compliance
Learning, July 8, 2022, JDSupra.com, USA.
-------------------------------------------------------------
Canada's Best 50
corporate citizens of 2022 continue to conquer the
markets. "The pay gap between Best 50 CEOs
and their average worker is less than half that of
run-of-the-mill big businesses. And their carbon
productivity (which measures how much revenue a company
generates per tonne of emissions) is double their peers.
This approach has stood the test of time, proving that
better corporate citizens can beat the market year over
year.
The Best Corporate Citizens'
stock market performance has outperformed its peers
earning 499% gross return since it was first launched in
June 2002, versus 366% for S&P/TSX Composite."
[COMMENTARY] Corporate
Knights perform a great and honest assessment of
Canada's best companies and the role they and all
Canadian businesses play in furthering our quality of
life.
Canada's Best 50 corporate citizens of 2022 continue to
conquer the markets, by Toby Heaps, July 2022,
Corporate Knights, Canada.
-------------------------------------------------------------
Don't Count on ESG
Outperformance. "New research shows that
the significant outperformance of environmental,
sustainable and governance - (ESG) - driven investing
over the last decade was due to a sharp increase in
concern among investors for climate-related issues.
Whether that outperformance continues will depend on
even more heightened concerns over the environment."
[COMMENTARY] Mr.
Swedroe provides insight into the conclusions of several
recent papers focusing on ESG returns.
Don't Count on ESG Outperformance, by Larry Swedroe,
July 4, 2022, Advisor Perspectives, USA.
-------------------------------------------------------------
ESG That's Risk Managed.
"Whether ESG equity investors are motivated by the
desire to do good or the expectation of superior
performance, they face the prospect of potential
selloffs merely by virtue of their exposure to risk. We
therefore propose that ESG equity investors consider
adding a dynamic component to their portfolios that cuts
risk when market conditions are fragile and accepts risk
when conditions are resilient."
[COMMENTARY] The
authors' proposal to consider some active management in
portfolios and the addition of risk measures could
interest many investors and portfolio managers.
ESG That's Risk Managed, by Mark Kritzman and Cel
Kulasekaran, June 27, 2022, etfdb.com, USA.
-------------------------------------------------------------
EU agrees deal on
company disclosures to combat greenwashing.
"The European Union has reached a deal on corporate
sustainability reporting requirements for large
companies from 2024, a European Parliament committee
said on Tuesday. Regulators have grown more worried
about companies engaging in greenwashing, or making
exaggerated climate-friendly claims to attract investor
cash."
[COMMENTARY] One
thing I particularly like is that disclosures will be
externally audited by approved firms! This is something
that's been missing in ESG reporting since the beginning
of such reporting. If the statements and numbers
reported aren't uniform among companies and
independently verified what good is the reporting!
EU agrees deal on company disclosures to combat
greenwashing, by Huw Jones, June 21, 2020, Reuters,
UK.
-------------------------------------------------------------
Low ranking ESG
companies facing restricted lending.
"Institutional owners are restricting lending of
companies perceived as unsustainable, according to
Travis Whitmore, senior quantitative researcher and head
of securities finance research at State Street
Associates."
[COMMENTARY] This
is another reason why ESG is growing fast. The ESG
naysayers on the American right need an education on the
profit imperative that ESG offers to companies when
properly implemented. And that's why high-ranking ESG
companies find it easier to obtain funds.
It's convenient to say ESG is a socialistic political
policy but the truth is it is usually a means to enhance
corporate profitability!
Low ranking ESG companies facing restricted lending,
by Carmella Haswell, June 20, 2022, Securities Finance
Times, UK.
------------------------------------------------------------
ESG Funds Supporting
Mining's Future. "Global law firm White &
Case believes that ensuring that borrowers have taken
appropriate ESG and sustainability considerations into
account has become a priority for many mining investors
as well as financiers across the spectrum -- from export
credit agencies, development finance institutions and
commercial lenders, through to stream and royalty
financiers."
[COMMENTARY] The
mining industry is increasingly engaging ESG not only to
become more profitable but to also appeal to investors
who hitherto have thought of mining as bad for the
environment. The truth is there's absolutely now way ANY
of the world's climate goals through electrification can
be remotely achieved without vastly expanding mining
capacities!
ESG Funds Supporting Mining's Future, by Collin
Sandell-Hay, June 20, 2022, The Assay, Hong Kong.
-------------------------------------------------------------
Proposed ESG Disclosure
Requirements for Investment Advisers and Investment
Companies. "The proposal on ESG disclosures
for investment advisers and registered investment
companies would introduce requirements for advisers and
registered funds that consider ESG factors in their
investment processes to disclose more about those
factors' role in investment decisions.
The Names Rule proposal
would extend the 80% investment policy requirement to
registered funds with names that suggest the fund
focuses on investments/issuers with particular ESG
characteristics."
[COMMENTARY] Though,
in general, I welcome the thrust of these regulations I
can't help wondering if we're going into 'overkill'
though! My concern is that regulators create such
regulatory tightness that it kills the creativity of the
sustainability, and ESG, ethos. Plus, the extra costs
incurred in conforming to the regulations become a
penalty for advisors and investors vis-a-vis
'conventional' funds and investments.
Proposed ESG Disclosure Requirements for Investment
Advisers and Investment Companies, by Laura Ferrell,
Sarah Fortt, and Betty Huber, June 20, 2022, Harvard Law
School Forum on Corporate Governance, USA.
-------------------------------------------------------------
Launched---9 th edition
of the Global Prize Ethics & Trust in Finance for a
Sustainable Future. "By launching the 9th
edition (2022/2023) of the Global Prize Ethics & Trust
in Finance for a Sustainable Future online, we want to
encourage candidates to reflect on the role of ethics in
shaping a more sustainable and responsible financial
system. Such intellectual effort is made today more
necessary and urgent than ever."
[COMMENTARY] I've
helped publicize this prize since its inception as I
believe inherently in its purpose! Please spread the
word about it throughout your networks and encourage
suitable candidates to participate.
Launched--9 th edition of the Global Prize Ethics &
Trust in Finance for a Sustainable Future, press
release, June 16, 2022, Switzerland.
-------------------------------------------------------------
Millennials and Gen Z
Are Fed Up With ESG Investing. "Ethically
minded investors are growing more skeptical of ESG
investing, wondering whether it actually furthers
environmental or social justice aims. At the same time,
demand for ethical investing is only going to increase
as progressive millennials and Gen Zers accrue more
financial assets, often by inheriting that money from
their conservative parents."
[COMMENTARY] The title of this article is too strong
considering its content. However, I do think that many
young ESG investors would like to see much greater
action by companies, regulators, and governments, on ESG
matters.
Millennials and Gen Z Are Fed Up With ESG Investing,
by Tanja Hester, June 13, ThinkAdvisor, USA.
-------------------------------------------------------------
Boards Are Tying Goals
to ESG Metrics. "Our analysis of three data
points on board oversight of ESG issues, covered under
the Shareholders and Governance stakeholder, has led to
two key findings. First, disclosure on these data points
is steadily increasing.
Almost a fifth of companies
in the Russell 1000 Index report all three ESG
governance data points we measure in 2022-up from around
a tenth in 2020. Second, the Oil & Gas, Utilities,
Energy Equipment & Services, and Chemicals industries
have a much larger percentage of companies disclosing on
all three ESG governance data points than other
industries."
[COMMENTARY] The
research shows that company boards are increasingly
taking ESG considerations seriously. It shows that ESG
enablement is becoming embedded in board activities.
Boards Are Tying Goals to ESG Metrics, by Molly
Stutzman, Laura Thornton, and Matthew Nestler, JUST
Capital, June 13, 2022, Harvard Law School Forum on
Corporate Governance, USA.
-------------------------------------------------------------
SEC Proposes New Rules
for Sustainable Funds Aimed at Standardizing ESG
Disclosures. "The U.S. Securities and
Exchange Commission has proposed two rules that, if
adopted, will help investors better identify,
understand, and compare funds that feature
environmental, social, and governance criteria in their
investment process."
[COMMENTARY] Let
me first say that I agree with stricter rules deterring
greenwashing! Now should these new SEC rules be adopted
I believe two things will happen. Firstly, there could
be relatively fewer funds claiming ESG credentials.
Secondly, fees will likely rise as fund expenses
increase.
(Funds
are already implying potentially higher costs. See
SEC Greenwashing Rule Gives Funds Chills Over Emission
Reporting, Bloomberg Law.)
SEC Proposes New Rules for Sustainable Funds Aimed at
Standardizing ESG Disclosures, by Jon Hale, May 27,
2022, Morningstar, USA.
-------------------------------------------------------------
It's Time to Give
Companies Standalone Climate Ratings.
"Investors are increasingly using ESG ratings for their
investment decisions. But we need to assign companies a
stand-alone rating focused on climate risk that's
distinct from the ESG rating system. Such a
climate-specific rating can distill complex information
regarding a company's carbon footprint and climate risk
into an intuitive, user-friendly format, while avoiding
the flaws that currently mar ESG ratings."
[COMMENTARY] The
argument is that many investors would want this.
It's Time to Give Companies Standalone Climate Ratings,
by Felix Mormann and Milica Mormann, May 24, 2022,
Harvard Business Review, USA.
-------------------------------------------------------------
Comment: If We Don't
Define ESG, Its Enemies Will. "Much more
troubling is the growing animosity toward ESG on the
political right in the United States. 'ESG,' in their
telling, is just one more front in the anti-American
progressive takeover of the country."
[COMMENTARY] Can
there be a precise definition of ESG? What do you think?
The highly respected Jon Hale at Morningstar writes in
this piece that we ought to encourage the word sustainability
rather than ESG.
Comment: If We Don't Define ESG, Its Enemies Wil, by
Jon Hale, May 23, 2022, Morningstar, USA.
-------------------------------------------------------------
Does integrated
reporting quality matter to capital markets? Empirical
evidence from voluntary adopters.
"Potential implications of our results are that the
standard setters should work to improve the specificity
and rigor of their guidelines, and analysts should
become more involved in developing IR guidelines to make
them more relevant to their information needs. IR seems
to unfold its benefits better in mandatory settings,
which could call for regulators to make IR mandatory."
[COMMENTARY] This
is a research paper. Integrated reporting--the combined
reporting of the annual report, financial statements and
ESG/sustainability information -- is studied here. I've
been in favor of this reporting for decades. Also see
Integrated Reporting as an Academic Research Concept in
the Area of Business by Hugo Moraga.
However, it seems much work still needs to be done for
it to be fully useful for investors.
Does integrated reporting quality matter to capital
markets? Empirical evidence from voluntary adopters,
Luca Leukhardt, Michel Charifzadeh, and Fabian
Diefenbach, May 20, 2022, Corporate Social
Responsibility and Environmental Management.
-------------------------------------------------------------
Can Elon Musk save ESG?
"As I explained in my recent three-part series on
ESG ratings, the ratings reflect risks to companies and
its shareholders, not necessarily to people and the
planet. And while the ratings agencies insist they make
that fact crystal clear, and most professional investors
agree that they do, there remains a general -- and not
illogical -- perception among many that high-scoring
companies, from an ESG perspective, are 'good' companies
for the world.
Moreover, ESG ratings
primarily focus on whether a company has systems in
place to manage their direct impacts and those of their
supply chains. As such, they are relatively short-term
in their focus."
[COMMENTARY] I'm
so glad that the author of this article, Joel Makower,
makes it clear that a high ESG rating may have nothing
to do with whether the company is benefiting people and
the planet! Some big tobacco and fossil-fuel companies
also have high ESG ratings!
Can Elon Musk save ESG? By Joel Makower, May 23
,2022, GreenBiz, USA.
-------------------------------------------------------------
ESG-conscious companies
worth 50% more, Schroders finds.
"Referencing its SustainEx tool, Schroders found a
'good' company (one that is highly environmentally
friendly) would be worth roughly 50 per cent more than a
bad one with the same earnings.
Using its SustainEx, which
looks at the dollar-value of the impact individual
companies have on society before scaling this relative
to their sales, Schroders found bad companies were
valued at 17-times their last 12-months earnings.
However, good companies were on 25-times."
[COMMENTARY] I
can't comment on the methodology. However, Shroders is a
highly respected firm in the ESG space. However, I would
hope it gets peer reviewed and published in a suitable
professional journal.
ESG-conscious companies worth 50% more, Schroders finds,
by Carmen Reichman, May 20, 2022, FT Advisor, UK.
-------------------------------------------------------------
The Benefits And Costs
Of Climate-Related Disclosure Activities For Companies
And Investors. "One can make the argument
that if climate information and its analysis is useful
for management and the board, the additional cost of
reporting it externally is a relatively incremental
one."
[COMMENTARY] Professor
Robert Eccles opf Harvard and Oxford fame presents
insightful information on this important subject.
The Benefits And Costs Of Climate-Related Disclosure
Activities For Companies And Investors, by Robert G.
Eccles, Tenured Harvard Business School professor, now
at Oxford University, May 18, 2022, Forbes, USA.
-------------------------------------------------------------
Lies, damn lies and
diluted ESG metrics. "Fund managers talk
to Nicholas
Pratt about the dangers of ESG metrics that boil
complex risks down to a single number."
[COMMENTARY] The
lesson here is to understand the numbers before using
them. If you don't understand them, don't use them.
Lies, damn lies and diluted ESG metrics, fund
managers, May Edition, Funds Europe, UK.
-------------------------------------------------------------
$100bn Assets Divestment
By Oil Majors Sparks Environmental Concerns.
"However, they frequently sell to buyers that
disclose little about their operations, have made few or
no pledges to combat climate change, and are committed
to ramping up fossil fuel production.
A new study, however, warned
of expected large environmental pollution with such
uncoordinated efforts."
[COMMENTARY] Is
it possible for governments to regulate the conditions
under which polluting assets can be sold?
$100bn Assets Divestment By Oil Majors Sparks
Environmental Concerns, by Chika Izuora, May 12,
2022, Leadership, Abuja FCT.
-------------------------------------------------------------
Taking companies to
court over climate change: who is being targeted?
"Catherine Higham and Honor Kerry analyse climate
cases filed in 2021 against companies in different
sectors and consider what the future holds. They find
that that while fossil fuel companies remain a primary
target of activist litigation, climate litigants are now
casting their net more broadly."
[COMMENTARY] How
far could this go? As case law and regulation in this
area build, can it become a strong influence on
companies (and governments) to become more sustainable
and climate-friendly?
Taking companies to court over climate change: who is
being targeted? By Catherine Higham and Honor Kerry,
May 3, 2022, London School of Economics, UK.
-------------------------------------------------------------
University of Guelph
study finds sustainability practices good for business
in times of crisis. "A University of Guelph
study found companies prioritizing sustainability in
their business practices are better off in times of
crisis and have economic growth."
[COMMENTARY] This
study throws a different light on some understandings
concerning ESG in difficult economic times. For
instance, the researchers found that 'low' ESG companies
did better than 'high' ESG companies in the 2008/9
financial crises. However, it reversed during the recent
pandemic!
University of Guelph study finds sustainability
practices good for business in times of crisis, by
Guelph Today staff, May 1, 2022, Guelph Today, Canada.
-------------------------------------------------------------
Measuring health impacts
could expand ESG metrics. "What has not
been explicitly recognised is the impact of the private
sector on human health. The fact that companies'
activities, services and products affect human health is
not disputed. These include not only direct effects such
as respiratory diseases in coal miners, but also
indirect ones such as obesity-driven illnesses caused by
excess consumption of sugar through fizzy drinks and
processed foods marketed by consumer goods companies.
Initiatives such as the
sugar tax recognise that private sector activities have
a significant influence on health outcomes and, as such,
the private sector can be nudged towards behaviour that
leads to more positive health outcomes."
[COMMENTARY] Some
great points are made here. One is why should companies
be allowed to make large profits while sickening the
public and entities such as governments left to pay for
the ill health created? Surely, companies should
contribute to those costs in a meaningful way.
Arguments against such a policy include where do you
draw the line as to what sickens the public, what the
costs are, and who bears them?
Some sort of ESG
score concerning product/service health effects could be
useful!
Measuring health impacts could expand ESG metrics,
by Joseph Mariathasan, May issue, IPE Magazine, UK.
-------------------------------------------------------------
We've Opened the Door
Too Wide for Oil and Gas Companies. "Under
the fog of war and anxiety about the midterm elections,
the White House is poised to hand over generous amounts
of public money to a highly
profitable energy industry -- support that could
lock in additional emissions for decades to come."
[COMMENTARY] I
believe energy prices should be largely left to the free
market with support provided only to means-tested
low-income groups. That way fossil-fuel prices can rise
to a point where there's significant demand destruction
and hence less need to support fossil fuel expansion.
We've Opened the Door Too Wide for Oil and Gas Companies,
by Kate Aronoff, April 29, 2022, The New York Times,
USA.
-------------------------------------------------------------
ESG Ratings: Solution or
Starting Point? "In our view, there's no
substitute for integrating consideration of ESG factors
into fundamental security analysis. Rather than
outsource ESG assessments to third-party providers,
investors and analysts must conduct in-depth, hands-on
research and engage actively with issuers. That approach
enables investors to achieve real insight into a
business and its activities, and to get a proper
understanding of its future prospects as well as its
past."
[COMMENTARY] Most
investors use the ESG raters because of convenience and
rating expertise. Ideally, it's probably best to do all
the in-depth ESG research yourself. But what investors
or organizations have the time, money, and resources to
do that? (However, when I started as an analyst in 1970,
that's exactly what we did!)
ESG Ratings: Solution or Starting Point?
By Michelle Dunstan, April 29, 2022, Advisor
Perspectives, USA.
-------------------------------------------------------------
With Too Much Love From
Institutional Investors, Companies With High ESG Ratings
May be Overvalued. Activists Are Taking Note.
"Activists and others are looking for companies with
low marks on environmental, social, and governance check
lists."
[COMMENTARY] Some
studies suggest greater stock profits can be had with
companies who are just getting started with ESG.
With Too Much Love From Institutional Investors,
Companies With High ESG Ratings May be Overvalued.
Activists Are Taking Note, by Jessica Hamlin, April
22, 2022, Institutional Investor, USA.
-------------------------------------------------------------
AllianceBernstein:
Understanding Your Bond Portfolio's Carbon Footprint.
"Transitioning to a net-zero carbon economy* is vitally
important, and corporate bonds will play a critical role
in the transition. To support that journey, sustainable
investors should monitor the carbon impact of the
corporate bonds in their portfolios. But there's a lot
more to understanding a bond portfolio's carbon
footprint than conventional metrics can show."
[COMMENTARY] Few
investors know how the carbon footprint of a bond is
computed. This article provides a good understanding of
the issues involved.
AllianceBernstein: Understanding Your Bond Portfolio's
Carbon Footprint, by AllianceBernstein, April 22,
2022, 3BLCSRWire, USA.
-------------------------------------------------------------
A Deconstruction of the
Short-Termism Thesis. "The only reasonable
conclusion from reading [this book] it is that
short-termism is like the proverbial emperor with no
clothes. It may be emotionally satisfying, but there is
very little, if any, empirical evidence to support its
main theses.
It is, in other words,
a theory in search of non-existing empirical support. It
is more of a myth than a reality, and it should have no
weight in policy decisions about the make-up of the
modern corporation, its governance and its role in
society, let alone in laws, regulations and court
decisions impacting contests for corporate board seats
and corporate control."
[COMMENTARY] For
many of us short-termism in the financial markets is one
of the deadly sins of the modern era. It's said to
detract from long-term planning and action that would
truly benefit business profits and society's living
standards. This article reviews a new book by Professor
Mark J. Roe entitled "Missing
the Target: Why Stock Market Short-Termism Is Not the
Problem." In the article, Charles Nathan reviews
Professor Roe's book in which the professor destroys our
notions of short-termism!
A Deconstruction of the Short-Termism Thesis, a book
review by Charles Nathan, April 15, 2022, Harvard Law
School Forum on Corporate Governance, USA.
-------------------------------------------------------------
Moving to Clean
Energy--Will It Take a War? "Despite the
urgency coming from Russia's invasion of Ukraine, a
transition from fossil fuels to clean energy cannot
happen without first having acceptable alternatives,
says Richard Ottinger, dean emeritus of Elizabeth Haub
School of Law at Pace University. Solar and wind
installations must be built first, and transmission
lines. No country would accept the economic disruption
of premature action on abandoning fossil fuels, he
says."
[COMMENTARY] To
plan and build for a clean energy future wherein we're
able to stay within that 1.5-degree threshold, requires
the kind of expenditures that governments -- and their
taxpayers -- globally will not willingly make. However,
should the Russian-Ukrainian war persist, that could
change as fossil-fuel energy prices remain highly
elevated.
Furthermore, I believe the public needs
to accept very, very high fossil-fuel energy prices as
the price to pay for a low carbon future.
Moving to Clean Energy--Will It Take a War? By
Richard Ottinger, April 15, 2022, Bloomberg Law, USA.
-------------------------------------------------------------
It's Been a Rough Start
to 2022 for Sustainable Investing Stock Strategies.
"As energy stocks surged and tech tumbled, sustainable
portfolios had a tough quarter."
[COMMENTARY] I
argue that most ESG funds are too concentrated in tech
and financials. Though most of their investors desire a
zero-carbon world, there's no way we get there
without massive new mineral (copper, silver, lithium,
cobalt, etc.) -- read mining -- development. Many mining
ventures are seriously engaging ESG in their operations
and so could be incorporated into numerous ESG funds. Of
course, getting ESG investors interested in mining is
the holdup!
It's Been a Rough Start to 2022 for Sustainable
Investing Stock Strategies, by Lauren Solberg, April
13, 2022, Morningstar, USA.
-------------------------------------------------------------
ESG -- A Mystery and a
Shock Poll. "Climate-related financial
risks are getting growing attention -- but a new survey
from BCG casts doubt on how seriously institutional
investors are taking them. Just one in 20 investors
polled by the consulting firm said that climate and
ESG-related issues were among the three risks they took
most seriously. And only 11 per cent of the 150
investors polled indicated that ESG is a primary
consideration in day-to-day investment decisions."
[COMMENTARY] BCG
is a reputable firm, so to have results like this in one
of their surveys is surprising. This poll certainly
seems an outlier. Has the Russia-Ukraine war changed
things?
ESG -- A Mystery and a Shock Poll, by Andrew
Stuttaford, April 10, 2022, National Review, Capital
Matters, UK.
-------------------------------------------------------------
Why investors may need
to pivot from ESG towards carbon-intensive industries.
"Investors have been keen to show their
green credentials by shunning carbon-intensive
industries. The cost of that virtue signalling is now
becoming apparent."
[COMMENTARY] Most
ethical and sustainable investors shun investing in
companies producing lots of carbon in their operations.
My thinking is twofold. Firstly, it's a moral issue if
we choose to make fossil fuels 'scarce' thereby
increasing the prices of everything, including food.
Then, should governments subsidize food prices and
fossil fuel purchases for the poor? (Look what's
happening in many countries like Sri Lanka with its food
and energy riots?)
Secondly, there's no way we
can bring about a clean energy future without massive
increases -- and numerous new mines -- in the production
of copper, lithium, cobalt, silver, etc.
Hence,
this author makes an interesting point. Incidentally,
many major oil companies are moving into renewables, and
mining companies are getting serious about ESG!
Why investors may need to pivot from ESG towards
carbon-intensive industries, by Frederic Guirinec,
April 1, 2022, Money Week, UK.
-------------------------------------------------------------
An Inconvenient Truth
About ESG Investing. "None of the high
sustainability funds outperformed any of the lowest
rated funds... companies in the ESG portfolios had worse
compliance record for both labor and environmental
rules."
[COMMENTARY] Though
this writer got published in a highly prestigious
journal, it seems he was quite selective in his choice
of papers to include in this article. To me, this
article speaks more about greenwashing among green funds
than about their performance.
An Inconvenient Truth About ESG Investing, by Sanjai
Bhagat, March 31, 2022, Harvard Business Review, USA.
-------------------------------------------------------------
The Social Purpose
Transition Pathway. "The purpose of this
project is to assess the degree to which companies with
a stated social purpose are governing, implementing, and
disclosing progress on their purpose. This is the first
Social Purpose Rating in the world focused on
implementation...
Out of an initial sample of
197 businesses with headquarters or significant
operations in Canada, only 34 met the gateway criteria
of having a stated purpose that creates value for
society, rather than solely for shareholders or
customers, putting them ahead of most of their peers and
competitors regardless of their placement in this rating
exercise."
[COMMENTARY] Corporate
Knights et al, have created a terrific new way of
determining the value of 'S' in ESG, in Canadian
companies. There's a listing of companies that all
ethical and sustainable investors will want to review.
The Social Purpose Transition Pathway, by Corporate
Knights et al, March 2022, Canada.
-------------------------------------------------------------
ESG Is The Third Wave Of
Change In Asset Management After Graham And MPT.
"Amy Domini, one of Time's 100 Most Influential
People, started one of the first socially responsible
funds 30 ago. She sees ESG as the third major wave of
change in asset management, with Benjamin Graham's value
investing and modern portfolio theory being the first
two significant waves of change."
[COMMENTARY] In
this article one of the greats of socially responsible
investing and ESG -- Amy Domini -- provides terrific
insights into her investing approach.
ESG Is The Third Wave Of Change In Asset Management
After Graham And MPT, by Jacob Wolinsky and Michelle
Jones, March 28, 2022, Forbes, USA.
-------------------------------------------------------------
The Rise of Anti-ESG
Shareholder Proposals. "These
proposals, though few, are increasing and contribute
noise to analyses of ESG voting... Issues include
ideological diversity of the boards, lobbying,
charitable donations, and, more recently, issues around
racial justice."
[COMMENTARY] Apparently,
these 'anti' ESG proposals are mostly from conservative
groups.
The Rise of Anti-ESG Shareholder Proposals, by Ruth
Saldanha, March 28, 2022, Morningstar, Canada.
-------------------------------------------------------------
ESG Standards Talk: A
Step Towards One Global Disclosure Standard?
"Finally we are looking at the possibility of one
comprehensive global standard for disclosure on
sustainability and ESG, which will help to develop a
transparent and comparable understanding of how to
report sustainability risks and what they mean."
[COMMENTARY] It
seems that many of the leading ESG standards'
organizations have some kind of understanding regarding
ESG reporting. It's been a long time coming. Hopefully,
it will provide stakeholders with corporate information
that's material to the company's financial position and
allows for cross-company comparisons. I just hope that
such corporate reporting has independent auditing of the
information and data provided by companies.
ESG Standards Talk: A Step Towards One Global Disclosure
Standard? By Felicia Jackson, March 24, 2022,
Forbes, USA.
-------------------------------------------------------------
Green investing: the
global system for rating companies' ethical credentials
is meaningless. "As the war in Ukraine
rages, finance professionals on Wall Street and in
Europe recently attracted outrage by suggesting that
investing in arms manufacturers should be treated as
ethical investing.
In the fight against
tyranny, they argued that such an investment 'preserves
peace and global stability' and defends 'the values of
liberal democracies'. As such, it belongs in the
increasingly lucrative investment category known as ESG
or environmental, social and governance...
Unfortunately, the label is
not currently worth the paper that it's written on - and
not only because of the controversy over defence
contractors. My recent research shows that this
completely undermines ESG's potential as a force for
good. As we shall see, however, regulators are at least
making moves in the right direction."
[COMMENTARY] It
was inevitable that the ESG 'label' would be abused in
various ways. Advisors, ethical and sustainable
investors, need to do their homework. New regulations
and reporting standards will help. However, it's still
buyer beware!
Green investing: the global system for rating companies'
ethical credentials is meaningless, by Marc Lepere,
King's College, March 23, 2022, UK.
-------------------------------------------------------------
Why ESG Investors Put
Too Much Emphasis on the Environment. "SEC
Chairman Gary Gensler recently announced plans to
formulate a human capital disclosure requirement for
public companies. Reporting metrics might include worker
turnover, skills and development training, compensation,
benefits and workforce demographics related to
diversity, health and safety."
[COMMENTARY] It's
quite likely that most large companies determine these
metrics anyway for internal assessments and use. Also, I
agree that many ESG investors would be interested in
such data. However, the increasing paperwork burdens
being placed on businesses, particularly smaller
enterprises, might be coming somewhat onerous.
Why ESG Investors Put Too Much Emphasis on the
Environment, by John Engle, March 22, 2022,
yahoo.com, USA.
-------------------------------------------------------------
Hedge Funds Balk at
'Really Problematic' Rules Steering ESG.
"Hedge funds keen to get a piece of the $40 trillion ESG
market are voicing growing frustration over what they
say is an absence of clear regulations for one of their
most popular investment strategies.
Firms including Man Group
Plc and BlueBay Asset Management LLP say disclosure
rules for environmental, social and governance investing
still don't explain how hedge funds should account for
short selling. As a result, many are now turning to
their lawyers to help them avoid the kinds of legal
risks that might arise if they misstate their ESG
positions."
[COMMENTARY] Short
selling has always been controversial. However, given
proper rules -- such as only being able to short a stock
after a price uptick -- it's been part of stock market
practices for millennia. It seems the new European
Sustainable Finance Disclosure Regulation doesn't
adequately cover rules for short-sellers.
Hedge Funds Balk at 'Really Problematic' Rules Steering
ESG, by Lisa Pham, March 18, 2022, Bloomberg, UK.
-------------------------------------------------------------
Clarity AI: Only 7% of a
Sample of 31,000 Equity Funds Have More Than 10% 'Green
Revenues,' as Defined in the EU Taxonomy. "The
EU Taxonomy aims to align market participants on
definitions of sustainability, but investors need to dig
deeper to know just how 'green' a fund really is."
[COMMENTARY] I
believe that it's a great idea ethical and sustainable
that funds differentiate themselves according to how
'green' their revenues are. And it's happening. I really
like what Corporate Knights are doing too. See
Report: Meet the top 200 companies investing in a clean
energy future.
Clarity AI: Only 7% of a Sample of 31,000 Equity Funds
Have More Than 10% 'Green Revenues,' as Defined in the
EU Taxonomy, press release, March 17, 2022, Clarity
AI, USA.
-------------------------------------------------------------
Coming to Terms with a
Maturing ESG Landscape. The momentum and
support for environmental, social and governance (ESG)
integration into the investment process has reached
critical mass. Most companies now recognize the
strategic need to have an ESG story, and some are even
leveraging ESG leadership as a key differentiator from
competitors."
[COMMENTARY] This
article is an informed opinion on the state of ESG today
and where it's likely heading.
Coming to Terms with a Maturing ESG Landscape, by
Peter Reali, Jennifer Grzech, and Anthony Garcia, at
Nuveen. March 17, 2022, Harvard Law School Forum on
Corporate Governance, USA.
-------------------------------------------------------------
The False Promise of
ESG. "But do ESG ratings really deliver on
the promise? Are highly-ranked ESG businesses really
more caring of the environment, more selective of the
societies in which they operate, and more focused on
countries with good corporate governance?
In short, is ESG really
good? The answer is no. We demonstrate this by focusing
on a group of companies that are now at the center of
the world's attention: businesses with substantial
operations in Russia."
[COMMENTARY] The
title is misleading and only appropriate in a narrow
sense. It's appropriate to European-based high ESG
performing companies with operations in Russia. However,
I acknowledge and am concerned about how ESG company
measures are determined of subsidiaries in developing
countries.
The False Promise of ESG, by Jurian Hendrikse et
al, March 16, 2022, Harvard Law School Forum on Corporate
Governance, USA.
-------------------------------------------------------------
Morningstar's Jon Hale:
Advisors' ESG 'Wave-Off' Is History. "Speaking
with Barron's Advisor, Hale says sustainable-fund active
managers may need to tweak their approach to continue
outperforming. He weighs the potential impact should the
Labor Department reverse the Trump-era policy of
blocking retirement advisors from environmental, social,
and governance (ESG) investment strategies.
And he explains why some
financial advisors call creating a sustainable-investing
niche the smartest thing they've ever done."
[COMMENTARY] Steve
Garmhausen of Barron's interviews John Hale,
Morningstar’s global head of sustainability research.
There are some good insights into the present-day
situation concerning sustainable investing.
Morningstar's Jon Hale: Advisors' ESG 'Wave-Off' Is
History, by
Steve Garmhausen, March 11, 2022, Barron's, USA.
-------------------------------------------------------------
The failed promise of
ESG and the Wall Street Journal. "In a
just-published series of critical articles in The Wall
Street Journal, columnist James Mackintosh outlines the
'failed promise' of ESG investing and describes it as
'absurd' to claim that investments in green bonds
deliver higher yields.
He also warns that 'bubbles'
in sustainable investing can 'sink your portfolio' and
lectures that investors who think they can both save the
world and make a profit need to go back to basics. His
conclusion: 'These investments don't do much to make the
world a better place.'"
[COMMENTARY] Mr.
Howell reviews James Mackintosh's WSJ article and
provides great insight into the pros and cons of ESG
investing. Nonetheless, Mr. Mackingtosh's article can
only be seen as a 'hit' job on the ESG approach.
The failed promise of ESG and the Wall Street Journal,
by John Howell, March 9, 2022, GreenBiz, USA.
-------------------------------------------------------------
Will Financial Advisors
Need to Become JEDI Masters to Retain their Clients?
"GenderSmart recently created an investor
toolkit that applies an impact lens of justice, equity,
diversity and inclusion (JEDI).
Financial advisors should
note that 35% of clients who have sustainability goals
are looking to switch wealth managers in the next three
years, over twice as many as among clients without
sustainability goals (15%)."
[COMMENTARY] In
studies looking at the investment goals of women and
younger people, many are seeking to move their money
(much of it inherited) to advisors who cater to clients
with ethical and sustainability investment goals.
Will Financial Advisors Need to Become JEDI Masters to
Retain their Clients?
by Andrea Longton, March 7, 2022, Wealth Management,
USA.
-------------------------------------------------------------
ESG Funds' Lack Truth in
Labeling: Study. "94 funds had 'ESG' in
their names yet 60 of those earned a 'D' or an 'F' on
one or more ESG criteria."
[COMMENTARY] As
You Sow and a team from the University of California did
the study. So it's a quality study. This study provides
more ammunition for the SEC to act aggressively on ESG
fund greenwashing.
ESG Funds' Lack Truth in Labeling: Study, by John
Sullivan, February 27, 2022, 401K Specialist, USA.
-------------------------------------------------------------
How Does Incorporating
ESG Relate to Fiduciary Duty? "In our annual
survey of attitudes towards responsible investment,
institutional investors cited fiduciary duty as the top
reason for incorporating ESG in their investment
approach."
[COMMENTARY] There's
still much confusion concerning the role of ESG and
sustainability in fiduciary duty. However, many experts
in the field are arguing that with increasing climate
change upon us and dramatically rising insurance costs
as a harbinger of them, accounting for ESG and
sustainability in a portfolio has to be included in good
fiduciary management.
How Does Incorporating ESG Relate to Fiduciary Duty?
By Melanie Adams, February 22, 2022, Responsible
Investment Association of Canada, Canada.
-------------------------------------------------------------
ESG Investing Needs to
Expand Its Definition of Materiality. "What
should the S in ESG refer to? It is logical to assume
that it refers to social outcomes associated with our
individual welfare or with thriving communities, and
measures things like mental or physical health,
education, and learning, or elements of subjective
well-being like personal dignity or community cohesion.
However, as currently conceived, the S in ESG regularly
has very little to do with this intuitive and
well-recognized understanding of social impact."
[COMMENTARY] This
paper has an excellent discussion of what the 'S' should
stand for in ESG!
ESG Investing Needs to Expand Its Definition of
Materiality, by Tom Adams, Lindsay Smalling and
Sasha Dichter, February 23, 2022, Stanford Social
Innovation Review, USA.
-------------------------------------------------------------
There is no silver
bullet for ESG standardisation. "The ESG
mobilisation of capital faces the Sisyphean challenges
of political loggerheads and the slow crawl towards
commercial-scale data."
[COMMENTARY] The
issue of whether to include nuclear and natural gas in
the new green EU Taxonomy has provoked significant
discussion about what is 'green', etc. Similarly for
companies, how do you measure their 'greenness'?
There is no silver bullet for ESG standardisation,
by Jamie Gordon, February 23, 2022, etfstream.com, UK.
-------------------------------------------------------------
The Evidence Mounts
Against Active Share. "Active share is a
measure of how much a fund's holdings deviate from its
benchmark index, and funds with the highest active share
tend to have the best performance.
Thus, while there's no doubt
that, in aggregate, active management underperforms and
the majority of active funds underperform every year
(and the percentage that underperform increases with the
time horizon studied), if an investor were able to
identify the few future winners by using active share as
a measure, active management could be the winning
strategy."
[COMMENTARY] Active
versus passive management of stock portfolios has been a
hot topic for many years. It's true that in recent times
passive portfolio management such as most ETFs where
there are few if any, stock changes in any given year,
has generally outperformed active portfolio management.
However, this analysis has generally been done in rising
markets. Most of these passive ETFs have only arisen in
the past twenty years too. We have yet to see what might
happen in a long-term bear market, should such a
situation arise. Many active managers maintain that's
when active management will be the winner.
The Evidence Mounts Against Active Share, by Larry
Swedroe, February 22, 2022, Advisor Perspectives, USA.
-------------------------------------------------------------
Report: Meet the top 200
companies investing in a clean energy future.
"The Clean200TM is an educational tool intended to
give individuals the ability to research companies that
are effectively balancing people, planet, and profit."
[COMMENTARY] The
Clean 200 is one of the best lists around. What I
especially like about this ranking is that the
'greenness' of a company's revenues is given high
priority! This is not so in nearly every other such list
or ranking.
Report: Meet the top 200 companies investing in a clean
energy future, by Corporate Knights and As You Sow,
February 16, 2022, Canada.
-------------------------------------------------------------
We Need Universal ESG
Accounting Standards. "ESG accounting is a
mess. Competing initiatives mean there's no uniform set
of standards for measuring a company's progress on
sustainability. The good news is that a new initiative,
the International Sustainability Standards Board,
promises to do for sustainability reporting what the
International Accounting Standards Board (IASB) does for
financial reporting -- develop standards for companies
to report their performance to investors."
[COMMENTARY] This
is a highly insightful article by people who know
what they're talking about.
We Need Universal ESG Accounting Standards, by
Robert G. Eccles and Bhakti Mirchandani, February 15,
2022, Harvard Business Review, USA.
-------------------------------------------------------------
The problem with ESG
scores. "ESG ratings should place increased
emphasis on CO2 intensity and emissions rather than the
current focus on disclosing corporate policy and
objectives, according to an Organisation for Economic
Co-operation and Development (OECD) report on the Asia
Pacific region."
[COMMENTARY] I
see this issue could become big in the years ahead as
climate-warming increases. Investors might want to place
increasing emphasis on a company's carbon emissions than
just their ESG score.
The problem with ESG scores, by Mubaasil Hassan,
Curation, UK.
-------------------------------------------------------------
The truth about dirty
assets. "The shift to the shadows is
problematic for two main reasons. First, the claims
being made by listed firms (and esg funds) that they are
helping to decarbonise the planet are questionable.
Selling a polluting asset does not, in itself, reduce
emissions at all, if it keeps pumping oil or digging up
coal.
Second, as dirty assets pass
into private hands, it becomes harder to tell if their
owners plan to reduce their output over time, or expand
it."
[COMMENTARY] Great
points made in this article. Now, should there be
regulation that those buying such assets be required to
reduce the carbon intensity of these assets over time?
The truth about dirty assets, February 12, 2022, The
Economist, UK.
-------------------------------------------------------------
The risk of not talking
to clients about ESG is losing them, RI expert says.
"I've worked with hundreds of advisors across Canada
to help them get comfortable and proactive in the space
and, from what I've heard, they've never lost a client
by bringing it up. In fact, they've gained clients.
However, some who haven't brought it up have said
they've lost clients."
[COMMENTARY] I've
argued this point for decades. Advisors must become
proficient in ESG investing or
gradually see their client base erode.
The risk of not talking to clients about ESG is losing
them, RI expert says, staff, February 11, 2022,
The Globe and Mail, Canada.
-------------------------------------------------------------
EU 'green' label for gas
and nuclear sparks sustainable investing crisis.
"The fear 20 years ago that a green investment label
could itself enable greenwashing is now playing out two
decades later in Europe."
[COMMENTARY] An
old colleague, Eugene Ellmen, who authored this article has
unique insights into the EU positioning on this matter.
His article is well worth reading.
EU 'green' label for gas and nuclear sparks sustainable
investing crisis, by Eugene Ellmen, February 8,
2022, Corporate Knights, Canada.
-------------------------------------------------------------
Survey: Just 23% of
Investors Align Most Investments to Their Values.
"The NerdWallet survey of more than 2,000 U.S.
adults -- including 1,608 who currently have investments
-- conducted online by The Harris Poll asked investors
about their thoughts on socially responsible investing,
including whether they invest this way and how much of
their portfolio aligns with their value systems."
[COMMENTARY] At
least the numbers are moving in the right direction.
When, as in the USA, many investors are climate-change
skeptics, these numbers aren't surprising. It'll be
interesting to see how they change in the years ahead.
Survey: Just 23% of Investors Align Most Investments to
Their Values, by Erin El Issa, February 8, 2022,
Nasdac.com, USA.
-------------------------------------------------------------
ESG Investing Needs More
Rigorous Standards To Evaluate Corporate Conduct.
"The batteries in electric cars like the ones Tesla
manufactures require cobalt, a mineral found in
abundance in the Democratic Republic of Congo (DRC).
While electric vehicles are important in the effort to
combat climate change, there are credible reports of
serious human rights violations at informal cobalt mines
in the DRC, including widespread exploitation of child
labor and safety hazards in deep, unstable tunnels...
Does Tesla deserve to be
treated as an ESG champion?
[COMMENTARY] One
of the top holdings of most ESG-sustainable funds is
Tesla. Renewable energy requirements are growing
massively for copper, cobalt, silver, etc. They require
numerous new mines to satisfy such demand -- and often
from questionable jurisdictions. Are ESG-sustainable
funds and investors in their excitement for such
companies like Tesla overlooking the additional climate
impacts of renewable energy? Should renewable
energy-based companies, therefore, be given such high
valuations?
ESG Investing Needs More Rigorous Standards To Evaluate
Corporate Conduct, by Michael Posner, February 1,
2022, Forbes, USA.
-------------------------------------------------------------
U.S. markets regulator
flags risks for ratings firms in ESG boom.
"The SEC's 2021 report, which is based on exams of
ratings firms, said that by adding ESG factors, ratings
firms may deviate from their usual methodologies,
policies or procedures which may not be properly
disclosed to investors, the SEC said.
Adding ESG ratings also
raises the risks of new conflicts of interest if firms
feel pressure to give higher ESG ratings than warranted
when the subject is also a client, the SEC said."
[COMMENTARY] The
SEC raises valid concerns. How they can be handled is an
open question.
U.S. markets regulator flags risks for ratings firms in
ESG boom, by Chris Prentice, February 1, 2022,
Reuters, USA.
-------------------------------------------------------------
Green Stocks Have Lower
Returns but Less Risk. "Firms with high
sustainable investing scores earn rising portfolio
weights, leading to short-term capital gains for their
stocks -- realized returns rise temporarily. However,
the long-term effect is that higher valuations reduce
expected long-term returns.
[COMMENTARY] The
phenomenon of high ESG performing stocks having
relatively high prices and thus not performing as well
as rising ESG performers has been observed before. This
is why some investors -- such as Engine No 1's ETFs --
believe that higher returns are possible by investing in
'low' ESG performing companies and motivating those
companies further on the ESG path.
Green Stocks Have Lower Returns but Less Risk, by
Larry Swedroe, January 31, 2022, Advisor Perspectives,
USA.
-------------------------------------------------------------
What The Wall Street
Journal Missed About Sustainable Investing.
"Sustainable
investing is hardly a 'craze,' as The Wall
Street Journal headline called it. Crypto is a
craze; SPACs are a craze; day-trading meme stocks during
the pandemic is a craze. Sustainable investing is part
of a long-term shift in the way people approach their
investments, and it is helping bring about a systemic
shift toward stakeholder capitalism."
[COMMENTARY] Well
said. Jon Hale. It's typical of ultra- conservative
media to fall 'behind-the-times.' Ethical investing --
and one of its newer incarnations, sustainable investing
-- has been around since biblical times. It's just that
in this age of global warming and its
climate/environmental impacts, people everywhere have
come to recognize that sustainable investing has to be
given high priority. It's here to stay and will continue
to grow!
What The Wall Street Journal Missed About Sustainable
Investing, by Jon Hale, January 28, 2022,
Morningstar, USA.
-------------------------------------------------------------
How does ESG impact the
function of audit? "Auditors need to stay
abreast of the evolving issues and reporting
requirements connected to ESG or they risk leaving
themselves vulnerable to charges of professional
negligence."
[COMMENTARY] Environmental
groups in many countries are taking governments to court
to force them to not only meet their climate change
commitments but also to ensure a clean future
environment. It's understandable, therefore, that
companies -- and their auditors -- could face similar
legal challenges by stakeholders of these companies.
How does ESG impact the function of audit?
By Allianz Global Corporate & Specialty, January 2022,
Germany.
-------------------------------------------------------------
Wall Street blunts
momentum of fossil fuel divestment. "Both
Citi and BlackRock see potential downsides to
withdrawing their funds from fossil fuel companies. And
it's not all about profits, but rather having a say over
how those firms navigate what may be a rocky
clean energy transition, they said."
[COMMENTARY] I've
been agreeing for some time now with the opinion that
engaging in dialogue with companies who are
ESG/fossil-fuel use laggards is a good policy. Also,
there's the added investment benefit that as these
laggards implement ESG/fossil-fuel reduction policies
the shares of such companies are likely to see better
gains than already highly performing companies on those
metrics.
Wall Street blunts momentum of fossil fuel divestment,
by Andrew Freedman, January 20, 2022, AXIOS, USA.
-------------------------------------------------------------
Switch to ESG indices
has not pleased all European investors.
"Not all professional fund buyers are happy with passive
funds being repurposed as sustainable."
[COMMENTARY] When
funds switch their goals, it's easy to understand that
current holders of those funds might feel cheated.
Ethically, shouldn't the fundholders have a voice in
such matters?
Switch to ESG indices has not pleased all European
investors, by Ed Moisson, January 19, 2022,
Financial Times, UK.
-------------------------------------------------------------
Study Shows Canadian
Financial Advisors are Comfortable Engaging With Clients
on ESG, but Subject Matter Knowledge Is Limited.
"Some advisors appear to be overestimating
their knowledge. Advisors' demonstrable knowledge was
similar regardless of their self-assessed knowledge
levels. Of those advisors who said their RI knowledge
was excellent or very good, one-fifth did not correctly
identify 3 true statements out of 10 statements about
RI."
[COMMENTARY] The
good news is that most Canadian advisors are fine
engaging clients on ESG considerations concerning their
portfolios. However, since many, many, advisors lack ESG
product knowledge, their ability to suitably advise
clients on ESG investments rings hollow.
Study Shows Canadian Financial Advisors are Comfortable
Engaging With Clients on ESG, but Subject Matter
Knowledge Is Limited, press release, January 19,
2022, Responsible Investment Association, Canada.
-------------------------------------------------------------
The 100 most sustainable
corporations of 2022. "Corporate Knights'
2022 ranking of the world's 100 most sustainable
corporations is based on a rigorous assessment of nearly
7,000 public companies with revenue over US$1 billion."
[COMMENTARY] One
of the best, if not the best, independent assessments of
the most sustainable companies whose stocks you can buy.
The 100 most sustainable corporations of 2022, by
Corporate Knights staff, January 19, 2022, Canada.
-------------------------------------------------------------
The European Central
Bank's vision for green bond standards forgoes
inclusivity. "The European Central Bank has
suggested that the proposed EU Green Bond Standard (EU
GBS) become mandatory for all green bonds. Karim Henide
disagrees.
He writes that the EU GBS is
so narrow that only a fraction of the current green bond
market is eligible under this standard. Issuers on the
margins may not have the capacity to adhere to the
degree of ambition and scrutiny expected at the level of
the EU GBS label."
[COMMENTARY] Is
this another case of bureaucrats not listening to
markets! Yes, the green bond market needs regulation,
but if the regulation is rigid and costly, it'll harm the
development of climate change.
The European Central Bank's vision for green bond
standards forgoes inclusivity, by Karim Henide,
January 17, 2022, London School of Economics, London,
UK.
-------------------------------------------------------------
Opinion: Do 'ethical'
pension funds have a private equity problem?
"'The people running public pension plans these days
like to boast about their 'ethical' investment policies,
for example when it comes to the environment or 'diversity,
equity and inclusion.'
Meanwhile they pour billions
of dollars into secretive private-equity funds in
pursuit of extra profits. Now comes yet
more evidence that some of those private-equity managers
in turn are using that money for the opposite of
ethics."
[COMMENTARY] The
article describes some unsavory practices in these
relationships!
Opinion: Do 'ethical' pension funds have a private
equity problem? By Brett Arends, January 12, 2022,
MarketWatch, USA.
-------------------------------------------------------------
Can Global Regulators
Save the ESG Movement From Itself? "Without
state intervention and global standards, the
environmental, social, and governance movement is a
recipe for greenwashing and corporate deception."
[COMMENTARY] Yes,
I favor increased government regulation concerning
corporate ESG reporting standards, how they're measured,
and who gets to audit them. We're certainly not there
yet.
Can Global Regulators Save the ESG Movement From Itself?
By Michael Moran, January 10, 2022, Foreign Policy, USA.
-------------------------------------------------------------
The Non-Performance
Benefits of ESG Investing. "The above
findings should not lead to questioning whether ESG
strategies can offer substantial value to investors.
Instead, they suggest that
investors who look for value-added through
outperformance are looking in the wrong place -- ESG
strategies should be considered for the unique benefits
they can provide, such as hedging climate or litigation
risk, aligning investments with norms and making a
positive impact for society.
In addition, ESG investors
get an added benefit by employing strategies that tilt
toward factors with higher expected returns -- a
strategy employed by the sustainable investment funds of
Dimensional."
[COMMENTARY] Two
particularly interesting studies are reviewed here. What
has always concerned me in most ESG portfolios is the
overweight of tech and financials in them. Now, if in
the years ahead we are to fulfill our renewable energy
ambitions, massive increases in mining for lithium,
copper, cobalt, silver, etc., will be needed. Will ESG
investors and funds turn to miners that mine in a 'most'
sustainable way?
The Non-Performance Benefits of ESG Investing, by
Larry Swedroe, January 3, 3022, Advisor Perspectives,
USA.
-------------------------------------------------------------
4 Best ESG Stock
Screeners. "While this list is a great
starting point for any potential ESG investors, it's
essential to supplement it with your own research as
well."
[COMMENTARY] I'm
biased towards Sustainalystics since I've been aware of
their sincerity and quality of ESG research since their
beginning days over two decades ago!
4 Best ESG Stock Screeners, by The Impact Investor,
January 1, 2022, USA.
-------------------------------------------------------------
ESG shares underperform
oil and gas in 2021. "As of December 29, US
giants Exxon and Chevron had added 48 per cent and 40
per cent respectively in 2021. The duo have helped power
global energy equity funds past many of the hundreds of
US and European sustainable funds as defined by
Morningstar, a data provider."
[COMMENTARY] In
my view, there are two reasons this is happening. First,
still relatively high fossil-fuel demand yet with low
investment in new replacement production that is forcing
higher fossil-fuel prices. Secondly, it could be that
divestment helped forced down the price of many fossil-fuel
producer stocks to a point that higher fossil-fuel
prices gave way to higher profits. Thus, their shares
became attractive to many investors and sent their
stock prices higher.
ESG shares underperform oil and gas in 2021, by
Patrick Temple-West and Kristen Talman, December 30,
2021, Financial Times, UK.
-------------------------------------------------------------
Today's widely adopted
ESG ratings and net-zero pledges are mostly worthless,
two pioneers of sustainable investing say.
"Scores of new funds are claiming to practice
environmental, social and governance investing, but
their managers are failing to put in the work of
determining whether companies they own adhere to those
standards. And that's leading to style over substance,
two long-time ESG portfolio managers said in an
interview."
[COMMENTARY] There
are some useful insights in this article concerning
ESG ratings. However, I stand by my contention that just
as investors have differing views about a stock, so
should ESG raters have different opinions too. However,
I do believe that ESG raters need to be transparent
about their methodologies and market performance
integrated into their data.
Today's widely adopted ESG ratings and net-zero pledges
are mostly worthless, two pioneers of sustainable
investing say, by Debbie Carlson, December 28, 2021,
MarketWatch, USA.
-------------------------------------------------------------
CFA Institute Publishes
First Global ESG Disclosure Standards. "The
Standards are intended to address current issues with
ESG investing, such as inaccurate disclosure practices,
and aim to support investors with complete, reliable,
consistent, clear and accessible information. The
Standards have been designed to accommodate the full
range of investment vehicles, asset classes and ESG
approaches offered in markets around the world."
[COMMENTARY] Frankly,
the CFA Institute should've been out with these years
ago. But, better late than never. We'll have to see how
they work in practice.
CFA Institute Publishes First Global ESG Disclosure
Standards, by Bennett Jones LLP, December 17, 2021,
USA.
-------------------------------------------------------------
An ESG analysis on the
Covid-19 crisis. "Our framework highlights
how Social and Governance performance have a close
correlation with the outcome of the COVID-19 pandemic in
the various economies of our selected universe.
Additionally, this study
should serve as a driving force for continuous
investment in a sustainable and responsible array of
public policies. Economies that suffered the most from
the COVID-19 pandemic were also those whose sovereign
spreads widened during the pandemic, putting further
financial pressure on their economies."
[COMMENTARY] This
is a fascinating study on which countries -- and why
certain countries -- outperformed economically during
one phase of the Covid-19 pandemic.
An ESG analysis on the Covid-19 crisis, by FTSE
Russell, November 23, 2021, UK.
-------------------------------------------------------------
2021 RIA (Canada) Investor Opinion Survey.
"While 77% of respondents said they want their
financial services provider to inform them about
responsible investments that are aligned with their
values, only 27% said they had ever been asked if they
were interested. About one-third of respondents said
they currently own responsible investments, similar to
last year."
[COMMENTARY] This
is a problem I've been concerned with since I began in
the investment industry over 50 years ago. It goes back
to how the 'know-your-client' rule is legally
interpreted.
I believe it's the major financial
institutions that have never wanted to include the
understanding of a client's personal values applied in
this rule. Canada's RIA is lobbying to get this changed.
They now have the backing of many Canadian financial
heavyweights, so perhaps it'll finally be changed!
2021 RIA (Canada) Investor Opinion Survey, December
8, 2021, RIA (Canada).
-------------------------------------------------------------
Why sustainable business
needs better ESG ratings. "Environmental,
social, and governance data is noisy -- and may not help
firms protect the planet. Here's what to keep in mind as
you measure and invest."
[COMMENTARY] Beth
Stackpole provides good insight into the state of ESG
corporate reporting and how ESG rating agencies rate
companies on ESG measures. Also, the writer asks tough
questions about the relevance of what's being reported
and potential outcomes concerning sustainability.
Why sustainable business needs better ESG ratings,
by Beth Stackpole, December 5, 2021, MIT, USA.
-------------------------------------------------------------
Rating Muni Bonds on ESG
and Impact. "Across muni-bond sectors,
there are more than 200 data-driven metrics and 5
million annual data points to measure performance.
VanEck and HIP Investor have partnered to track the
overall impact and sustainability of 122,000 entities
that could benefit from muni bonds."
[COMMENTARY] This
article presents a good analysis of how US muni bonds
can be ESG rated. This will be of interest to many
investors.
Rating Muni Bonds on ESG and Impact, by Paul Herman,
December 5, 2021, ETF Trends, USA.
-------------------------------------------------------------
Investor Guide To Natural Capital by HSBC
Asset Management. November 2021
[COMMENTARY] Though
for institutions, this guide is also incredibly useful
and informative reading for all ethical and sustainable
investors.
-------------------------------------------------------------
Is your 'green' fund
really any different to one without the trendy label?
Top experts warn they can be almost identical - and
demand a crackdown. "Leading investment
experts are calling for the country's [UK] financial
regulator to act swiftly to stop the mis-labelling of
green investment funds by some of the world's biggest
asset managers."
[COMMENTARY] This
is probably the same situation in most western
countries. With the enormous growth in green funds, it's,
frankly, expected that many funds would jump on the
bandwagon that aren't really green or sustainable.
Is your 'green' fund really any different to one without
the trendy label? Top experts warn they can be almost
identical - and demand a crackdown, by Jeff
Prestridge, November 27, 2021, Financial Mail on Sunday,
UK.
-------------------------------------------------------------
Oil Nations Are Selling
Billions In Green Bonds. "Saudi Arabia, the
world's biggest oil producer, has announced plans
to boost oil production further, from the
current 12 million barrels a day to 13 million barrels a
day by 2027. The UAE has an even more aggressive growth
plan, with state-controlled oil company ADNOC saying
it will increase oil output by 25% to
produce 5 billion barrels a day by 2030. Meanwhile,
Qatar continues to invest
heavily in African oilfields and is
building the world's
largest liquified natural gas (LNG)
terminal."
[COMMENTARY] One
major concern is that these states become huge green
bond issuers while also greatly expanding their
fossil-fuel production--which becomes increasingly
difficult to finance! Hence, is the green bond issuance
'subsidizing' fossil-fuel investment?
Oil Nations Are Selling Billions In Green Bonds, by
Alex Kimani, November 27, 2021, Oilprice.com, UK.
-------------------------------------------------------------
Institutional investors
wary of companies' ESG promises. "92% of
investors are concerned that companies aren't
effectively executing on their net zero promises."
[COMMENTARY] It's
easy for companies to make promises that are many, many,
years into the future! Particularly when it promotes
your stock price. However, presenting detailed plans for
achieving those promises is still rare. And that's what
creates investor skepticism of such 'promises.'
Institutional investors wary of companies' ESG promises,
by Lynn Pollack, November 25, 20221, Benefits Pro, USA.
-------------------------------------------------------------
Company valuations and
climate strategies are poles apart.
"Analyses of companies globally by management
consultancy Kearney in November seen exclusively by
Reuters, as well as data by Credit Suisse Group AG
published in April, found that companies that lowered
their emissions in sectors where doing so was expensive
and government regulation was limited were valued less,
on average, than more emitting peers."
[COMMENTARY] There's
a vicious or virtuous circle that's happening --
depending on your viewpoint -- as regard to fossil-fuel
prices. High prices please many investors! Hence,
companies fully
engaged in fossil fuel production are reaping big
profits. Environmentalists love it too as it dampens
fossil-fuel demand. However, consumers are mad about it.
For many investors and fund managers, it's a bit like
why not invest in tobacco companies? They usually make
huge profits, often have great ESG ratings, and are
included in many ESG indices and ESG funds? You see my
point!
Also, its increasingly difficult to find funding for
fossil-fuel developments thus limiting potential future
supply. So, many investors see investing in 'purer'
fossil-fuel plays as a win-win-win! Similarly, in many
industry sectors.
Company valuations and climate strategies are poles
apart, by Elizabeth Howcroft and Simon Jessop,
November 24, 2021, Yahoo! Finance, USA.
-------------------------------------------------------------
Green Bond Impact
Ratings: Turning Brown into Green. "This
special report examines how ESG factors are changing the
landscape in fixed income investing, and how
institutional investors and security issuers are
navigating the new terrain."
[COMMENTARY] A
great article on this timely subject.
Green Bond Impact Ratings: Turning Brown into Green,
from the Nov 2021 PGIM Fixed Income ESG Special Report,
November 23, 2021, Institutional Investor, USA.
-------------------------------------------------------------
Bob Eccles and Jean
Rogers on ISSB and the future of ESG reporting.
"So what does the formation of the ISSB mean for the
evolution and efficacy of ESG reporting? To answer that,
I checked in with those who I thought would know better
than most: Jean Rogers, founder of the Sustainability
Accounting Standards Board (SASB) and, as of this month,
global head of ESG at Blackstone; and Robert Eccles,
founding chairman of SASB, professor of management
practice at Oxford and a founder of the International
Integrated Reporting Council (IIRC)."
[COMMENTARY] This
is a good insightful discussion of the newly formed
International Sustainability Standards Board (ISSB) and
what it might mean for all ethical and sustainable
investors.
Bob Eccles and Jean Rogers on ISSB and the future of ESG
reporting, by Grant Harrison, November 17, 2021,
GreenBiz, USA.
-------------------------------------------------------------
Advisers must be careful
not to create 'inherent bias' towards ESG - P1.
"Advisers could soon have to ask clients about their
sustainability preferences in a similar way to attitude
to risk, as ESG becomes ingrained in the investment
process, according to Quinitin Rayer, head of research
and ethical investing at P1 Investment Services."
[COMMENTARY] I've
been waiting over forty years for investment advisory
professionals to realize what has been obvious since the
beginnings of their profession! To properly serve a
client the 'Know-thy-client' rule should also mean
'know-their-values'. Otherwise, how can you properly
advise a client financially!
However, this article seems to also warn that advisors
need to caution their clients about overly favoring
ESG. To me, that arises from a mindset that doesn't
properly understand ESG.
Advisers must be careful not to create 'inherent bias'
towards ESG - P1, by Julia Bahr, November 17, 2021,
Professional Advisor, USA.
-------------------------------------------------------------
Majority of investors
see gap between ESG preferences and current portfolio.
"The study set out to examine the client side of ESG
investing and establish investors' attitudes in the UK,
the US and Singapore towards ESG investing, their true
ESG preferences, the strengths and weaknesses of their
existing financial adviser on the subject and what would
constitute for them the ideal ESG investment experience.
Investors' ESG preferences were shown to vary widely and
be distributed right across the spectrum of available
forms of sustainable investment."
[COMMENTARY] This
study suggests that the 'know-thy-client' rule is not
properly applied by advisors and that investors aren't
doing enough research themselves. It's laziness by both
groups. Blaming each other is at least a start in
hopefully correcting the situation!
Majority of investors see gap between ESG preferences
and current portfolio, press release, November 15,
2021, Capital Preferences, USA.
-------------------------------------------------------------
Bonds are an ESG blind
spot in investing. "BBVA Global Markets
Research has estimated that in late 2020 the stock of
green, social and sustainable bonds had yet to reach
$1tn out of a market total of $128tn. While this green
exposure is rising fast from a low base, it is
indisputably minuscule."
[COMMENTARY] The
writer seems to believe that ESG is partly a 'marketing
ploy' among equity asset managers. He's probably right
to some extent. But he gives the impression that the
bond markets are more sophisticated. Hence, the reason
for green bonds being such a small proportion of total
bond issuance.
Bonds are an ESG blind spot in investing, by John
Plender, November 10, 2021, Financial Times, UK.
-------------------------------------------------------------
ESG investing has a
blind spot that puts the $35 trillion industry's
sustainability promises in doubt: Supply chains.
"Investors' trust in ESG funds may be misplaced. As
scholars in the field of supply
chain management and sustainable
operations, we see a major flaw in how
rating agencies, such as Bloomberg, MSCI and
Sustainalytics, are measuring companies' ESG risk: the
performance of their supply chains."
[COMMENTARY] The
issue of supply chains is coming to the fore! The reason why ESG rating companies have largely ignored
it is because it's complex, difficult -- and costly to
evaluate. My guess is until a way is found to cover such
increased costs, fully including supply chain issues
into ESG scores will be mixed at best.
ESG investing has a blind spot that puts the $35
trillion industry's sustainability promises in doubt:
Supply chains, by Tinglong Dai and Christopher S.
Tang, November 9, 2021, The Conversation, Canada.
-------------------------------------------------------------
Why Investor Engagement
with 'Dirty' Companies Is Better Than Divestment.
"Investors who espouse environmental,
social and governance (ESG) principles will achieve
little by selling their shares in ESG-unfriendly
companies, according to a new research paper titled 'The
Impact of Impact Investing' by finance
professors Jonathan
B. Berk at Stanford University and Jules
H. van Binsbergen at Wharton.
Instead,
investors could have more success if they buy those
so-called 'dirty' stocks and then engage with those
companies' managements to adopt ESG-friendly policies,
the paper contended."
[COMMENTARY] This
theme of engagement rather than divestment for poorly
performing companies concerning fossil fuels and ESG
performance, has become commonplace among academics and
some ethical investors too. Yet, student groups continue
to press for divestment in university endowments.
Why Investor Engagement with 'Dirty' Companies Is Better
Than Divestment, by Knowledge@Wharton, November 8,
2021, USA.
-------------------------------------------------------------
A Sign of the Times: The
ESG Buyback. "In an ESG buyback, the
company commits part of the buyback profits to finance a
socially responsible or green initiative. Early adopters
include BIC, Campari and Enel."
[COMMENTARY] I'm
not sure how to view this. It is a good way to use
'excess profits.' However, when companies can't see a
way to utilize profits to enhance their own business I
think they need new management!
A Sign of the Times: The ESG Buyback, by Theo
Vermaelen, November 8, 2021, INSEAD Knowledge, France.
-------------------------------------------------------------
IFRS announces global
sustainability standards board. "Efforts to
establish a global consensus for climate and
sustainability disclosures took a major step as the
International Financial Reporting Standards Foundation
(IFRS) announced a series of 'significant developments'
including its new International Sustainability Standards
Board (ISSB)."
[COMMENTARY] This
development is great news and timely. I and many others
associated with ethical and sustainable investing have
decades called for this development.
UPDATE: Canadians are happy too, that one of the three
main offices of the new Board will be in Montreal.
IFRS announces global sustainability standards board,
by Sam Alberti, November 3, 2021, Accountancy Age, USA.
-------------------------------------------------------------
Most Automotive Leaders
Back Hydrogen over BEV, Study Claims. "The
study run by automotive technology management
consultants, Expleo, is based on the views of 225 senior
executives from the automotive industry, split equally
between the UK, France and Germany. It 71% of
respondents believe hydrogen has significant ecological
advantages of battery powertrains but there remains
uncertainty around infrastructure and green hydrogen
which is holding investment back."
[COMMENTARY] This
survey covered European car maker directors. Would
American directors also favor hydrogen- fueled vehicles
over BEV's? It's interesting that governments
continually push BEV's and the general public aren't
aware that the directors of most European automakers
prefer hydrogen-fueled vehicles!
Anyway, I recall reading that the latest research on
'green hydrogen' suggests that it's not so clean after
all!
Most Automotive Leaders Back Hydrogen over BEV, Study
Claims, by Paul Myles, October 28, 2021, TU
Automotive, UK.
-------------------------------------------------------------
US holds back on support
for global sustainability standards.
"Objections to new international outfit aiming to bring
clarity to ESG investment hinge on its broad approach."
[COMMENTARY] Such
standards should have existed for many years already. As
usual, regulators are behind the curve and by the time
they get basic standards together, markets will be ahead
on phases 2 and 3 of standards.
US holds back on support for global sustainability
standards, by Alan Livsey, October 31, 2021,
Financial Times, UK.
-------------------------------------------------------------
ESG metrics trip up
factor investors. "Adding an ethical tilt
to a portfolio may not necessarily lead to better
returns."
[COMMENTARY] This
article provides a good discussion of implementing ESG
into factor-based investing.
ESG metrics trip up factor investors, by Emma Boyde,
October 31, 2021, Financial Times, UK.
-------------------------------------------------------------
New Research: Ethical
and unethical investments under extreme market
conditions. "This study examines the
time-varying volatility and risk measures of ethical and
unethical investments.
We compute the
value-at-risk and expected shortfall using the MS-GARCH
model based on the Bayesian estimation framework.
Ethical investments are
less affected than unethical investments during global
financial crises.
Investors consider ethical
investments as a hedging asset for their portfolios in
the downside risk."
[COMMENTARY] This
research confirms the findings of previous studies that
show ethical investments outperform during market
downtowns.
Ethical and unethical investments under extreme market
conditions, by Petter
Olofssona, Anna Råholm, and Gazi Salah Uddin at
Linköping University, Sweden; Victor Troster,
Universitat de les Illes Balears, Palma, Spain; and Sang
Hoon Kang, Pusan National University, Republic of Korea.
October 2021, International Review of Financial
Analysis.
-------------------------------------------------------------
Why Divestment Doesn't
Hurt "Dirty" Companies. "A new analysis
finds that selling off stocks in corporations that don't
meet your values has minimal impact on their behavior."
[COMMENTARY] This
research agrees with the activist funds that say you
need to invest in 'dirty' companies to change
them. When enough investors seeking corporate change
invest in companies performing poorly in ESG metrics,
they can influence or change the boards of these
companies and effect change that way. Hence, investment,
rather than divestment, is the key to moving companies in
the direction of ESG.
Why Divestment Doesn't Hurt "Dirty" Companies, by
Alexander Gelfand, October 27, 2021, Stanford Business,
USA.
-------------------------------------------------------------
Does Divestment From
Fossil Fuels Really Work? "Private equity
funds are very keen to grab the available stocks, bonds,
and assets, as the margins in oil and gas, and even
coal, are very impressive and will remain so for longer.
National oil companies and
non-Western oil and gas giants will be happy to produce
every last drop of oil, gas, and even coal they can.
Private equity funds, with a
much shorter investment horizon than funds, will be
pushing for higher production sooner, which will not
only produce higher emission levels but will constrain
the price competitiveness of renewables."
[COMMENTARY] As
many experts have said, fossil fuels have to be made
increasingly expensive to drive consumption to
renewables. However, cheap fossil fuels create cheap
mass food, cheap transportation, etc. Hence, the
political reticence to properly tax fossil fuels.
Does Divestment From Fossil Fuels Really Work? By
Editor OilPrice.com, October 27, 2021, Yahoo! News, USA.
-------------------------------------------------------------
100 Best ESG Stocks
Combine Performance And Value With Values.
"IBD's third annual Best ESG Companies special report,
featuring our table of top ESG companies with both high
Dow Jones ESG scores and superior IBD Composite
Ratings, can help investors pick the best
ESG investments."
[COMMENTARY] Worth
reviewing, particularly by ethical and sustainable
investors.
100 Best ESG Stocks Combine Performance And Value With
Values, by Alexis Garcia, October 25, 2021,
Investor's Business Daily, USA.
-------------------------------------------------------------
Navigating the thicket
of ESG metrics. "Sustainable investing may
be gratifying for wealthy individuals and families, but
it is far from simple. A lack of standards in the
measurement and reporting of ESG (environmental, social
and governance) products and funds can leave investors
confused. And when it comes to impact investments,
capturing the right data takes time, effort and, often,
a hands-on approach."
[COMMENTARY] This
FT article is a good review of some of the approaches
dealing with this important subject.
Navigating the thicket of ESG metrics, by Sarah
Murray, October 24, 2021, Financial Times, UK.
-------------------------------------------------------------
Is Mandatory Fossil-Fuel
Divestment Coming For Your 401(k) And IRA? And How Much
Will It Cost You? "Over the past several
years, pension funds in Scandinavia have announced
divestment from oil and gas companies, and the NEST
retirement savings fund in the UK, that is, the
government-managed IRA-like fund into which workers are
defaulted if their employers don't otherwise provide
benefits, has said it will likewise pull its assets from
coal mining, tar sand oil production, or arctic
drilling.
In the United States, in
2020, a pair of representatives proposed legislation
that the Thrift Savings Plan, the 401(k)-like plan for
government employees, likewise 'decarbonize.'"
[COMMENTARY] As
much as I believe that it's right for pension funds to
go fossil-fuel-free, I think it inappropriate for
governments to mandate them.
Is Mandatory Fossil-Fuel Divestment Coming For Your
401(k) And IRA? And How Much Will It Cost You? By
Elizabeth Bauer, October 24, 2021, Forbes, USA.
-------------------------------------------------------------
Analysis: Investors face
myriad green investing rules. "More than 30
taxonomies outlining what is and isn't a green
investment are being compiled by governments across
Asia, Europe and Latin America, each one reflecting
national economic idiosyncrasies that can jar with a
global capital market which has seen trillions pour into
sustainable funds."
[COMMENTARY] Let's
hope there's a lot of commonality between them or it'll
get mighty messy for everyone!
Analysis: Investors face myriad green investing rules,
by Huw Jones and Kate Abnett, Simon Jessop, October 19,
2021, Reuters, UK.
-------------------------------------------------------------
Are Stranded Assets an
Unexploded Bomb? "Many assets will be
uneconomic in a low carbon world, but sectors as diverse
as commercial property and tobacco may be seriously
unprepared for the financial impact."
[COMMENTARY] Stranded
assets aren't just fossil fuels as this article makes
clear.
Are Stranded Assets an Unexploded Bomb?
By Cherry Reynard, October 19, 2021, Morningstar, UK.
-------------------------------------------------------------
Exotic World Of ESG
Derivatives Triggers Warning From Regulator.
"The European Securities and Markets Authority
(ESMA) says it's hard to verify the positive impact of
derivatives sold under environmental, social and
governance labels. The watchdog says standardized
criteria should be met before firms can add ESG tags to
products such as forwards, options and swaps...
ESMA told Bloomberg News in
a written response. 'The absence of disclosure
requirements or recognized labels with minimum
sustainability criteria implies that claims as to the
impact of these instruments cannot be substantiated.'"
[COMMENTARY] It
seems to be presently a 'wild west' when it comes to ESG
derivatives.
Exotic World Of ESG Derivatives Triggers Warning From
Regulator, by John Ainger and Greg Ritchie, October
18, 2021, FA-Magazine, USA.
-------------------------------------------------------------
Transition
Finance Week, Canada, November 29 - December 3,
2021. "Industry Dialogues on Financing
Canada's Transition to Net-Zero... Join 10+ key sessions
on Transition Finance in live webcast format. Learn from
thought leaders in ESG and sustainable finance. Interact
with panelists through live-polling and in-session chat
features. Network with fellow attendees and speakers via
peer-to-peer chat options. Earn CE credits and PDUs from
several accreditors."
-------------------------------------------------------------
ESG 2.0 Is in the
Making. "While some may expect the
repudiation of ESG as an investment fad, our view is
that the current debate on the validity of ESG heralds
not the end of ESG investing but instead a transition
toward major improvement."
[COMMENTARY] Some
interesting insights into the future of ESG based
investing by two highly reputable individuals with
significant ESG backgrounds.
ESG 2.0 Is in the Making, by Georg Kell and Todd
Cort, October 11, 2021, Barron's, USA.
-------------------------------------------------------------
Dumping stocks to punish
bad corporate behavior has tiny impact.
"Even as billions of dollars diverts toward firms
scoring higher on environmental, social and governance
measures, the funding costs for bad actors has hardly
budged, a study has found."
[COMMENTARY] The
better way according to this study is for asset owners
to directly engage with the companies.
Dumping stocks to punish bad corporate behavior has tiny
impact, by Tasneem Hanfi Brögger and Sam Potter,
October 9, 2021, Bloomberg on Business Standard, India.
-------------------------------------------------------------
BlackRock's Landmark
Move on Proxy Votes Fuels a Big ESG Debate.
"The world's largest asset manager revealed on Thursday
that from next year, some institutional clients will be
able to play a bigger role in shareholder votes. The
move will apply to about 40% of $4.8 trillion in index
equity assets that BlackRock manages."
[COMMENTARY] This
freedom is long overdue. Each institutional client needs
to decide what its objectives are regarding its holdings
and consequent relationship with them. Then, their
assets may
perform even better!
BlackRock's Landmark Move on Proxy Votes Fuels a Big ESG
Debate, by Tasneem Hanfi Brögger and Sam Potter,
October 8, 2021, Bloomberg on Yahoo! Finance, USA.
-------------------------------------------------------------
Sovereign bonds are not
exempt from ESG consideration. "Just as
bondholders engage around fiscal and monetary policies,
they should broaden conversations around ESG topics."
[COMMENTARY] This
article has great information on how ESG impacts stock,
corporate and sovereign bond prices and other related
data.
Sovereign bonds are not exempt from ESG consideration,
by Carmen Nuzzo, October 6, 2021, ETFStream.com, UK.
-------------------------------------------------------------
What can corporate
actors learn from climate change litigation?
"In May of this year, climate change litigation made
global headlines in the wake of an unprecedented
judgment issued by the Hague District Court in the case
of Milieudefensie
v Shell. The court ordered Shell to enhance
the ambition of its greenhouse gas emissions reduction
efforts, requiring the company to set -- and meet --
companywide emissions reduction targets of 45% below
1990 levels by 2030.
While this case was the
first of its kind, it is also part of a growing global
body of climate change litigation, which is playing an
increasingly critical role in the domestic
implementation and enforcement of the Paris Agreement."
[COMMENTARY] Many
companies could be faced with this type of court
challenge in the years ahead. Naturally, stock
valuations could be affected too. So it's something to
become familiar with. This is an excellent article from
the London School of Economics on the
subject.
What can corporate actors learn from climate change
litigation? By Catherine Higham and Joana Setzer,
October 4, 2021, London School of Economics, UK.
-------------------------------------------------------------
Harvard cracks on fossil
fuels and a dam breaks. "Academic
endowments are entering a new normal after the richest
school in the world followed
the lead of other colleges and universities
to divest from fossil fuels.
Now a cascade of similar
announcements has followed, with Boston
University, the University
of Minnesota and the $8 billion MacArthur
Foundation pulling the plug on fossil
fuels."
[COMMENTARY] Most
of their faculty is in some way connected academically
to some facet of global warming and/or climate change.
Hence, it's unsurprising that these institutions give up
on fossil fuel investments.
Harvard cracks on fossil fuels and a dam breaks, by
Jordan Wolman, September 28, 2021, Politico, USA.
-------------------------------------------------------------
Deep Dive: Do not
neglect the G in ESG. "Likewise, according
to a 2016 study from Barclays, a divergence in priority
appears between some asset managers and their clients
regarding the relative importance of the three ESG
components. Clients regard environmental factors as the
most important, while governance is top of the list for
bond managers.
Moreover, the same study
showed that bonds with higher governance scores tended
to have fewer downgrades and better outperformance,
during the period from August 2009 until April 2016,
than those with lower scores, validating the emphasis
bond managers have historically placed upon effective
governance."
[COMMENTARY] I
think it's fair to say that most individual investors
regard the 'E'--environment -- as the most important of
ESG investing. However, among investment managers, the
'G' -- governance -- is the most important. And for good
reason, since I've seen studies that demonstrate that
the governance characteristics and activities of
companies positively influence profits more than any
other factor.
Deep Dive: Do not neglect the G in ESG, by Chris
Bowie, Investment Week, UK.
-------------------------------------------------------------
Blog: How do companies
address governance issues for corporate political
activity? "Deloitte and the Society for
Corporate Governance report on a survey they conducted
in July 2021 about companies' approaches to publicly
addressing controversial social and political issues."
[COMMENTARY] This
is an area that could have significant effects on a
company's image and therefore, stock price.
Blog: How do companies address governance issues for
corporate political activity? By PubCo@Cooley,
September 22, 2021, JD Supra, USA.
-------------------------------------------------------------
NYSE working with IEG to
develop new asset class, Natural Asset Companies.
"'This new asset class on the NYSE will
create a virtuous cycle of investment in nature that
will help finance sustainable development for
communities, companies and countries,' Douglas Eger, CEO
of IEG, said. 'Together, IEG and the NYSE will enable
investors to access nature'' store of wealth and
transform our industrial economy into one that is more
equitable.'"
[COMMENTARY] This
could be either the most exciting new development in
finance this century -- or its biggest disaster. The
idea is terrific. Only time will tell if the
environmental community and the public at large view it
as an important step to dealing with today's climate
crises.
NYSE working with IEG to develop new asset class,
Natural Asset Companies, by Dave Kovaleski,
September 16, 2021, Financial Regulation News, USA.
-------------------------------------------------------------
Sustainable investments
could make up majority of global private wealth
portfolios in coming years, finds report.
"The world's wealthiest individuals, family offices, and
foundations, are preparing to plough billions of dollars
into sustainable investments over the coming years, as
they increasingly view addressing climate change as both
a social responsibility and an attractive investment
opportunity."
[COMMENTARY] I
suspect that with companies realizing that going sustainable
has great payback, the number of sustainable
companies could grow to a point that the majority of
one's portfolio would naturally be sustainable! No effort
is needed! Wow--what a dream--or is it?
Sustainable investments could make up majority of global
private wealth portfolios in coming years, finds report,
by staff, September 15, 2021, Institutional Asset
Manager, USA.
-------------------------------------------------------------
Sustainable or sellout?
Four revealing questions in a company's environmental
disclosure. "How can we sift through
greenwashing to spot genuine climate action?"
[COMMENTARY] This
article is written by Simon Fischweicher, head of
corporations and supply chains, CDP North America. So
he's an expert on this subject. I'm sure that many
ethical and sustainable investors will benefit from Mr.
Fischweicher's insights.
Sustainable or sellout? Four revealing questions in a
company's environmental disclosure,
Simon Fischweicher, September 9, 2021, Corporate
Knights, Canada.
-------------------------------------------------------------
China to create first
green stock index in fresh push to curb carbon emission.
"China will set up a green stock index and
develop futures trading for carbon emission rights --
both of which will be the first such instruments,
according to a new sweeping guideline issued on Sunday,
marking an important step in expanding China's
market-oriented securitization and financing mechanisms
to accelerate the country's long-term carbon trading and
achieve its carbon neutrality goal."
[COMMENTARY] We'll
have to see whether this amounts to anything or is
mainly a 'PR' exercise. After all, China is still
building and planning to build a huge number of coal
power plants.
China to create first green stock index in fresh push to
curb carbon emission, by GT staff reporters,
September 12, 2021, Global Times, China.
-------------------------------------------------------------
Why Sustainable
Investment Means Investing in Advocacy.
"Combining traditional impact investment approaches with
investment in advocacy is the only way businesses and
investors can fuel meaningful social and environmental
progress."
[COMMENTARY] These
knowledgeable authors make a compelling case that
without advocacy the sustainable and ESG causes will be
limited.
Why Sustainable Investment Means Investing in Advocacy,
by Alan Schwartz and Reuben Finighan, September 9, 2021,
Stanford Social Innovation Review, USA.
-------------------------------------------------------------
Ten ways to be sure your
'green' fund really does help save the planet... and can
make you money at the same time. "Green
investing is more popular than ever with inflows into
ethical, sustainable or responsible-badged investment
funds running at record levels. But how do you know that
the fund you are buying -- for an Isa or a pension -- is
really green and in line with your ethics? Not easily,
according to Mary Stevens, innovation manager at
environmental pressure group Friends of the Earth."
[COMMENTARY] Here's
some good advice for the new ethical and sustainable
investor.
Ten ways to be sure your 'green' fund really does help
save the planet... and can make you money at the same
time, by Jasmine Birtles, September 11, 2021, This
is Money, UK.
-------------------------------------------------------------
US SIF Releases Tips to
Implement Sustainable Funds. "As more
participants express an interest in ESG investing, US
SIF recommends steps plan sponsors can take to add the
investments to retirement plans."
[COMMENTARY] Some
useful information for all pension plan sponsors.
US SIF Releases Tips to Implement Sustainable Funds,
by Amanda Umpierrez, September 7, 2021,
PLANSPONSOR, USA.
-------------------------------------------------------------
Deutsche Bank's ESG
Probe Triggers Review at Asset Managers.
"Anxiety around greenwashing -- mis-stating how climate
friendly assets are -- is palpable across the industry as
fund managers react to German and U.S. investigations of
DWS Group.
Though the Deutsche Bank
unit says it did nothing wrong, the development has led
to a moment of reckoning as fund managers wake up to a
new regulatory era in which once fluffy environmental,
social and governance definitions are no longer
tolerated."
[COMMENTARY] It's
about time that funds proclaiming their green
credentials were duly evaluated for them. Such
investigations, and perhaps prosecutions, will create
greater confidence for investors that they're getting
what's advertised.
Deutsche Bank's ESG Probe Triggers Review at Asset
Managers, by Christine Watkins, September 5, 2021,
Bloomberg via Sports Grind Entertainment, USA.
-------------------------------------------------------------
Investors care more
about fair wages for workers than environmental issues,
ESG survey shows. "When broken down by
topic, preference for investing in a company that pays
workers fair wages edged out a preference for
environmentally friendly companies, with 65% of total
respondents flagging wages and 53% citing environment."
[COMMENTARY] The
predominant thinking has been that it's the 'E' in ESG
that attracts investors. Do we see evidence that the 'S'
side is gaining momentum? Or is this survey skewed in
some way? I'm not convinced that many
professional investors in this space would agree with
this survey's findings.
Investors care more about fair wages for workers than
environmental issues, ESG survey shows, by Debbie
Carlson, September 4, 2021, MarketWatch, USA.
-------------------------------------------------------------
Most Green Investment
Funds Missing Paris Goals. "The report from
InfluenceMap -- 'Climate Funds: Are they Paris Aligned?'
-- analysed 723 listed-equity funds with total assets
under management of over US$330 billion, dividing funds
which used one of 30 descriptions into two categories:
broad ESG and climate-themed.
In the broad ESG category,
Influence Map identified 593 equity funds with over
US$265 billion in total net assets of which 71%, had a
negative Portfolio Paris Alignment score.
Of the 130 climate-themed
funds, with titles such as 'low carbon', 'fossil fuel
free' and 'green energy', and over US$67 billion in
total net assets, 55% had a negative Paris Agreement
alignment score. The lowest score was -- 42% with the
best scoring fund hitting +90%."
[COMMENTARY] Big
players such as State Street, UBS, and even Blackrock,
did particularly badly. I think that the report's
researchers are also somewhat off-base by not accounting
for the highly differentiated objectives of these funds
by exclusively focusing on whether or not they
specifically align with the Paris Agreement.
For instance, if a fund's objective is to purposely buy
stocks in fossil fuel-related companies to encourage
engagement with them to promote greater carbon reduction
through new reduction methodologies or renewables, that
would seem to put such funds at the low end of this
analysis.
Most Green Investment Funds Missing Paris Goals, by
ESG Investor, September 2, 2021, Regulation Asia,
Singapore/Hong Kong.
-------------------------------------------------------------
Yale climate professor:
'Divestment is a waste of time and energy.'
"PODCAST: Cary Krosinsky explains why the divestment
movement doesn't help solve climate change and what fund
managers can do instead."
[COMMENTARY] I
haven't had a chance to listen to this podcast yet. but
Cary Krosinsky is someone with terrific credentials and
whom I greatly respect. From my perspective, there's an
argument that can be made that divestment affects
secondary financial markets and has little direct
influence on new issuers of say, funding new coal
projects.
Also, note that starving funding for new fossil fuel-related projects can make their stocks more profitable
than they might otherwise be. The reason is that
continuing or rising high prices for their products
(note oil!) with dwindling supply enables much higher
margins and profits. Thus benefiting shareholder
returns.
Furthermore, it possibly
detracts from the possibility of funding fossil fuel-related projects to reduce carbon emissions.
Yale climate professor: 'Divestment is a waste of time
and energy,' by Loukta Gyftoppoulou, September 2,
2021, Wealth Manager, USA.
-------------------------------------------------------------
SEC Wants Sustainable
Funds to Disclose More About Their Criteria.
"In
a videoconference, Chairman Gary Gensler
told members of the European Parliament that the SEC is
considering whether to require fund managers to disclose
more information about the labeling of their
environmental, social and governance, or ESG, investing
products. Gensler said he has asked SEC employees to
make recommendations for disclosure requirements.
Calls for public comment are
expected to start by year's end or early 2022."
[COMMENTARY] There's
little doubt that some 'sustainable' funds are barely
that at all, hardly differing in their stock components
to 'conventional' counterparts. They can argue that
their aim is to 1) engage with climate 'laggards' to
encourage them to do better. And, or, 2) purposely
invest in climate laggards that propose to do much
better on ESG as these companies have often shown to
have greater stock price appreciation than established
high-performance ESG companies.
SEC Wants Sustainable Funds to Disclose More About Their
Criteria, by Evie Liu, September 1, 2021, Barron's,
USA.
-------------------------------------------------------------
Exchange for ethical
investments gets off the ground with two listings.
"A stock exchange hatched out of Silicon
Valley that's taking on established rivals in New York
and Chicago is listing its first two companies."
[COMMENTARY] This
new exchange will be fascinating to watch! Will it
attract listings? Will it attract investors? I hope that it receives rapid success.
Exchange for ethical investments gets off the ground
with two listings, by Katherine Doherty, August 27,
2021, Independent.ie, Ireland.
-------------------------------------------------------------
Investor Familiarity
With Sustainable Investing Remains Low.
"Despite its growing importance in the capital markets,
news about sustainable investing or ESG funds has not
trickled down to average U.S. investors. And with the
pandemic perhaps shifting investors' economic
priorities, they are expressing less interest in such
funds for themselves.
Still, the future of
sustainable investing looks promising, with younger
investors paying closer attention to it and expressing
greater interest than older working-age investors and
retirees."
[COMMENTARY] I
find it amazing that the investment industry's interest
in ESG and sustainability has gained tremendous
momentum. Yet, interest in this space by individual US
investors has not changed since before the pandemic.
Though this survey does indicate, as numerous others
show, that younger investors are much more interested in
ESG and sustainable investing.
Investor Familiarity With Sustainable Investing Remains
Low, by Lydia Saad, August 23, 2021, Gallup, USA.
-------------------------------------------------------------
There's $35 Trillion
Invested in Sustainability, but $25 Trillion of That
Isn't Doing Much. "Since ESG lacks
definitions, it can often mean different things to
different people, said Lisa Sachs, who heads Columbia
University's Center on Sustainable Investment.
And because ESG integration
is often conflated with other responsible investment
strategies such as impact investing and negative and
positive screening, it's helping to create a false
impression that the world of money management is
directing capital towards helping solve societal ills."
[COMMENTARY] As
I've said previously both ESG reporting standards and
funds touting ESG credentials need to have more
stringent standards. However, there is a caveat to this.
Funds that explicitly invest in companies beginning
their ESG journeys. Studies have shown that such
companies can see more rapid stock appreciation than
companies with established ESG credentials.
I believe that the Global Sustainable Investment
Alliance who collates the data needs to have categories
varying from 'deep' green to 'light' green in terms of
assets under management!
There's $35 Trillion Invested in Sustainability, but $25
Trillion of That Isn't Doing Much, by Saijel Kishan,
August 18, 2021, Bloomberg Green, Australia.
-------------------------------------------------------------
'More emissions than
Exxon': Is meat the next target for divestment?
"The finance sector is increasingly reluctant to
finance fossil fuel expansion, and 'Big Ag' could be
next in the divestment campaign firing line, argues
Charlotte Moore from SIGWATCH."
[COMMENTARY] On
an individual basis, it's happening already. I know many
individual investors who won't touch meat stocks. Look
at the success of Beyond Meat. Only institutions are
holding back. It's just a matter of time before many of
them join the numerous individual investors in this
endeavor.
'More
emissions than Exxon': Is meat the next target for
divestment? By
Charlotte Moore, August 17, 2021, Investment Week, USA.
-------------------------------------------------------------
ESG Investing: Does It
Distort the Market? "Bottom line on ESG:
Overall, it must be a force for good to measure company
externalities and hold investors accountable in some
way. It just seems we got into a weird phase of its
evolution with the concentration in mega-cap tech
stocks. I look forward to reading about the movement at
the end of this decade and if created the changes we
wanted, or more unintended consequences."
[COMMENTARY] It
can be argued that ESG investing does distort the
markets. However, isn't that the point! Now, one could
argue that passive index investing means possible
carelessness with ESG criteria of companies in the index
which over time lowers ESG standards... and returns!
ESG Investing: Does It Distort the Market? By Kevin
Cook of Zacks, August 13, 2021, Nasdaq.com, USA.
-------------------------------------------------------------
US issuers still split
on ESG standards, study finds. "As the SEC
considers imposing climate-related reporting rules, US
companies are divided on what they should look like."
[COMMENTARY] It's
to be expected that issuers will have differing opinions
on ESG standards. I expect that there'll be many common
standards but others will be industry-specific.
US issuers still split on ESG standards, study finds,
by Maria Ward Brennan, August 11, 2021, Corporate
Secretary, USA.
-------------------------------------------------------------
Bond investors need to
step up on human rights. "Too many fund
firms use strong rhetoric on abuses while lending money
to oppressive regimes."
[COMMENTARY] With
many ESG rating firms providing sovereign ESG ratings,
it seems not much of a step to incorporate more scrutiny
of human rights issues. I believe some rating
organizations already do this.
Bond investors need to step up on human rights, by
Laurence Fletcher, August 7, 2021, Financial Times, UK.
-------------------------------------------------------------
ESG: EU Green Bond
Standard. "The European
Green Bond Standard proposal will create a
high-quality voluntary standard for bonds financing
sustainable investment. Issuers will have a recognised
way of demonstrating that they are funding green
projects aligned with the EU Taxonomy. Investors will be
better able to ascertain that their investments are
sustainable, thereby reducing the risk of greenwashing."
[COMMENTARY] This
new standard sounds great. We'll have to see in practice
how it works out. If successful, it could, in short
order, become the global standard for green bonds.
ESG: EU Green Bond Standard, by Richard Kelly, July
27, 2021, Ireland.
-------------------------------------------------------------
Amory Lovins:
Decarbonizing industry isn't just about costs, it's
about profits. "This week Amory
Lovins, co-founder of RMI and clean energy BAMF,
released a paper, 'Decarbonizing
our toughest sectors -- profitably,' encouraging a
fresh perspective on the costs of decarbonizing heavy
transport and industrial heating. The paper makes the
case that deep decarbonization isn't a cost: It's an
investment that will make communities and companies
money."
[COMMENTARY] Amory
Lovins is one of the great pioneers of ethical and
sustainable investing. In his new article, he makes a
great case demonstrating that de-carbonizing the biggest
polluters can be profitable for all stakeholders. It
pays to listen to him.
Amory Lovins: Decarbonizing industry isn't just about
costs, it's about profits, by Sarah Golden, August
6, 2021, GreenBiz, USA.
-------------------------------------------------------------
5 ways to separate real
ESG leadership from greenwashing. "How can
people better identify greenwashing and help reinforce
the growing sense of accountability for ESG standards?
Look for these factors."
[COMMENTARY] Some
good points in how to identify 'greenwashing' in
companies are made in this article.
5 ways to separate real ESG leadership from
greenwashing, by Marjella Lecourt-Alma, August 4,
2021, Fast Company, USA.
-------------------------------------------------------------
Where's All That Green
Bond Money Really Going? "Overall issuance
is skyrocketing, but transparency is hard to come by."
[COMMENTARY] There's
a clear need for a universal mechanism for tracing the
flow of funds raised via green bonds. Otherwise,
confidence in this market could falter, and dealing with
climate change negatively affected. This is beside the
potential detrimental impact on the stock and bond
prices of the corporation for misbehavior. That alone
might be a sufficient deterrent. Who knows?
Where's All That Green Bond Money Really Going? By
Tim Quinson, August 4, 2021, Bloomberg Green, USA.
-------------------------------------------------------------
More than $3T of
companies outside the EU could be on the hook for SFDR.
"Until recently, European legislation may
not have been at the top of the agenda for financial
services firms in the U.S., or anywhere outside the
European Union.
But two factors might have
you suddenly realizing that it's worth paying attention
to EU sustainable investment regulation, regardless of
where you’re based. This is, especially true since some
of this regulation is already in effect.
First, in order to market
investment funds in the EU, firms often set up a local
legal entity that could potentially expose the parent
company to EU regulation. Second, the EU put new
regulation in place mandating sustainability disclosure
from certain types of financial firms."
[COMMENTARY] For
those readers engaged in financial services with European
operations this is something you must investigate!
More than $3T of companies outside the EU could be on
the hook for SFDR, by Divya Mankikar, July 30, S&P
Global, UK.
-------------------------------------------------------------
Regulators to unlock
'black box' of ESG corporate ratings.
"Global regulators took a first step on Monday to unlock
the 'black box' of corporate environmental, social and
governance (ESG) ratings, suggesting formal oversight of
a sector which helps channel trillions of dollars into
climate-friendly investment funds.
Despite growing influence,
ESG raters and data providers are largely unregulated,
lack transparency in their methods, offer uneven
coverage and harbour potential conflicts of interest,
said the International Organization of Securities
Commissions (IOSCO), which groups market regulators from
the United States, Europe and Asia."
[COMMENTARY] I
just hope that should the ESG raters be regulated that
there is room for differences of opinions between them
on any given stock. I do agree, however, that the
structure of the ESG data needs more uniformity. That
would provide for better cross-rater comparisons on
companies.
Regulators to unlock 'black box' of ESG corporate
ratings, by Kim Kyung-Hoon, July 26, 2021, Reuters,
UK.
-------------------------------------------------------------
Blog: Acting Enforcement
Director warns of ESG enforcement actions.
"According to Law
360 reporting on a webcast panel last week,
Acting Director of Enforcement Melissa Hodgman, warned
that, in addition to 'increased scrutiny' of 'funds
touting green investments,' we may well see more ESG
disclosure-related enforcement actions in general."
[COMMENTARY] I
believe it's a good idea that funds and fund managers,
etc., live up to what they profess. If not, there should
be penalties.
Blog: Acting Enforcement Director warns of ESG
enforcement actions, by Cooley LLP, July 21, 2021, JD
Supra, USA.
-------------------------------------------------------------
ESG Assets in Europe
Shrink after Regulatory Consolidation Efforts.
"While assets in sustainable investments declined to
$12 trillion in Europe over 2020 from $14 trillion in
2018, the falling assets in attributed to falling
investment demand for the ESG theme, Bloomberg reports.
The drop in ESG assets in Europe is a result of policy
changes that tightened the requirements for what can be
considered a responsible investment, according to Simon
O'Connor, chair of the Global Sustainable Investment
Alliance."
[COMMENTARY] With
36% of assets under management globally now termed
'responsible' by the GSIA, I wonder if there's been a
weakening as to what are considered
ethical-ESG-sustainable investments? I think these
numbers from Europe provide the answer. Probably 'yes'.
ESG Assets in Europe Shrink after Regulatory
Consolidation Efforts, July 21, 2021, ETF Trends,
USA.
-------------------------------------------------------------
What you should know
about potential new international reporting standards.
"The International Integrated Reporting
Council (IIRC) and Sustainability Accounting Standards
Board (SASB) have merged into
the Value Reporting Foundation. They and three other
sustainability reporting bodies -- CDP, Climate
Disclosure Standards Board (CDSB) and Global Reporting
Initiative (GRI), known as the Group of Five -- have
called for closer coordination and launched a prototype
climate-related financial disclosure standard."
[COMMENTARY] It's
great to see this finally coming together. When it does,
analyzing ESG performance between companies should be
easier.
What you should know about potential new international
reporting standards, by Adam Fishman, July 19, 2021,
GreenBiz, USA.
-------------------------------------------------------------
The GSIA Releases its
Global Sustainable Investment Review 2020.
"Responsible investment assets under management make up
a total of 36% of total assets under management."
[COMMENTARY] This
is a staggering amount! I can't help but feel as per the
article below ("This World May Be Better Off Without
ESG Investing") that the guidelines of what is
sustainable, responsible, etc., are becoming ever
weaker. This is not to say that numerous companies are
now being encouraged to be more sustainable though!
The GSIA Releases its Global Sustainable Investment
Review 2020, by Responsible Investment Association
Canada, July 18, 2021, Canada.
-------------------------------------------------------------
The World May Be Better
Off Without ESG Investing. "The bar for
what constitutes a good corporate citizen is abysmally
low... This could explain why Exxon and BP,
which pose existential threats to the planet, get an
average ('BBB') aggregate score from MSCI..."
[COMMENTARY] In
some quarters ethical and sustainable investors invest
in companies they consider 'light,' 'medium' or 'deep'
green. I think the ESG rating companies need to do a
similar thing!
The World May Be Better Off Without ESG Investing,
by Hans Taparia, July 14, 2021, Stanford Social
Innovation Review, USA.
-------------------------------------------------------------
Can ESG disclosures get
you sued? "Everyone expects the SEC to make
climate change and other ESG reporting mandatory, and
those tech giants -- Amazon, Alphabet, Autodesk, eBay,
Facebook, Intel and Salesforce -- said in a joint
letter they support this. What they don't
support is including the information in filings such as
annual 10-Ks and quarterly 10-Qs because, they say, it
could open them up to costly lawsuits."
[COMMENTARY] I
think it's right that the SEC should make ESG reporting
mandatory in company filings. Furthermore, that
interested parties should have the ability to challenge
such reporting. And in the courts if necessary. However,
clearly, limits of some kind would have to be placed on
legal challenges.
Can ESG disclosures get you sued? By CJ Clouse, July
15, 2021, GreenBiz, USA.
-------------------------------------------------------------
CFA Institute's draft
ESG standards could facilitate 'greenwashing,' IFIC
says. "Without establishing standards for
labelling environmental, social and governance (ESG)
products, the CFA Institute's proposed disclosure
standards could lead to more 'greenwashing' of
investment funds, Canada's fund industry lobby group
says."
[COMMENTARY] I
wonder if other affected organizations, funds, etc.,
have come to the same conclusion?
CFA Institute's draft ESG standards could facilitate
'greenwashing,' IFIC says, by Mark Burgess, July 14,
2021, Investment Executive, Canada.
-------------------------------------------------------------
What you need to know
about the European Green Deal - and what comes next.
"The European Green Deal has the potential
to play a key role not only in ensuring this recovery in
the short term but also in addressing long-term climate
change threats. The launch of the 'Fit for 55' package
this week is expected to mark an important step in
overhauling climate policies and enabling the EU to
deliver on its commitment to reduce emissions by 55% by
2030."
[COMMENTARY] This
is a big deal. It will influence and affect numerous
industries, governments, and probably billions of
consumers, globally. Everyone needs to pay attention to
this!
What you need to know about the European Green Deal -
and what comes next, by Teresa Belardo, July 13,
2021, World Economic Forum, Switzerland.
-------------------------------------------------------------
Study: Financial Markets
Ignore Environmental Damage. "Credit-rating
agencies say they can discipline companies that behave
badly, and they have in some cases, but research reveals
negligible progress."
[COMMENTARY] Although
most investors profess a concern for the environment
while investing, this study might suggest they really
don't. I'd like to see other studies of this kind to see
if the findings from the study are true.
Study: Financial Markets Ignore Environmental Damage,
by Lilah Burke, July 12, 2021, The Revelator, USA.
-------------------------------------------------------------
AMG Acquires Control of
Parnassus, the Last Big ESG Firm. What This Means for
ESG Investors. "Sustainable investing is
red-hot. For the most recent evidence, look at last
week's acquisition news: Affiliated Managers Group paid
$600 million for a majority stake in privately held
Parnassus Investments, which sent Affiliated's stock
(ticker: AMG) up as much as 7% on the day the deal was
announced."
[COMMENTARY] Many of the ethical and SRI pioneer firms are falling
into the hands of huge establishment players. I suppose
it was inevitable that this happens. However, there are
some nimble and niche players also entering the space!
AMG Acquires Control of Parnassus, the Last Big ESG
Firm. What This Means for ESG Investors, by Leslie
P. Norton, July 9, 2021, Barron's, USA.
-------------------------------------------------------------
Schroders Institutional
Investor Study 2021: On ESG, US Investors Focus on Data,
Social Impact. "US institutional investors
focus more on ESG data and social factors than their
global counterparts, according to a new study by global
asset manager Schroders."
[COMMENTARY]
The survey results support the findings of other similar
studies.
Schroders Institutional Investor Study 2021: On ESG, US
Investors Focus on Data, Social Impact, press
release, July 6, 2021, Schroders/Business Wire, USA.
-------------------------------------------------------------
Will Mandated ESG
Disclosures Lead to Increased Litigation Risk?
"With the Securities and Exchange Commission
resolute in its efforts to establish new disclosure
requirements related to environmental, social and
governance (ESG) risks, companies appear increasingly
resigned to some measure of mandatory reporting.
But these companies haven't
yet given up: in an effort to contain litigation risk,
they continue to press the SEC to show some flexibility
in the means by which ESG risks are reported.
The distinction between
furnishing and filing climate change disclosures is not
purely semantic, as filed disclosures are held to a
higher regulatory standard than those that are merely
furnished."
[COMMENTARY]
One can see why companies are concerned -- as should
their shareholders. Such a distinction 'between
furnishing and filing climate change disclosures'
might well be the case in many other jurisdictions too.
Will Mandated ESG Disclosures Lead to Increased
Litigation Risk? By Bracewell LLP, July 2, 2021, JD
Supra, USA.
-------------------------------------------------------------
2021's Best 50 Canadian
corporate citizens. "Every year since 2002,
Corporate Knights has evaluated Canadian companies with
annual revenue of over $1 billion on a growing number of
key performance indicators. This year's Best 50
Corporate Citizens were evaluated against 24 key
performance indicators, including the clean revenue
result for each company, which is percentile-ranked
against industry peers and weighted at 50% toward the
overall score."
[COMMENTARY]
Many of the companies on this list will be of interest
to ethical and sustainable investors from around the
world.
2021's Best 50 Canadian corporate citizens, by
staff, June 30, 2021, Corporate Knights, Canada.
-------------------------------------------------------------
Why Green Assets May Not
Continue to Outperform. "Many investors are
attracted to ESG securities on promises of high returns,
but they are 'misguided, Wharton finance professor Luke
Taylor said on the Wharton
Business Daily radio show on SiriusXM.
(Listen to the podcast here.)
The past performance of ESG
securities is not a reliable indicator of returns in the
future, especially when past returns were largely driven
by 'shocks' such as bad news about climate change, he
noted. 'Absent more unexpected shocks in the future, we
don't see those green stocks outperforming ['brown' or
environmentally unfriendly stocks] in the future.'"
[COMMENTARY]
The research paper appears to rest on a common thesis:
that high-priced stocks usually provide lower future
returns. Time will tell.
Why Green Assets May Not Continue to Outperform,
June 29, 2021, Wharton Business Daily, USA.
-------------------------------------------------------------
Low-quality assurance of
ESG reports pose stability risk: IFAC.
"Only 51% of companies back up their reports on
sustainability with assurance, a study of 1,400
companies by the International Federation of Accountants
(IFAC) found, warning that low-quality assurance is an
'emerging investor protection and financial stability
risk.'"
[COMMENTARY]
I've had a big concern for over four decades. It's that
when ethical investing finally gets its day in the sun
that there will be not only be agreed reporting standards
but also a regulated independent class of specialized
auditors to audit and assure the numbers and facts.
Low-quality assurance of ESG reports pose stability
risk: IFAC, by Jim Tyson, June 24, 2021, CFO Dive,
USA.
-------------------------------------------------------------
Is ESG harmonization and
convergence finally coming? "Last week, the
U.S. House of Representatives passed legislation that
would require public companies to report environmental,
social and governance (ESG) metrics...
The bill, simply titled the
ESG Disclosure Simplification Act of 2021, comes on the
heels of the U.S. Securities and Exchange Commission's
(SEC) decision to open public comments on climate change
disclosures to inform its impending guidance -- and gets
us one more step closer to mandatory ESG disclosure."
[COMMENTARY]
Finally, the U.S. government and regulatory authorities
look like they're getting the message from the markets.
Is ESG harmonization and convergence finally coming,
by Aman Singh, June 24, 2021, GreenBiz, USA.
-------------------------------------------------------------
Professionals see
evolving ESG links to executive compensation.
"Boards and investors may not always see eye to eye
on metrics and weights."
[COMMENTARY]
This is all part of the evolution of corporate ESG. It
will certainly be messy for a while.
Professionals see evolving ESG links to executive
compensation, by Ben Maiden, June 24, 2021,
Corporate Secretary, USA.
-------------------------------------------------------------
House (US) Passes ESG
Disclosure Simplification Act of 2021. "By
a razor thin vote of 215 to 214, the House of
Representatives passed the
ESG Disclosure Simplification Act of 2021.
The Act would require public companies to disclose in
any proxy or consent solicitation material for an annual
meeting of the shareholders... "
[COMMENTARY]
This is good news, though I believe it still has to pass
the US Senate. Many think it might not make it through
there. Let's hope it will.
House (US) Passes ESG Disclosure Simplification Act of
2021, by Dodd-Frank, June 21, 2021, Lexology, USA.
-------------------------------------------------------------
The Dark Side of Solar
Power. "Solar
energy is a rapidly growing market, which should be good
news for the environment. Unfortunately there's a
catch. The replacement rate of solar panels is faster
than expected and given the current very high recycling
costs, there's a real danger that all used panels will
go straight to landfill (along with equally
hard-to-recycle..."
[COMMENTARY]
Recycling solar panels has long been a major concern of
mine regarding solar power. The firms in the business
have to get behind solutions or see their business
potentially 'dwindle.'
The Dark Side of Solar Power, by Atalay Atasu,
Serasu Duran, and Luk N. Van Wassenhove, June 18, 2021,
Harvard Business Review, USA.
-------------------------------------------------------------
Green Bonds Were a
Better Safe Haven Than Gold During the Pandemic.
"Climate-friendly debt served as a better
protection against large market fluctuations than gold,
as well as performing better than other environmental,
social, and governance investments, according to new
research from Imran Yousaf of Pakistan's Air University,
Muhammed Tahir Suleman of the University of Otago in New
Zealand, and Riza Demirer of Southern Illinois
University Edwardsville."
[COMMENTARY]
This is not a surprising finding. Green bonds have
become the new investment favourite. How many people
want gold today?
Green Bonds Were a Better Safe Haven Than Gold During
the Pandemic, by Jessica Hamlin, June 8, 2021,
Institutional Investor, USA.
-------------------------------------------------------------
Mandatory ESG
disclosures are a political inevitability.
"The SEC is
gathering public input about corporate
climate reporting. The comment request is
one of several actions the agency has
taken over the past several months to elevate ESG
oversight, including establishing a
climate and ESG enforcement task force...
In a
June 3 speech, Roisman said the thrust
of climate disclosure seems to be on assessing the
damage a company does to the environment, not the havoc
climate change can wreak on a company. That led him to
question the SEC's role."
[COMMENTARY]
It seems to me that investors need to know both sides:
the effects of climate change on the company and how the
company contributes to climate change.
Mandatory ESG disclosures are a political inevitability,
by Mark Schoeff Jr., June 9, 2021, Investment News, USA.
-------------------------------------------------------------
Banning Investment
Managers Who Shun Fossil Fuels Is a Bad Idea.
"Texas has joined a group of states proposing
legislation that would ban private investment management
companies that focus on sustainable investing, to the
ire of the oil and gas industry. Attorney J. Carl Cecere
argues politicizing state-pension investment strategy is
bad for pensioners and violates the First Amendment."
[COMMENTARY]
I agree with the writer. Not only because I'm biased
towards renewable energy, but also on the basis that
asset managers need to have the freedom to invest
according to their client's wishes, and so forth.
Banning Investment Managers Who Shun Fossil Fuels Is a
Bad Idea, by J. Carl Cecere, June 4, 2021, Bloomberg
Law, USA.
-------------------------------------------------------------
Rating the ESG raters:
Why Sustainable Investing Needs More Independent
Verifiers. "With an array of data providers
and indices to choose from, third party ESG verifiers
have stepped into the market to help screen information
available and offer some clarity. In Switzerland, one
such company is Geneva-based sustainable investment
advisory firm Conser. Founded by Angela de Wolff (also
one of the co-founders of Sustainable Finance Geneva),
the firm has developed its own proprietary methodology
to capture a variety of different ESG opinions."
[COMMENTARY]
I guess this type of service had to happen. And I think
it's good. It'll be a while to see if it takes off.
Rating the ESG raters: Why Sustainable Investing Needs
More Independent Verifiers, by Kasmira Jefford, June
2, 2021,
Geneva solutions, Switzerland.
-------------------------------------------------------------
Auditors may see
increased demand for ESG attestation.
"During a virtual session Monday, Kristen Sullivan, CPA,
CGMA, a partner with Deloitte & Touche LLP and the
firm's Americas region sustainability services leader,
gave an overview of the concerns public companies,
directors, and auditors have about the new regulatory
focus on ESG disclosures.
To date, ESG disclosures
have tended to be separate from regulatory filings. But
the CAQ's road map is meant to help guide capital market
participants through the frequency and consistency of
the disclosures and whether the information is
comparable from company to company, Sullivan said."
[COMMENTARY]
I've long believed that CSR/ESG disclosures need to be
audited and attested to by a regulated and licensed
auditing entity. Only in this way can investors and
stakeholders have confidence in the facts, data, and
material being presented. Furthermore, there must be, as
is now occurring, some standardization of such facts,
data, and material. It should also be shown in what way
it might be material to the activities and financial
performance of a company.
Auditors may see increased demand for ESG attestation,
by Joseph Radigan, May 28, 2021, Journal of Accountancy,
USA.
-------------------------------------------------------------
The Theory at the Heart
of Modern Portfolios Is Leading Investors Astray.
"These
activities (ESG, SRI, and impact investing) form a coherent challenge to the limitations
of modern portfolio theory. MPT, the dominant investment
paradigm in the world, focuses on diversification to
minimize risk."
[COMMENTARY]
Yes, MPT is upended by our emphasis on ESG,
sustainability, and ethics!
The Theory at the Heart of Modern Portfolios Is Leading
Investors Astray, by Jon Lukomnik and James P.
Hawley, May 28, 2021, Barron's, USA.
-------------------------------------------------------------
Does corporate social
responsibility affect shareholder value? Evidence from
the COVID-19 crisis. "We observe that firms
engaged in more CSR activities outperform other firms.
This suggests that CSR plays a positive role in
determining shareholder value, particularly for an
emerging market where minority shareholder rights are
weak. Collaborating with our main finding, we further
find that governance metrics play a significant role."
[COMMENTARY]
This study was done in India on companies whose main
revenues and activities were also in India. It's good to
note that CSR was found to be positive for shareholder
value.
Does corporate social responsibility affect shareholder
value? Evidence from the COVID-19 crisis, by Somya
Arora, Jagan Kumar Sur, Yogesh Chauhan, at the Indian
Institute of Management Raipur, Raipur, India, May 26,
2021. International Review of Finance.
-------------------------------------------------------------
Indexing Giants 'Should
Prepare for Disruption' Says New Report.
"MSCI, FTSE Russell, S&P Dow Jones and Bloomberg could
see their dominance of the indexing industry threatened
by sustainability specialists, according to a new
report."
[COMMENTARY]
When a new industry takes shape, there are always new
entrants and winners. It'll likely be the same as ESG
investing matures. Who will be the winners?
Indexing Giants 'Should Prepare for Disruption' Says New
Report, by staff, May 25, 2021, Banking Exchange,
USA.
-------------------------------------------------------------
Keeping Promises? Carbon
Risk (CR) Disclosure and Mutual Fund Portfolios.
"Indeed, fund managers are sensitive to
disclosures only in the presence of binding commitments
to environment sustainability. Sustainable funds lower
their CR score by reducing exposure to fossil fuels, not
by increasing exposure to renewables."
[COMMENTARY]
This is a highly insightful paper that illuminates the
carbon risk of conventional and sustainable US mutual
funds.
Keeping Promises? Carbon Risk (CR) Disclosure and Mutual
Fund Portfolios, by John R. Nofsinger, University of
Alaska Anchorage and Abhishek Varma, Illinois State
University. April 27, 2021.
-------------------------------------------------------------
Danger of being
corrupted? ESG ratings increase risks of greenwashing. "The
European Commission (EC) asked 650 individuals and
organisations last year for their views on the
concentration of providers in the ESG ratings market and
on the quality of the ESG ratings' analyses. 74% of
respondents called for action.
The European Securities and
Markets Authority (ESMA), noting that 'climate and
environmental risks constitute a key source of potential
financial instability', claimed the 'clear mandate to
prevent threats to financial stability and ensure
investor protection.'
Consequently, ESMA demands
that the regulatory regime should be adapted to tackle
not only an increased risk of greenwashing but also
risks of 'capital misallocation and product
mis-selling'.
Should the EC adopt this
proposal, which seems likely, this will not just mean an
end to unethical selling practices of ethical ratings,
it will also help forward-thinking investors allocate
resources and capital to truly eco-friendly projects and
to companies that take their ecological and social
responsibility seriously. Our children will thank us."
[COMMENTARY]
I thought to include the above-extended quote to give
importance to the fact that the EU is strongly
considering regulating ESG raters.
Danger of being corrupted? ESG ratings increase risks of
greenwashing, by Alpay Soyturk. May 19, 2021,
Investment Week, USA.
-------------------------------------------------------------
The Impact Of Sin Stock
Exclusion On Portfolio Performance. "'As
about 10% of the market can be classified as sin, this
would imply an additional 0.10% return loss if sin
stocks are excluded. Combined with the 0.27% estimated
loss due to the adverse effect on factor exposures ...
this brings the total loss in expected return to 0.37%
per annum.
Although this might seem
small, a pension fund which generates 0.37% lower
returns on its equity portfolio than peers may end up
providing 5% lower pensions in the long run.' That is
not an insignificant loss."
[COMMENTARY]
This article reports on a study saying that excluding 11
particular industries in a portfolio results in a
0.37% annual loss in returns. I'm sure many will debate
the methodology and conclusions of this study.
The Impact Of Sin Stock Exclusion On Portfolio
Performance, by Larry Swedroe, May 19, 2021, Seeking
Alpha, USA.
-------------------------------------------------------------
The rise of the climate
economy is upon us. "What was once a narrow
purview around clean tech recently has morphed into the
all-encompassing term of climate tech, and unlike the
boom and bust cycle that accompanied the clean energy
frenzy of the late 2000s, climate tech appears to have a
sustainable presence in the minds of long-term
investors."
[COMMENTARY]
I thought it was interesting that the term climate tech
appears to be replacing clean tech. Also, what that
means for ethical and sustainable investing.
The rise of the climate economy is upon us, by
Michael Ferrari, May 17, 2021, GreenBiz, USA.
-------------------------------------------------------------
The 100 Best Corporate
Citizens of 2021. "As companies
decarbonize, align with the Sustainable Development
Goals and rebuild an equitable economy post-pandemic,
they must be open about their efforts. Each year, 3BL
Media evaluates the largest public U.S. companies on ESG
transparency and performance."
[COMMENTARY]
This is always a good list to review, particularly for
ethical and sustainable investors.
The 100 Best
Corporate Citizens of 2021, May 17, 2021, 3BL Media,
USA.
-------------------------------------------------------------
ESG Investors Turn to
Emerging Markets, Defying Skeptics.
"There's a growing number of money managers in green
finance turning to markets not usually associated with
sustainability. Fund bosses in Europe's North, where
climate-friendly investing has gone mainstream, have
started looking much further afield to find cheap assets
they say will eventually meet their environmental,
social and governance goals."
[COMMENTARY]
I remember seeing research that says that stock
outperformance is superior in companies who are just
beginning to grow in their ESG performance. That is when
compared to companies already mature in their ESG
development. This might be something that many ethical
and sustainable investors might consider.
ESG Investors Turn to Emerging Markets, Defying
Skeptics, by Leo Laikola, Hanna Hoikkala, and
assistance from Filipe Pacheco, May 17, 2021, Bloomberg,
USA.
-------------------------------------------------------------
Faith-Based Investing
Makes Up Ground in Gains and Convenience.
"Investing according to theological beliefs 'is much
easier to do now,' a wealth adviser said. It's also as
profitable as investing without a religious screen, and
no more risky."
[COMMENTARY]
This is a simple overview of US faith-based investing.
Faith-Based Investing Makes Up Ground in Gains and
Convenience, by Paul Sullivan, May 14, 2021, The New
York Times, USA.
-------------------------------------------------------------
Investors May Turn to
Proxy Voting to Convey ESG Preferences. "As
ESG becomes increasingly relevant to investing,
investors are realizing the power of active ownership as
an investing strategy and are turning their attention to
how ESG issues are represented on corporate proxy
ballots and how funds vote on these issues, Morningstar
reports in 'The
Power of the Proxy in Retirement Plans: Empowering
workers saving for retirement with a voice on ESG issues.'"
[COMMENTARY]
Many corporate boards that have shown a reticence to
adopting significant ESG adaptations to their activities
might well be forced to do so. As ESG funds grow they
will likely become ever more active in pushing their
shareholder agendas on corporate boards.
Investors May Turn to Proxy Voting to Convey ESG
Preferences, by Ted Godbout, May 11, 2021, National
Association of Plan Advisors (NAPA), USA.
-------------------------------------------------------------
Demand for minerals
threatens clean energy rollout, IEA warns.
"'Looming mismatch' between world's climate ambitions
and availability of necessary critical minerals,
according to a new report."
[COMMENTARY]
Most ethical and sustainable investors avoid mining
stocks. Yet, without massive growth in mining, there
will be no growth in the green economy! It's high time
that sustainable investors considered investing in
mining stocks with the best ESG performance.
Not only
will they be supporting a green climate change-friendly
economy -- but they will find a new sector that'll
likely provide potentially good stock returns.
Demand for minerals threatens clean energy rollout, IEA
warns, by Nadia Weekes, May 5, 2021, Windpower
Monthly, UK.
-------------------------------------------------------------
See Japan in a different
light: How investors get ESG in world's third-largest
economy wrong. "Greenwashing is a
persistent and growing problem in the ESG landscape.
However, many companies in Japan suffer from this issue
in reverse and we believe their ESG ratings are often
significantly worse than they deserve."
[COMMENTARY]
This is important. I've long thought that Japan is
underestimated for its ESG corporate contributions. This
article explains the how and why of this. Managers of
western ESG portfolios need to consider increasing
allocations to Japanese companies.
See Japan in a different light: How investors get ESG in
world's third-largest economy wrong, by Richard
Kaye, May 5, 2021, Investment Week, UK.
-------------------------------------------------------------
ESG does not generate
outperformance, Scientific Beta warns.
"'The results show that the quality factors (high
profitability and low investment) make pronounced
positive return contributions to most types of ESG
strategies,' the report added."
[COMMENTARY]
The headline is misleading. What it boils down to is
that the concentration on tech and financials in ESG
portfolios is largely responsible for their
outperformance. When these portfolios are adjusted for
such concentration, there's no outperformance.
Also,
I don't believe this paper is to be published in a
peer-reviewed journal. Thus, one always has to be
suspect of such study results when they aren't.
ESG does not generate outperformance, Scientific Beta
warns, by Tom Eckett, May 5, 2021, ETF Stream, USA.
-------------------------------------------------------------
ESG metrics rest on
sand, not granite. "The challenge of
identifying metrics that drive 'better' or 'worse' ESG
results."
[COMMENTARY]
This is a good article that describes the situation and
challenges of creating and obtaining the 'right' ESG
metrics for any given company.
ESG metrics rest on sand, not granite, by Ingo
Walter, May 4, 2021, MarketWatch, USA.
-------------------------------------------------------------
Ethical investing
encourages consumers to invest more.
"Latest research shows ESG finance encourages investors
to leave less in cash."
[COMMENTARY]
This shows that investors get excited about ethical,
ESG, and sustainable investing once they see how to do
it--and particularly if it's during a time of gains!
Ethical investing encourages consumers to invest more,
by Mark Shoffman, April 27, 2021, Interactive Investor,
UK.
-------------------------------------------------------------
Sixty-eight of 77
industries significantly affected by climate risk, SASB
says. "SASB released an updated Climate
Risk Technical Bulletin last week to help companies
better understand how they can disclose climate risk in
a manner that provides investors with helpful
information."
[COMMENTARY]
This is not just important reading for the affected
companies, but for investors too!
Sixty-eight of 77 industries significantly affected by
climate risk, SASB says, by Mike Schnitzel, April
27, 2021, CorporateSecretary, USA.
-------------------------------------------------------------
Wall Street's
Trillion-Dollar ESG Club Comes With Huge Tax Perks.
"Four banks pledge $6 trillion in
sustainable finance, and the billions they'll save in
taxes is one of the benefits."
[COMMENTARY]
Hopefully, there's some innate desire to do such
investments too
though!
Wall Street's Trillion-Dollar ESG Club Comes With Huge
Tax Perks, by Max Abelson and Lananh Nguyen, April
23, 2021, Bloomberg Green, USA.
-------------------------------------------------------------
U.S. SEC review of
socially responsible funds finds 'potentially
misleading' claims. "The U.S. Securities
and Exchange Commission on Friday said it has found
'potentially misleading' claims and inadequate controls
around investing environmental, social and governance
(ESG) issues in a review of investment advisors and
funds."
[COMMENTARY]
This is good news. The industry needs some cleaning out
of the greenwashing that exists.
U.S. SEC review of socially responsible funds finds
'potentially misleading' claims, by Reuters staff,
April 12, 2021, Reuters, USA.
-------------------------------------------------------------
BlackRock Is Pushing to
Offer Sustainable Investments to 401k Plans, CEO Says.
"With the Biden Administration friendly to
sustainable investing, BlackRock is making a push to
offer those types of investments to retirement plans,
CEO Larry Fink said in an interview."
[COMMENTARY]
Employees of most firms will welcome this! As you know
the number of such ESG-ethical-sustainable plans has
been pathetic relative to the number of people interested.
BlackRock Is Pushing to Offer Sustainable Investments to
401k Plans, CEO Says, by Leslie P. Norton, April 16,
2021, Barron's, USA.
-------------------------------------------------------------
SEC will not assess
merit of ESG investments: Peirce. "The
agency's role is not to determine whether any particular
strategy is a good one, but to ensure investors know
what they are getting, according to Securities and
Exchange Commission member Hester Peirce."
[COMMENTARY]
This is what I'd expect from the SEC.
SEC will not assess merit of ESG investments: Peirce,
by Mark Schoeff Jr., April 13, 2021, InvestmentNews,
USA.
-------------------------------------------------------------
(US) ESG funds beat out
S&P 500 in 1st year of COVID-19; how 1 fund shot to the
top. "In the first 12
months of the COVID-19 pandemic, many large investment
funds with environmental, social and governance criteria
outperformed the broader market. One fund went from
being among the poorest performers to the top of the
list following tweaks to its portfolio."
[COMMENTARY]
This is a good review of how US ESG funds performed in
2020.
(US) ESG funds beat out S&P 500 in 1st year of COVID-19;
how 1 fund shot to the top, by
Esther Whieldon and Robert Clark, April 6, 2021, S&P
Global, USA.
---------------------------------------------------------------
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