October 2019
New Podcast: Best Food Funds, Water Stocks, and Much More!
2019 RIA Canada Investor Opinion Survey. “The report also shows 79% of respondents would like their financial services provider to inform them about responsible investment (RI) options. However, only 23% of respondents have been asked by their provider if they are interested in RI.”
[COMMENTARY] These numbers have shifted upwards over the years — which is great! However, the disconnect to seeing much higher levels of retail investors investing in ethical and sustainable investments is still the ‘wall’ of resistance by investment advisors in promoting them.
2019 RIA Canada Investor Opinion Survey, staff, October 30, 2019, Responsible Investment Association, Canada.
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Decarbonisation linked to better returns. “Harvard Business School has published a report that shows investment strategies that ‘aggressively’ reduce carbon emissions can significantly boost fund performance…
In other words, buying one one or more of the factors when flows are positive and selling when flows turn negative led to ‘significantly superior returns.'”
[COMMENTARY] Fascinating. This paper says, ‘follow the money’ when it comes to sustainable investing!
Decarbonisation linked to better returns, by Sara Jones, October 28, 2019, Top 1000 Funds, USA.
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ESG Signal Enables Global Outperformance, Truvalue Labs’ Backtest Shows. “Truvalue LabsTM, the pioneer in AI-driven environmental, social, and governance (ESG) data, today announced the results of a new research study that finds significant annual outperformance versus numerous global benchmarks over a 12-year period, due to ESG data sourced from publications in 12 languages.”
[COMMENTARY] This study appears to set a new benchmark in ESG research by using advanced AI in massive datasets. As shown, it’s very positive for applying ESG criteria to investing.
ESG Signal Enables Global Outperformance, Truvalue Labs’ Backtest Shows, Accesswire, October 24, 2018, Truvalue Labs, USA.
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Exchanges Expand ESG Derivatives. “Exchanges are optimistic on the demand for derivatives related to environmental, social and governance strategies as milestones have been reached in open interest and new products are being launched.”
[COMMENTARY] It was just a matter of time to see a big growth in ESG related derivatives.
Exchanges Expand ESG Derivatives, by Shanny Basar, October 21, 2019, Markets Media, USA.
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How ethical is it to short the bad boys of ESG? “The notion that poor performers on ESG should be excluded from portfolios is well known, but should investors go further and actively short such stocks to further punish problematic players?”
[COMMENTARY] I believe that short selling to get a company to improve its ethical and sustainable behavior might be limited for a slew of reasons. However, why not do it if it also potentially provides a good profit!
How ethical is it to short the bad boys of ESG? By Chris Sloley, October 22, 2019, Citywire Selector, UK.
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Facebook, Visa among the stocks with high ESG marks — enough to outrun the S&P 500. “Companies with increased environmental, social and governance scores have put up outsized returns over the past five years, FactSet research shows.”
[COMMENTARY] Note that tech and financials comprise most of the companies performing with higher alpha.
Facebook, Visa among the stocks with high ESG marks — enough to outrun the S&P 500, by Rachel Koning Beals, October 18, 2019, MarketWatch, USA.
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Signs ESG might be facing headwinds. “Investor confidence in the principles of ESG investing appeared to wane in 2019. Recent survey data show that a greater portion of respondents predict that their ESG investments will underperform their non-ESG portfolios. The survey, conducted by RBC Global Asset Management and which polled almost 800 investment professionals across a diverse group of industry participants, gave further insights into a possible growing skepticism about ESG.”
[COMMENTARY] How odd that this skepticism is growing as the evidence continues to mount that companies excelling on ESG measures do outperform?
Signs ESG might be facing headwinds, by Charles McGrath, October 18, 2019, Pensions & Investments, USA.
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RI Week 2019 Across Canada October 28 to November 1. “Responsible Investment Week is dedicated to education and awareness about responsible investment (RI). The Responsible Investment Association (RIA) is coordinating a week of events across Canada to promote learning about environmental, social, and corporate governance (ESG) issues that affect investments. Join in on Responsible Investment events across Canada and online every fall!”
[COMMENTARY] Investors and investment professionals around Canada are encouraged to participate in this great annual event.
RI Week 2019 Across Canada October 28 to November 1, press release, October 17, 2019, Responsible Investment Association of Canada.
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Where ESG Fails. “Despite countless studies, there has never been conclusive evidence that socially responsible screens deliver alpha. A better model exists, argue Harvard Business School luminaries Michael Porter, George Serafeim, and Mark Kramer.”
[COMMENTARY] These highly respected researchers argue for a new paradigm for investing.
Where ESG Fails, by Michael E. Porter, George Serafeim, and Mark Kramer, October 16, 2019, Institutional Investor, USA.
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The ‘Missed Opportunity’ in Asset Management. “Robeco says money management firms aren’t doing enough to effect positive change at companies — and they need to band together to push through shareholder proposals.”
[COMMENTARY] Robeco’s proposal makes sense. Also, see post below, “Biggest U.S. index funds oppose most climate proposals in shareholder votes.”
The ‘Missed Opportunity’ in Asset Management, by Julie Segal, October 15, 2019, Institutional Investor, USA.
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ESG Hardliners Blacklist $16 Trillion U.S. Treasuries Market. “A 33 billion-euro ($36 billion) French state pension plan and ESG funds run by the likes of Erste Asset Management, Joh. Berenberg Gossler & Co. and Union Investment all shun Treasuries based on the U.S. government’s stance on capital punishment or climate change. The exclusions rank the U.S. alongside arms makers, tobacco producers and distilleries in falling foul of environmental, social and governance standards.”
[COMMENTARY] Wow! This should create some discussion!
ESG Hardliners Blacklist $16 Trillion U.S. Treasuries Market, by Alice Gledhill, October 15, 2019, Bloomberg, USA.
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There’s growing demand for green bonds but no international standard to ensure their ‘greenness.’ “Globally there’s been a significant spike in green-labeled bonds, which jumped from $78 billion in total value in August 2015 to $590 billion in August 2019, even as it remains difficult to measure green bonds against one another, according to a report released last week by the International Monetary Fund.
[COMMENTARY] The standardization of ‘greenness’ is being addressed. However, what I find most interesting in this article is the breakdown of green bond issuance.
There’s growing demand for green bonds but no international standard to ensure their ‘greenness,’ by Elisabeth Buchwald, October 14, 2019, MarketWatch, USA.
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AQR: Here’s What ESG Really Does to Portfolios. “In new paper titled ‘Responsible Investing: The ESG-Efficient Frontier,’ AQR principal Lasse Pedersen and managing directors Shaun Fitzgibbons and Lukasz Pomorski propose a model that balances the potential costs and benefits of ESG-based investing, taking into account investor preferences regarding environmental, social, and governance issues.”
[COMMENTARY] Some original findings in this new paper. They’ll have to be replicated or disproved by other studies though. I’ve always said that studies need to be peer-reviewed and published in established relevant journals to be taken seriously.
AQR: Here’s What ESG Really Does to Portfolios, by Amy Whyte, October 11, 2019, Institutional Investor, USA.
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‘Sustainable’ investors match the performance of regular investors, new IMF research finds. “The IMF estimates there are now more than 1,500 equity funds with an ‘explicit sustainability mandate.'”
[COMMENTARY] With this pronouncement from the IMF we can be assured that mainstream acceptance of ethical and sustainable investing is guaranteed!
‘Sustainable’ investors match the performance of regular investors, new IMF research finds, by Elizabeth Schulze, October 10, 2019, CNBC, USA.
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Biggest U.S. index funds oppose most climate proposals in shareholder votes. “While votes on climate-related shareholder resolutions often take center stage at corporate annual meetings, they seldom draw support from the two top U.S. index fund firms, BlackRock Inc (BLK.N) and Vanguard Group.”
[COMMENTARY] Given that the management of these funds say they take climate change seriously, but obviously, not seriously enough!
Biggest U.S. index funds oppose most climate proposals in shareholder votes, by Ross Kerber, Tim McLaughlin, October 8, 2019, Reuters, USA.
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High net worth investors hold ‘sin stocks’ at odds with their ethics. “Eight in 10 (81 per cent) of UK investors with assets of more than £250,000 said they were interested in investing their money ethically — but three quarters (74 per cent) admit to holding so-called ‘sin stocks’.”
[COMMENTARY] Perhaps, in part, this also explains why in most developed countries investors say they want to invest in ethical and sustainable investing but don’t. They lack the commitment to that ideal — as well as not knowing how to do it.
High net worth investors hold ‘sin stocks’ at odds with their ethics, by Emma Lunn, October 7, 2019, yourmoney.com, UK.
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Vice Still Pays When You’re Managing Billions. “Bowie started by excluding debt issued by companies involved in industries such as tobacco, gambling, alcohol, oil and gas, a process called negative screening by the fund management industry. That eliminated nine securities the fund had owned at some point during the four-year period he studied. The effect on returns was tangible — and detrimental, to the tune of a full percentage point per year.”
[COMMENTARY] However, when Mr. Bowie changed from negative screens to ESG screens, his results were much better!
Vice Still Pays When You’re Managing Billions, by Mark Gilbert, October 7, 2019, Bloomberg Opinion, USA.
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Morgan Stanley Survey Finds Investor Enthusiasm for Sustainable Investing at an All-Time High. “More than eight in ten U.S. individual investors now express interest in sustainable investing, while half take part in at least one sustainable investing activity, according to a new survey published by the Morgan Stanley Institute for Sustainable Investing.”
[COMMENTARY] The numbers in this survey are terrific. However, the definition and interpretation of what sustainable investing is — among investors — is probably never clarified. That’s why I view these surveys with a degree of suspicion.
Morgan Stanley Survey Finds Investor Enthusiasm for Sustainable Investing at an All-Time High, press release, October 4, 2019, Morgan Stanley Institute for Sustainable Investing, USA.
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Companies struggle to digest ‘alphabet soup’ of ESG arbiters. “Awareness builds that a standardised reporting approach is needed in the battle to fight climate change.”
[COMMENTARY] This is a good comprehensive article describing the case for standardized ESG reporting.
Companies struggle to digest ‘alphabet soup’ of ESG arbiters, by Patrick Temple-West, October 6, 2019, FT, UK.
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Responsible investing rapidly becoming critical to institutional investors, according to new Aon survey. “According to Aon’s survey of nearly 230 investment professionals globally, 85 percent report responsible investing is at least somewhat important to their organization, up from 68 percent in its 2018 survey.”
[COMMENTARY] The results of this survey continue to illustrate the mainstreaming of ethical and sustainable investing.
Responsible investing rapidly becoming critical to institutional investors, according to new Aon survey, press release, October 3, 2019, USA.
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Mark Carney ups the ante on new sustainable financial system. “Bank of England Governor Mark Carney addressed the UN Climate Action Summit last week and called for a global step change in bringing climate risks and resilience into the heart of financial decision making.”
[COMMENTARY] Mr. Carney in his talk advocated that ESG strategies be adopted by companies and that they become mainstream. Anyone guess when Mr. Powell of the Fed will make such a comment!
Mark Carney ups the ante on new sustainable financial system, by Freshfields Bruckhaus Deringer LLP, October 1, 2019, Lexology, UK.
