September 2010 Newsletter

September 2010 Newsletter

News & Commentaries by Ron Robins


NASDAQ Launches Array Of Indexes To Track Green Economy. [COMMENTARY]“The company, which owns the NASDAQ and bills itself as the world’s largest exchange company, unveiled the first four in a family of indexes tracking companies operating in 13 sectors, including energy efficiency, renewable energy and healthy living. NASDAQ OMX said it will launch more green economy indexes in the coming months.” The proliferation of green indices is an obvious indicator of global investor sentiment towards investing in greener businesses. Ethical investors should be continually encouraged by these developments.
NASDAQ Launches Indexes to Track Green Economy, September 24, 2010, GreenBiz, USA.

Canadian Mutual Funds Less Supportive Of Company Management Says Proxy Analysis. [COMMENTARY]“Funds rejected a significant 20-30% of compensation resolutions put forward by management… SHARE released its third annual survey of proxy voting by Canadian mutual funds. The report examines four years of data on votes cast by 258 funds managed by 21 fund companies in connection with the shareholder meetings of more than 200 senior Canadian issuers.”

It seems that Canadian mutual funds are starting to get more active in engaging company management! This is important if we are to get companies to be more ethical, transparent, and proactive on environmental, social and governance (ESG) issues.
Support by Canadian mutual funds for corporate management declining: SHARE, by James Langton, September 27, 2010, Investment Executive, Canada.

Sustainable Stock Exchanges Dialogue in Xiamen.[COMMENTARY]The event′s main focus was to review the recent challenges that exchanges have experienced with the introduction of sustainability indices and ESG (environment, social and governance) disclosure regulation, and discuss whether it was even possible to pursue mandatory reporting with such large differences in the materiality of reporting indicators across each industry.”

The main point I got from reading this overview was that the large for-profit and private stock exchanges are hesitant on an individual basis to go to fast mandating environmental, social and governance reports from their listed companies. They are afraid of losing those listings to other exchanges not requiring such reporting.
Conference report: Sustainable Stock Exchanges Dialogue in Xiamen: “One destination, many journeys, by Lucy Carmody, September 22, 2010, Responsible Investor, UK.

IMF Issues Working Paper On Financial Crisis Comparing Its Effects On Islamic & Conventional Banks. [COMMENTARY]“Factors related to IBs‘ [Islamic banks] business model helped contain the adverse impact on profitability in 2008, while weaknesses in risk management practices in some IBs led to larger decline in profitability compared to CBs [conventional banks] in 2009. In particular, adherence to Shariah principles precluded IBs from financing or investing in the kind of instruments that have adversely affected their conventional competitors and triggered the global financial crisis.”

Ethical investors may want to acquaint themselves with Islamic finance due both to its increasing global importance and some similarities to ethical finance and investing.The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study, September 2010, International Monetary Fund (IMF), USA. (Conclusions are on page 33.) Also, see my September 16 alrroya column,The Rise of Islamic Finance.

Siemens, Deutsche Post, BASF, Bayer and Samsung Electronics Lead In Carbon Management, Says Carbon Disclosure Project (CDP).[COMMENTARY]“This year, CDP, backed by 534 institutional investors overseeing more than $64 trillion in assets, sent inquiries to more than 4,700 companies… Some 82 percent of Global 500 companies responded to the questionnaires, compared to 70 percent of S&P 500 companies, illustrating a trend that has been playing out for several years: North American companies lag their European counterparts in both climate disclosure and performance.” The data is interesting, and indicates the trend is in the right direction.
More Companies Report Data to CDP Despite Uncertain Climate, September 19, 2010, ClimateBiz, USA.

China Launches Its First Sustainability Index.[COMMENTARY]“The CSI ECPI China ESG 40 Equity Index, made up of 40 domestic companies in mainland China, is a collaboration between Chinese Securities Index Company, a Chinese index provider backed by the Shanghai and Shenzhen stock exchanges, and ECPI, a European ESG research and indices company.” Welcome China!
China in ESG index joint venture, by Ruth Sullivan, September 19, 2010,, UK. For source information, seeCSI ECPI ESG China 40 index To Be Launched, China Securities Index co.Ltd.

Justmeans Releases Its Global 1000 Best CSR Companies List. [COMMENTARY]“Justmeans released its Global 1000, a list produced in conjunction with the relatively new ESG ratings firm CRD Analytics. As with the various CSR rankings we have explored in this blog in the past, the list contains many of the usual suspects. So what distinguishes this selection from those made by CRO, Ethisphere, Corporate Knights, legacy KLD and legacy Innovest products?” The discussion article raises concerns about various CSR rankings’ methodologies. This short article is worthwhile reading.
CSR Rankings Revisited… Again, by Madeline Ravich, September 17, 2010, Justmeans, USA.

Australia Launches First Global Standard For Responsible Investment Training. [COMMENTARY]“It is backed by the United Nations Principles for Responsible Investment (UNPRI) and includes web-based courses on UNPRI compliance and the integration of ESG factors in finance decisions across pensions and investment organisations.” This is exciting news. Such training needs to become commonplace, particularly among investment professionals. Congratulations to Responsible Investment Association Australasia (RIAA) for establishing this and to the Australian government for funding its creation.
Australia launches first global standard for RI training, by Hugh Wheelan, September 15, 2010, Responsible Investor, UK.

European Survey Found 90% Of Buy Side Firms Plan To Increase SRI & Sustainability Asset Allocation In Next Year. [COMMENTARY]“The 2010 Survey represents the views of over 450 investment professionals from 16 countries, making it the most extensive assessment of socially responsible investing (SRI) in the European investment community. Voting was conducted from 20 March to 03 June 2010. It reflects a contribution from 254 buyside firms and 42 brokerage firms/research houses.”

When will North America get a survey like this? It ranks SRI analysts and firms on several variables.
Thomson Reuters and UKSIF 2010 Socially Responsible Investing & Sustainability Survey Results, pres release, September 17, 2010, UK.

French Study Showed Ethical Funds Provided No Protection From Market Downturn, But Over Long-Term Green Funds Outperformed With Higher Risk. [COMMENTARY]“… the focus on the financial crisis reveals that SRI funds provided no protection from market downturns during this period, as illustrated by the considerable increase of extreme risks borne by these funds. Finally, the comparison of best-in-class funds and green funds, reveals, over the long term, higher alpha for green funds, with higher risks, including higher extreme risks.”

The study focused on French funds, though probably somewhat applicable to most other regions as well. Nothing remarkable here and not already known by most of us who closely follow ethical investing. For a brief discussion on this study and others, seeNo proof SRI outperforms traditionals, by Ruth Sullivan, September 12, 2010, Financial Times, UK.
See the study at:The Performance of Socially Responsible Investment and Sustainable Development in France: An Update after the Financial Crisis, by No…l Amenc and V…ronique Le Sourd of the EDHEC-Risk Institute, September 2010, France.

Security Analysts Favouring Firms With Good CSR, Says Study. [COMMENTARY]“Security analysts are increasingly awarding more favorable ratings to firms with corporate socially responsible (CSR) strategies, according to this paper by Ioannis Ioannou and HBS professor George Serafeim.”

This is an important study! It is one of the few links indicating that mainstream analysts are taking CSR seriously AND that CSR benefits stock prices.
The Impact of Corporate Social Responsibility on Investment Recommendations, by Ioannis Ioannou (London Business School) and George Serafeim (Harvard Business School), September 10, 2010. For a quick review see,Study: More Wall Street Analysts Buy Corporate Social Responsibility, by Michael Connor, September 10, 2010, Business Ethics, USA.

CSRHUB, A New CSR Research Site Could Be Valuable Resource For Ethical Investors.
“CSRHUB gives our users the information they need to evaluate corporate social values and sustainability. Once armed with ratings based on their own values, users can take action to both change their behavior and to change the world.”
CSRHUB, September 11, 2010, USA.

New MSCI ESG Indices Launched. [COMMENTARY]“MSCI Inc. (NYSE: MSCI)… announced today the launch of a family of MSCI ESG Indices. With over 40 years of expertise in index construction and maintenance, MSCI aims to set new standards for ESG indices — allowing clients to more effectively benchmark their ESG investment performance, issue index-
linked ESG investment products, as well as manage, measure and report on their compliance with ESG mandates.”

Generally, it is great that there are so many new ESG indices out there for ethical investors today. However, I am not sure that it is necessary to report on new ones anymore. One difference here though is that they are offering some 23 different indexes under their MSCI ESG index umbrella.
MSCI Launches ESG Indices, press release, September 7, 2010, MSCI, UK.

Eurosif Says Portfolios Of Europe’s Wealthy Increasingly Focus On Sustainability. [COMMENTARY]“According to Eurosif estimates, the proportion of rich Europeans′ portfolios managed sustainably was 11 per cent at the end of 2009, up from 8 per cent two years earlier. That represents …729bn (…606bn, $936bn), more than a third higher than in 2007.” This is good news for ethical investors. As concerns for the environment grow, the numbers shown in the Eurosif survey are likely to continue to increase.
Sustainability draws the wealthy, by Sophia Grene, September 5, 2010, The Financial Times, UK.

Study Says Over 19 Years Returns Of SRI & Conventional Funds Show Statistically Indistinguishable Results. [COMMENTARY]“This article explores that topic through an analysis of those actively managed mutual funds categorized as “Socially Conscious” from 1990 to 2008 (19 calendar years) and finds that while SRI funds tend to slightly underperform their non-SRI peers (−17 bps per year), they tend to slightly outperform on
a risk-adjusted basis (+1 bps year), but the results were neither statistically nor economically significant.”
Here we have another study demonstrating the general equivalency of long term performance between SR/ethical and conventional funds.
Exploring the Cost of Investing in Socially Responsible Mutual Funds: An Empirical Study, by David M. Blanchett, Fall 2010, The Journal of Investing, USA.

Recent Commentaries by Ron Robins on

Huge Migration of Service Jobs to Developing World Looming, September 1, 2010.

US Government and Financial Elites Deceive Us,September 7, 2010.

The Rise of Islamic Finance, September 16, 2010.

Higher US Savings Is Economic Game Changer,September 23, 2010.

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