May 2021 Newsletter
News & Commentaries by Ron Robins
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Latest Podcasts:
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Latest Podcast: The Top Renewable Energy Stocks, Funds. Plus… “The Top Renewable Energy Stocks and Funds covered include: Atlantica Sustainable Infrastructure, Equinor, Bloom Energy, SolarEdge Technologies, Enphase Energy, Generac Holdings, Daqo New Energy, CleanSpark, Renewable Energy Group, Inc., NextEra Energy Inc., SunPower Corporation, iShares MSCI ACWI Low Carbon Target ETF, Iberdrola. Articles were taken from many leading sites including nasdaq,com, Yahoo! Finance, and kiplinger.com .”
— By Ron Robins
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Featured Book
Making Money Moral: How a New Wave of Visionaries Is Linking Purpose and Profit, by Judith Rodin and Saadia Madsbjerg, Wharton School Press 2021.
“Anyone who wants to understand the link between capital markets and progress towards a more sustainable, peaceful, and prosperous world should put this book at the top of their reading list. Through real-life examples and in-depth conversations with experts, Making Money Moral demonstrates the power of bringing together the world of finance and the world of impact.”–Jeff Skoll, Founder and Chairman, Skoll Foundation, Co-Founder, The Rise Fund.
