May 2010 Newsletter

May 2010 Newsletter

News & Commentaries by Ron Robins


Ceres Says Canadian Oil Sands Have Significant Financial & Environmental Risks. [COMMENTARY]“While public attention is focused on widespread environmental and financial damage from the Gulf of Mexico oil spill, a new Ceres report released today shows that the environmental and financial risks of producing oil in Canada’s vast oil sands region may be even greater.” This is an important study of oil sands risks. The risks cited in this report add fuel to much higher oil in future years, which in turn will help focus our attention on alternative fuel and energy.
Canada’s Oil Sands Face Significant Financial and Environmental Risks as Great as Those in BP Spill, May 17, 2010, Ceres/RiskMetrics, USA.

70% Of Executives Say Climate Change Initiative Spending In Their Companies To Increase in 2010-2012.[COMMENTARY]“Executives are acting on climate change initiatives because their customers expect it and because they believe they can make money, save money and manage risk. They understand that transforming their key processes makes good business sense.” This the new perspective on companies reaction to climate change. The bottom line is that it makes money for them to enagage in climate change initiatives. It is win win for everyone.
Action amid uncertainty,the business response to climate change, May 2010, Ernst & Young.

Shale Gas Promise–And Risks. [COMMENTARY]“Shale gas extraction presents significant risks, however, and concern is growing that the methods that make it viable are polluting drinking water sources with toxics. As companies prepare to intensify shale gas extraction in Canada and the U.S., investors need to look into the risks that the extraction process presents, and the steps they can take to mitigate those risks.” This is a detailed report for investors interested in shale gas.
Hydraulic fracturing and water pollution: Investor risks from North America′s shale gas boom, by Paula Barrios, May 2010, SHARE, Canada.

Green Bond Sales Increasing. [COMMENTARY]“Skandinaviska Enskilda Banken is on the hunt for partners to help increase distribution of the World Bank′s ’green’ bonds. The first World Bank green bond was issued more than two years ago, but demand has picked up rapidly this spring. Since February, the total sum invested has risen by 60 per cent from $1bn to $1.6bn (…1.1bn, …1.3bn).” Given the increasing interest in climate change and the rush to ’safe’ bonds, it is not surprising to see green bond sales increasing. With broader distribution, such bond sales could become much bigger.
Swedish bank seeks partners to market green bonds, by Caroline Liinanki, May 23, 2010, Financial Times, UK.

Unitarian Universalist Association Drops Fidelity Due To Sudan Holdings. [COMMENTARY]“The Unitarian Universalist Association said it will replace Fidelity Investments as recordkeeper on its retirement plan, citing “disappointment” with the Boston mutual fund company’s record on human rights, including its holdings in companies that do business in Sudan. Discussions are still happening, but the group likely will offer funds from Wells Fargo & Co and some lifecycle funds from T Rowe Price Group Inc, said Tim Brennan, the Unitarians’ chief financial officer.” Religious and mission based groups should take a stand with regard to their principles. Such actions can have significant effects on the investment industry and corporate activities.
Unitarian group drops Fidelity over Sudan, by Ross Kerber, May 21, 2010, Reuters, USA.

UK Charity Workers Back Ethical Investing. [COMMENTARY]“Research from multi-employer occupational pension fund The Pensions Trust, in association with Queen Mary, University of London, 72 per cent of charity workers think investing ethically is critically important.” With this kind of result it is amazing that many of the charities these people work for do not have ethically screened portfolios. It seems that day will not be too far off.
Charity workers back ethical pensions, by Simoney Girard, May 20, 2010, FT Advisor, UK.

European Financial Analysts Call For More Formalized ESG Reporting. [COMMENTARY]“European financial analysts′ group EFFAS and its German counterpart DVFA have called for companies to ’formally orient’ their environmental, social and governance (ESG) reporting towards International Financial Reporting Standards.” This is a very strong call for full corporate ESG/CSR reporting. I feel sure we will eventually have government mandated ESG/CSR reporting for companies.
European analysts call for ESG reporting link to IFRS, by Daniel Brooksbank, May 14, 2010, Responsible Investor, UK.

Invest In Retail? Interested In Their Green Activities? Read This Report. [COMMENTARY]“A new report from Five Winds International — the third in a series published by — examines the activities of 25 of the world’s largest and most high-profile retailers to determine if they are taking significant steps to increase the number of
greener products on their shelves.”

How the World’s Largest Retailers are Stocking Shelves with Green Goods, May 17, 2010, GreenBiz, USA.

New Trend: Large Pension Funds Engaging Companies Directly On ESG Issues. [COMMENTARY]“Stichting Shell Pensioenfonds, the …15bn scheme for the oil giant′s Dutch employees, engaged with 117 companies on corporate governance and responsible investment issues in the first three months of this year.”It is a hopeful sign that large pension funds are themselves asking companies directly about ESG issues. Not only will pension funds likely find better investments through such a process, but they will greatly encourage companies to take ESG/CSR issues very seriously.
Shell′s Dutch pension fund engages with 117 companies, by Daniel Brooksbank, May 13, 2010, Responsible Investor, UK.

Unethical Conduct By Eight Big US Banks? Did They Dupe Rating Agencies? [COMMENTARY]“The New York attorney general has started an investigation of eight banks
to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation… [The banks] are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Cr…dit Agricole and Merrill Lynch, which is now owned by
Bank of America.”

I believe the investigation of unethical conduct in the US financial system is pathetic. Despite the odd probe into illegality, the US administration and regulatory authorities are still trying to protect the financial system from serious harm. The ’tradition’ in these investigations is that even if a party is deemed guilty, the guilty party gets-off with a relatively small fine–in relation to their revenues–and a statement of ’no admission of guilt,’ so further civil lawsuits against them are limited. It is really no justice at all.
Prosecutors Ask if 8 Banks Duped Rating Agencies, by Louise Story, May 12, 2010, The New York Times, USA.

Defined Contribution, Faith-Based Investment Funds Being Offered To Employees Of US Non-Profits. [COMMENTARY]“Defined contribution retirement plans are becoming increasingly popular with nonprofit organizations such as churches and charities, and represent a rapidly growing segment of the retirement savings market for The Hartford Financial Services Group, Inc. Now, The Hartford… is introducing investment options from three faith-based investment fund families.”

I do not know if this is the first time such an option has been offered, but I hope it represents a trend. Employees at churches and other mission based-based groups should have the option in their DC plans to invest according to their personal values.
The Hartford Adds Faith-based Investment Options to Spur More Growth in Sales of Retirement Plans to Charities, Religious Organizations, press release, May 12, 2010, Business Wire, USA.

New Study Claims Integrating ESG Into Investment Selection Criteria Improves Portfolio Diversification & Reduces Risk. [COMMENTARY]“We develop a simple theoretical model based on the three main drivers of portfolio diversification ((1) number of stocks,
(2) correlation of stocks, (3) average specific risk of stocks) and recent robust evidence
on the significantly negative relationship between a firm′s ESG rating and its specific risk.

… Our theory argues that while the inclusion of ESG criteria into investment processes likely worsens portfolio diversification via the first and second driver, it similarly likely improves portfolio diversification through a reduction of the average stock′s specific risk. This positive effect of ESG criteria probably leads best-in-class ESG screened funds to be better diversified than otherwise identical conventional funds.”

This type of study will do much to get mainstream investment firms to integrate ESG into their securities analysis.
Portfolio Diversification and Environmental, Social or Governance Criteria: Must Responsible Investments Really Be Poorly Diversified? By Andreas G. F. Hoepner, University of St. Andrews – School of Management, Principles for Responsible Investment, United Nations.

CSR Gains Ground in Middle East.[COMMENTARY]“The winners of Emirates, Abu Dhabi
and Arab world for corporate social responsibility awards were honoured. The Arab Corporate Social Responsibility Award was issued to Emirates World Mobile Humanitarian Hospital, Shell Company and World Topcon Company, while Emirates Corporate Social Responsibility Award was issued to the Ministry of Interior, Du Company and Emirates Transport Corporation. Abu Dhabi Corporate Social Responsibility Award was issued to Abu Dhabi Media Company and Economic Development Department.”

Corporate social responsibility (CSR) appears to be gaining acceptance in the Middle East. I believe the primary values behind CSR are almost universal so it is not surprising to see it making gains in non-western cultures.
Hamdan bin Zayed honours philanthropists, launches world charity campaign to treat needy children, May 9, 2010, WAM Emirates News Agency, UAE. Also,Participate in the Middle East′s Biggest Corporate Responsibility Survey.

Green Investments Could Benefit From Gulf Oil Spill. [COMMENTARY]“While the oil rig disaster in the Gulf of Mexico is pounding BP PLC’s (BP, BP.LN) stock and reputation and hammering local industries and real estate values, the long-term impact could be more choice for individuals who want green investments. Demand for these funds and stocks have soared in recent years, especially from foundations, pensions and socially-minded investors.”

Nuclear reactor building came to a halt in the US after the Three Mile Island nuclear accident in the 1970s. We may well see the same for deep water drilling for oil after BP’s Gulf accident. It can only mean enhanced prospects for green energy.
WEALTH ADVISER: BP Crisis Could Help Green Investments, May 5, 2010,The Wall Street Journal, USA.

NASDAQ Promoting CSR Reporting Initiative. [COMMENTARY]“The Global Reporting Initiative (GRI) will ring the closing bell at NASDAQ, as part of headline participation in sustainable investment roundtable, New York, May 14. The Global Reporting Initiative (GRI) … pioneering developer of the world′s most widely used sustainability reporting framework … will be the featured guest at a prestigious event at New York′s NASDAQ OMX Exchange on 14 May 2010, titled: ‘Sustainable Investing: What′s at Stake for Investors & Public Companies?′”

This is the kind of support required to get mandated corporate social responsibility/sustainability reporting in front of investors. I am confident such mandated reporting will become reality in the years ahead as the desire for higher ethics, greater corporate transparency and environmental concerns merge.
GRI to Headline NASDAQ Sustainable Reporting Event, press release, May 3, 2010, Global Reporting Initiative, Netherlands.

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