June 2010 Newsletter

June 2010 Newsletter

News & Commentaries by Ron Robins


Bloomberg CEO Believes ESG To Be ’Fundamental To Equity market Analysis.’ [COMMENTARY]“Grauer [Bloomberg CEO] said: ’We believe this [incorporation of ESG] will be a long term growth area for us. We′ve really only just begun. Look at the eco system of risk that climate change presents … our role is to help get the message out and get acceptance… ’” That is why ’best-in-class’ ESG performing companies might just outperform over the long term.
Bloomberg chief outlines ESG data strategy, by Daniel Brooksbank, June 24, 2010, Responsible Investor, UK.

80% Of Americans Say “Socially Responsible Corporations Can Also Create A lot Of Wealth For Their Shareholders.” [COMMENTARY]“’Over the years, there has been a core shift in the American public’s expectations,’ Mittal says in a statement. ’The old idea was that businesses were only responsible to their shareholders. But now people are realizing that this isn’t a zero-sum game,” Mittal said. “No matter their political leanings, Americans expect corporations to be profitable, sustainable and socially responsible.’” Again, more encouragement for corporate social responsibility and ethical investing.
Survey: Corporate responsibility valued, June 18, 2010, upi.com, USA.

SRI Will Play A More Important Role In How European Pension Funds Make Decisions, Says Allianz Survey.[COMMENTARY]“While French and Dutch pension analysts were very optimistic, their British counterparts were quite pessimistic. The majority of experts surveyed believe the SRI approach will be extended to include asset classes other than equities. Again, the French and Dutch participants were the most optimistic. Apart from Germany, most experts are expecting pension funds to become more active owners. Environmental criteria are considered to be the most important element of the SRI concept. Respondents agreed that the growing SRI trend is being driven much less by the expectation of higher returns or lower risk as it is by public pressure.”

Consider the latter point, “SRI trend is being driven… by public pressure.” ’Public pressure’ means society. If society deems SRI important it also means favouring SRI oriented companies and therefore, ultimately, relatively higher stock prices for such companies! Sooner or latter most pension fund managers will realize this. It has been my thesis for some forty years.
’Doing Good by Investing Well’ – Pension Funds and Socially Responsible Investment: Results of an Expert Survey, revised June 24, 2010, Allianz Global Investors International Pension Paper No. 1/2010, UK.

NASDAQ OMX Introduces Two Sharia-Compliant Indexes. [COMMENTARY]“The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) announced the introduction today of two new Sharia-compliant indexes based on two of the world’s most widely-followed benchmarks: The NASDAQ-100 Index(R) (Nasdaq:NDX) and the OMX Stockholm Benchmark Index (OMXSB). The new NASDAQ-100 Sharia Index(SM) (N100SI) and the OMX Stockholm Benchmark Sharia Index(SM) (OMXSBSHARIA) are the first of a new family of indexes launched by NASDAQ
OMX Global Index Group that are designed to serve investors who wish to develop and maintain an Islamic investment portfolio.”

You do not have to be a Muslim to know that Shariah-compliant funds and Islamic finance in general are making big gains in global finance. See my June 28 column Ethical and Sharia-compliant Investing Takes Off, for a good look at this subject.
NASDAQ OMX Introduces Two Sharia-Compliant Indexes, press release June 22, 2010, NASDAQ, USA.

FTSE Offers Two New Carbon Based Indexes For Ethical Investors. [COMMENTARY]
“The FTSE CDP Carbon Strategy Index Series aims to support investors in incorporating climate change risks into their investment strategy. It features future-oriented criteria that assess the exposure of individual companies to higher future costs associated with greenhouse gas emissions. Some companies will be better placed to exploit the transition
to a low carbon economy; other companies will see their value diminished if they fail to adapt.”

The momentum for ethical investing indices continues unabated! It illustrates a more ethical, higher consciousness beginning to emerge among investors and in the investment industry.
FTSE CDP Carbon Strategy Indexes. June 23, 2010, FTSE, UK.

Canadian Companies Rarely Disclose Environmental Practices. [COMMENTARY]“The review found only 10 of 60 corporations in the index (17 per cent) disclosed detailed data on four environmental factors assessed in the ranking. Only 25 per cent of those companies provided data on their water use and waste production. Fewer than half (47 per cent) reported their energy use, while 58 per cent disclosed their carbon-dioxide emissions… Loblaw Cos. Ltd… Canada′s largest grocery chain operator, tops the ranking of corporate responsibility in the country, compiled by research group Corporate Knights Inc. The review assessed environmental, social and governance (ESG) practices of companies
in Canada′s S&P/TSX 60 index.”

This review by Corporate Knights is worthwhile reading for any ethical investor interested in the Canadian marketplace. However, it brings to light the importance of environmental disclosure while demonstrating the timidity of Ontario’s Ed Waitzer’s report in not being strong enough on mandatory corporate social responsibility reporting.
Few Canadian companies disclose environmental practices, by Janet McFarland, June 21, 2010, Report on Business, The Globe & Mail, Canada.

Johannesburg Stock Exchange Requiring Listed Companies To Integrate Their ESG Report With Annual Report. [COMMENTARY]“South Africa′s JSE stock exchange (www.jse.co.za) is requiring listed companies to integrate their sustainability reports with their annual reports, with effect from this month. According to a report in Business Day newspaper (www.businessday.co.za) Mervyn King, chairman of the King committee and a leading expert on governance, said: ’SA is among the first countries in the world to require integrated reporting of listed companies. This puts us ahead of the game.’” South Africa has become a global champion for mandatory corporate social responsibility reporting! Well done South Africa and Mr. King.
SA listed companies have to integrate sustainability reports, by Tom Minney, June 9, 2010, African Capital Market News, South Africa. Also, see my June 18 column,Ethical Investing Shines in Africa as Economy Grows.

80% Of Americans Say “Socially Responsible Corporations Can Also Create A lot Of Wealth For Their Shareholders.” [COMMENTARY]“’Over the years, there has been a core shift in the American public’s expectations,’ Mittal says in a statement. ’The old idea was that businesses were only responsible to their shareholders. But now people are realizing that this isn’t a zero-sum game,” Mittal said. “No matter their political leanings, Americans expect corporations to be profitable, sustainable and socially responsible.’” Again, more encouragement for corporate social responsibility and ethical investing.
Survey: Corporate responsibility valued, June 18, 2010, upi.com, USA.

Survey Ranks Citi Best In SRI Research.[COMMENTARY]“The winners have been unveiled in Environmental Finance′s inaugural survey of environmentally-themed investment research. CA Cheuvreux was voted best research house for renewable energy, HSBC came top in climate change and Citi took the honours in water. Meanwhile, Soci…t… G…n…rale was voted top in resource/energy efficiency, while Barclays Capital came first in carbon markets research. Citi was voted best research house overall, based on the total number of votes cast across all five categories.”

I think it is great that Citi is paving the way in SRI research. Now I do wonder though how much it reflects the fact that Citi is under the thumb of the Democrats in the U.S. Congress? Either way, it is still very positive.
Winners announced in Environmental Finance Investment Research Survey, June 10, 2010, Environmental Finance, UK. (Log-in required. Registration is free.)

Two Reports Cite Islamic Oriented Financial Assets At $1 Trillion & $1.5 Trillion. [COMMENTARY] (1) “Tan Jeh Wuan, a managing director at the Islamic Bank of Asia, said the assets of the world’s top 500 Islamic banks are expected to top one trillion US dollars this year, up from 822 billion dollars in 2009 and 639 billion dollars in 2008.” Islamic finance set to cross $1 trillion: Moody’s,, June 14, 2010,The Economic Times, India. (2) “It is estimated that investors globally hold more than $1.5 trillion in Sharia-compliant investments. These include equities that are in line with Islamic principles, sukuk and Islamic funds.” Key Islamic securities market set for growth, May 25, 2010, Gulf Daily News, Bahrain.

Islamic, Shariah compliant assets are growing twice as fast as conventional financial assets globally. To understand why, see my June 28 column Ethical and Sharia-compliant Investing Takes Off.

CSR: Canada’s Top 50 Companies.[COMMENTARY]“For many successful companies, corporate social responsibility (CSR) is no longer just a boardroom buzzword, but a key to business. So, for the second year in a row, Maclean′s has partnered with Jantzi-Sustainalytics, a global leader in sustainability analysis, to present the country′s Top 50 Socially Responsible Corporations.” The majority of the top fifty are multi-nationals. The write-ups on each of them are brief and convey useful information for ethical investors.
Top 50 Socially Responsible Corporations, June 2010, macleans.ca, Canada.

Africa’s First Sustainable Investment Forum AfricaSIF Launched. [COMMENTARY]“AfricaSIF is an independent pan-African not-for-profit network, knowledgebase and advocate promoting sustainable investment across the continent. The network aims to achieve its objectives by attracting investment in the public, private and philanthropy sectors across asset classes, countries and stakeholders.” This is great step forward for ethical and sustainable investing in Africa.
Africa′s First Sustainable Investment Network Launched, press release, June 9, 2010, AfricaSIF, South Africa. Also, see my related column,
Ethical Investing Shines in Africa as Economy Grows.

Screens Can Moderate SRI Returns, Study.[COMMENTARY]“Screening intensity has no effect on unadjusted (raw) returns or idiosyncratic risk. However, we find a significant reduction in α of 70 basis points per screen using the Carhart performance model. Increased screening results in lower systematic risk … in line with managers choosing lower β stocks to minimize overall risk.”

The findings are inline with what I would have expected. However, this study does not negate the fact that what type of screen(s) one uses can provide hugely different outcomes. Nonetheless, this is an interesting and useful study.
Socially Responsible Investment Fund Performance: The Impact of Screening Intensity, by Darren David Lee, Jacquelyn Humphrey, and Karen L. Benson–all at University of Queensland, Australia, and Jason Ahn. June 2010, Accounting and Finance, Australia.

China & US Tied As Most Attractive Places For Green Investment, Says Ernst & Young. [COMMENTARY]“China has climbed two points in the consultancy’s Renewable Energy Country Attractiveness Indices, having invested a total of $34.6 billion into clean energy projects in 2009. The figure is almost double the U.S. and China is already the
global leader in installed wind power capacity last year
… ” It looks to me that Asia will take the lead in green investment.
China, US Tie As Most Attractive For Green Investment – Report, by Selina Williams, June 2, 2010, Dow Jones, USA.

Huge Japanese Trades Union Group Preparing ESG Recommendations For Its Retirement Funds. [COMMENTARY]“RENGO, the powerful Japanese trades union confederation, says it is preparing plans for its member pension schemes … a significant part of the country′s institutional retirement savings … to incorporate ESG factors into their investment decisions.” Here is another step of progress on the march to incorporate environmental, social and governance (ESG) factors in big institutional pension schemes.
Powerful Japanese trades union body prepares major ESG recommendation for its pension funds, by Hugh Wheelan, June 1, 2010, responsible Investor, UK.

65% Of US Companies Want Tax Breaks To Significantly Increase Green Spending. [COMMENTARY]“In the US specifically, the survey found that only 13% of companies monitor their carbon footprint and less than one-third (27%) monitor their energy consumption. In addition to this, 76% had no company policy to invest in energy efficient equipment. Running costs were found to be very important to more than one-third of companies
(37%) who declared that they would only invest in low-carbon equipment if it were
cheaper or the same to run as conventional equipment.”
There are some useful global numbers in this survey too.
US Business Demands More Tax Breaks for Green Investment, press release, June 2, 2010, The Regus Group, UK.

Recent Commentaries by Ron Robins on Alrroya.com

Why Most Economists Get It Wrong, June 3, 2010.

A Call for Mandatory Corporate Social Responsibility Reporting, June 9, 2010.

Investment Industry Ethics Should Bother You, June 11, 2010.

Ethical Investing Shines in Africa as Economy Grows, June 18, 2010.

Ethical and Sharia-compliant Investing Takes Off, June 25, 2010.

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