August 2009 Newsletter

August 2009 Newsletter

News & Commentaries by Ron Robins


Study: Higher Returns On Companies Listed In FTSE KLD (US) 400 Social Index. [COMMENTARY]“Our study considers whether ethical investments are also good investments. We utilize long-run event study methodology to study abnormal returns associated with firms being included in, and dropped from, KLD Research and Analytics′ (KLD) Domini 400 SocialTM Index (DS400). There are positive and statistically significant long-run abnormal returns for firms being included in the DS400. The market also appears to anticipate decisions to include firms in the DS400; short-run abnormal returns associated with firms being included in the DS400 are consistent with the market correcting high abnormal returns before the date the firm is added to the index.”

This study supports my view that ethical stocks may well provide premium returns over the long-term.
Are Ethical Investments Good? By Gariet Chow, Robert B. Durand, and SzeKee Koh, August 2009, University of Western Australia, Australia.

Over Half Of 1,000 Largest US Companies Have An Environmental Policy, But Lack Internal Environmental Management Structures, Says Survey [COMMENTARY]“This report, entitled “The Road Not Yet Taken: The State of U.S. Corporate Environmental
Policy and Management,” presents a detailed review of the publicly disclosed environmental policies, management structures, systems, measurement and reporting activities, and disclosures of the 1,000 largest publicly traded U.S. corporations.”
This is an important report concerning US companies’ environmental policies and actions. However, also needed are similar comparative studies with companies in Europe, Asia and other regions.
The Road Not Yet Taken: The State of U.S. Corporate Environmental Policy and Management, August 2009, Sustainable Enterprise Institute, Inc., USA.

Carbon Efficiency Is Key To Gaining Market Share: Report. [COMMENTARY]“Companies need to understand how looming carbon costs will impact their future profitability compared to their competitors in order to gauge how much can be passed on to customers, according to a new report from research firm Trucost Plc and standards nonprofit NSF International.” How companies deal with their carbon emissions will help determine their future market shares and profitability. This report clearly illustrates the relationships.
Report Identifies ’Carbon Efficiency’ as a Key to Growing Market Share, August 20, 2009, GreenBiz, USA.

Americans Spending Big On Complimentary And Alternative Medicine. [COMMENTARY]“Americans spent $33.9 billion out-of-pocket on complementary and alternative medicine (CAM) over the previous 12 months, according to a 2007 government survey. CAM is a group of diverse medical and health care systems, practices, and products such as herbal supplements, meditation, chiropractic, and acupuncture that are not generally considered to be part of conventional medicine. CAM accounts for approximately 1.5 percent of total health care expenditures ($2.2 trillion2) and 11.2 percent of total out-of-pocket expenditures (conventional out-of-pocket: $286.6 billion[2]and CAM out-of-pocket: $33.9 billion[1]) on health care in the United States.”

Many ethical investors are interested in investing in companies providing products and services in this area. It obviously has significant appeal to them. However, investors have to be particularly careful as many of these products and services ’come and go.’ Investors need to look for hard, independently verifiable data on the products/services of companies in this space before investing in them.
Americans Spent $33.9 Billion Out-of-Pocket on Complementary and Alternative Medicine, Healthy News Service, USA.

The …276bn Norwegian Government Pension Fund Set To Pressure 1,100 Companies On Water Usage. [COMMENTARY]“Norges Bank Investment Management (NBIM), which runs the Norwegian fund′s assets, said it had holdings in about 1100 companies with a combined market value of …33bn where it believes good water risk management could be critical to future performance. During the third quarter of this year, the fund said it will publish a list of water reporting and risk management ’expectations’ it has for portfolio companies.”

With increasing scarcity of fresh clean water worldwide and its implications for society and for corporate profits, NBIM is to be congratulated on this move. As Europe’s largest single investor, they have the clout to get companies to respond. It will be fascinating to see how companies respond and as to what they report. Ethical investors will also be most interested to see how the results of their survey affect this funds portfolio!
Giant Norway fund launches campaign to pressure 1100 companies on water risks, by Hugh Wheelan, August 20, 2009, Responsible Investor, UK.

EIRIS Analyses 300 Of World’s Largest Companies For Their Actions On Climate Change. [COMMENTARY]“Some improvements, but further
momentum needed: 33% of companies have unmitigated climate change risk (down from 34% in 2008); 55% have short-term targets on climate change (48% in 2008); 91% of high and very high impact companies disclose absolute CO2 or GHG emissions data (73% in 2008).”
EIRIS is doing some great work here. It is well worth the trouble for ethical investors to read this report and theirInvestors Climate Change Toolkit, which helps investors integrate climate change factors into their investing decisions.
Climate Change Compass: The road to Copenhagen, August 2009, EIRIS, UK.

Over Thirty SRI Research Papers Submitted For Moskowitz Prize. [COMMENTARY]“The Center for Responsible Business at UC Berkeley’s Haas School of Business has concluded the submission process for the 14th Annual 2009 Moskowitz Prize, the only global award recognizing outstanding quantitative research in the field of socially responsible investing (SRI). According to First Affirmative Financial Network, co-sponsor of SRI in the Rockies, over 30 research entries were accepted by this year’s submission deadline.” Apparently, this is a record number of submissions and the quality of the research continues to improve markedly.
2009 Moskowitz Prize Draws Record Number of Studies, August 4, 2009, press release, First Affirmative Financial Network/Social Investment Forum, USA.

ESG Issues Have Come To The Fore Among Emerging Market Investors. [COMMENTARY]“In 2009, 46 percent of asset owners strongly agreed with the statement ’ESG issues are an important part of our research, portfolio management and manager selection,’ up from 36 percent in 2007. The majority of asset owners (78 percent) think
the importance of ESG factors has been amplified by the crisis and will result in greater use of ESG criteria over time.”
It is unfortunate that it took the recent financial crises and the lack of transparency and poor ethical conduct to convince powerful investors to wake-up for the need of ESG (environmental, social and governance) issues to come to the forefront. Anyway, a higher consciousness is now prevailing and is likely to grow regarding the inclusion of ESG matters in investment decisions.
Sustainable Investing In Emerging Markets (July 2009), July 2009, International Finance Corporation, USA.

Shareholder Engagement–New Report Offers Useful Advice & Perspective. [COMMENTARY]“There is a real debate as to whether there should be a forum for collective engagement. This could have the benefit of ensuring companies hear the range and depth of investor views and also bring economies of time spent for companies. But there is genuine concern and nervousness that collective forums would not allow open and honest dialogue and could simply create another ‘box ticking′ activity as senior people would not attend.” It is clear that many shareholders want to be actively engaged in the companies that they invest in. This report is of significant interest to such individuals and institutions.
Corporate Governance & Shareholder Engagement, by Jan Hall, July 2009, Thomas O’Malley/JCA Group, UK.

Study: Screening For Quality Corporate Governance Adds To Returns. [COMMENTARY]“Results from this study found that enhanced screens for corporate governance risk augmented investment returns in a hypothetical fund. The results of the study set the stage for the development of a commercially-viable governance alpha index.” This fascinating study has just come to my attention, courtesy of Canada’s Social Investment Organization. It provides more proof that screening for factors that demonstrate quality governance can prove profitable. Click link below and scroll down to study. You will need to ’add it to cart’ but it is free.
Investing In Corporate Governance: Maximizing Governance Alpha, by Ric Marshall, The Corporate Library, USA.

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