November 2010 Newsletter

November 2010 Newsletter

News & Commentaries by Ron Robins


US SRI Assets Top $3 Trillion, Almost 1 In Every 8 Dollars Under Management. [COMMENTARY]“SRI Assets Up 13 Percent in Current Economic Downturn, While Overall Assets Increased Less Than 1 Percent… sustainable and socially responsible investing (SRI) in the United States is continuing to grow at a faster pace than the total universe of investment assets under professional management, according to the new 2010 edition of the Social Investment Forum Foundation′s Report on Socially Responsible Investing Trends in the United States.”

This is exciting news. The data that I particularly like to compare from period to period are that of retail SRI mutual funds, as I believe they best indicate how the average investor invests in relation to ethical/socially responsible investing.

In 2007, there were $171.7 billion in total net retail SRI fund assets in 173 different funds, which rose in 2010 to $316.1 billion in total assets in 250 different funds. In 2007 SRI retail funds represented just under 2% of total US retail fund assets. It appears that they are now probably over 3%. This is really good news.
Report: Socially Responsible Investing Assets in US Top $3 Trillion; Nearly 1 Out of Every 8 Dollars Under Professional Management, press release, November 9, 2010, Social Investment Form, USA.

2010 Moskowitz Prize Winner Shows Companies With Environmental Concerns Pay More For Debt. [COMMENTARY]“An academic paper that shows that environmental concerns such as litigation and regulation mean that exposed companies are paying up to 64 basis points (0.64%) more for their debt, has won the 2010 Moskowitz Prize, the only global award recognizing outstanding quantitative research in the field of socially responsible investing (SRI). The paper by Rob Bauer, the former head of research at ABP, the Dutch pension fund, and Daniel Hann, a PhD student, both of Maastricht University′s European Centre for Corporate Engagement (ECCE), studied the environmental profile and debt costs of 582 US public corporations between 1995 and 2006.”

This is a significant paper. It informs companies to be proactive in regard to environmental concerns–or pay much higher rates for their debt! Congratulations to Rob Bauer.
Former ABP research head wins Moskowitz Prize with paper showing bond costs of enviro concerns, by Hugh Wheelan, November 23, 2010, Responsible Investor, UK. Also, see study information at:Corporate Environmental Management and Credit Risk, by Rob Bauer and Daniel Hann, Maastricht University, June 30, 2010, Netherlands.

US Investor Group File Shareholder Resolutions At Accenture, IBM, Pepsi and Pfizer, To Review Policies & Oversight Of Political Expenditures Through Trade Associations.[COMMENTARY]“The investors said that despite good corporate governance records, the four companies were compliant to political lobbying by the Chamber of Commerce against issues such as healthcare reform and climate change. US SRI investors and the country′s Chamber of Commerce have locked horns over numerous issues in recent years including climate change, engagement, proxy access and say-on-pay.” It seems the stated aims of these companies could be at odds with those of the Chamber of Commerce. These companies, and many others for that matter, need to come clean with their politics.
US investors target Accenture, IBM, Pepsi and Pfizer over politics of US Chamber of Commerce, November 29, 2010, Responsible Investor, UK.

Islamic Financial Assets To Reach $1.5 Trillion By 2012. [COMMENTARY]“The Islamic finance assets base is likely to reach $1.5 trillion by 2012 with bright future growth prospects, according to a senior expert at the Islamic Development Bank.” For those not familiar with Islamic finance, it has aspects to it that some ethical investors find appealing. See my article,The Rise of Islamic Finance.
Islamic finance sector to touch $1.5tn by 2012, says Al-Aboodi, by Mahmood Rafique, November 25, 2010, Arab News, Saudi Arabia.

Malaysia’s Stock Exchange To Launch SRI Index. [COMMENTARY]“Bursa Malaysia [Malaysia’s stock exchange] is working towards establishing an environmental, social and governance (ESG) index to influence public-listed companies to adopt sustainability practices in their business operations. The proposed ESG index is also expected to attract socially responsible investment (SRI) funds into the country.”

Incidentally, Malaysia is also a world leader in Islamic finance. SR/ethical investing has huge support there, right up to, and including, their prime minister.
New index proposed, Azatun Shari, November 24, 2010, thestar online, Malaysia.

Socially Responsible/Ethical Investors Favouring Bonds. [COMMENTARY]“A surge of interest in fixed income within the SRI space has divided industry experts. While latest figures show investors increasingly looking to bonds for SRI portfolios, some specialists play down the significance of this move.” It seems that ethical investors are little different to conventional investors in this regard. As most people know, they have also been favouring bonds.
Could fixed income be the future of SRI investing? By Atholl Simpson, November 23, 2010, CityWire, UK.

Gold Company, IAMGOLD Corp., Wins CSR Award. [COMMENTARY]“IAMGOLD was recognized for having established over 28 community and NGO partnerships companywide, in Suriname, Botswana, Burkina Faso, Ecuador, Canada and French Guiana… The Conference is convened to celebrate and showcase excellence in the area of Social, Economic and Environmental sustainability. The driving force behind the Conference is Algonquin College with strong support from four Ontario academic institutions: Carleton University, La Cite Collegiale, the University of Ottawa and the University of Waterloo as well as Red River College in Manitoba.”

Considering the universities and colleges backing this award, it is significant that a gold mining company won it. Barrick Gold Corp., the world’s largest gold producer, also, in recent days, appears to be getting very proactive in its CSR activities too. Perhaps the extractive industries are starting to get the CSR message?
IAMGOLD Recognized for Its Corporate Social Responsibility, press release, November 17, 2010, EarthTimes, UK.

Tatas, Reliance, Infosys & ITC Top BT Sustainable Development Index (India). [COMMENTARY]“Developed in partnership with global public opinion company GlobeScan, the BT SD Index findings are based on a survey of 253 senior, academic, corporate, government, media and NGO leaders from all over India and measure perception about business performance on sustainable development indicators and not actual performance.” Ethical investors in emerging markets might like to review the BT Sustainable Development (SD) Index. It assesses the business performance in India companies in 2009-10.
Tatas, Reliance, Infosys and ITC top BT Sustainable Development Index, November 20, 2010, The Financial Express, India.

Investors Representing $15 Trillion In Assets Call For US Action On Climate Change.
[COMMENTARY]“Citing potential climate-related GDP losses of up to 20 percent by 2050 and the economic benefits of shifting to low-carbon and resource-efficient economies,
investors released a major statement today calling for national and international policies that will spur private investment into low-carbon technologies. The statement was signed by 259 investors from North America, Europe, Asia, Australia, Latin America and Africa
with collective assets totaling more than $15 trillion.”
This is clearly a message aimed at convincing the newly elected Republicans that big US and global firms support more action on climate change.
Investors Representing More Than $15 Trillion Call for U.S., International Action on Climate Change, press release, Ceres, November 16, 2010, USA.

Australian/New Zealand Demand For Responsible Investment Products Doubles In One Year. [COMMENTARY]“In a time when many are still reeling from the effects of the global financial crisis, the consumer demand for responsible investment products has almost doubled with ethical advisor portfolios growing an extraordinary 50% from AU $972 million to AU $1.46 billion after a decrease of 21% in the 2009.” Despite its critics, responsible-ethical investing is growing around the planet.
Australia & New Zealand 2010 Responsible Investment Benchmark Report, Responsible Investment Association Australasia (RIAA),November 15, 2010, Australia.

New Study Says That SRI Performs Best In Less Volatile Markets. [COMMENTARY]“We find a positive relationship between the idiosyncratic risk (i.e. unsystematic risk) and
return during low and medium volatility states. However, this positive relationship tends to disappear during high volatility states. In addition, our analysis suggests that idiosyncratic risk has no forecasting power over SRI future returns. Overall, our findings imply that SRI investors are rewarded for bearing the additional SRI specific risk (idiosyncratic risk) when the market is less volatile. This reward, however, becomes uncertain during periods of
high market volatility.”

This is an interesting piece of research from a new perspective–that of how SRI performs in markets of differing volatility.
Yes, Indeed, Idiosyncratic Risk Matters to Socially Responsible Investments! By Huimin Li, Adrian (Wai-kong) Cheung, and Eduardo Roca, November 6, 2010, Griffith University, Australia.

Carbon Disclosure Project Releases Results Of Questionnaire On Water Use At 137 Companies. [COMMENTARY]“The CDP, which is backed by 137 institutional investors representing $16trn (…11.7bn) of assets, sent out its inaugural water questionnaire to 302 of the world′s 500 largest companies in the FTSE Global Equity Index Series.”

’Water is the new oil’ is a common phrase these days. Its scarcity in coming years is going to lead to enormous changes for societies–and for innumerable companies. This is a first rate report on the subject.
“Water the new carbon” as CDP′s Water Disclosure Project releases first results, by Daniel Brooksbank, November 11, 2010, Responsible Investor, UK. See theactual report.

TBLI Conference Names Sustainalytics As Best ESG Research House. [COMMENTARY]“Sustainalytics, also known as Jantzi-Sustainalytics in North America because of its connection to Canadian SRI pioneer Michael Jantzi, was named Best ESG Research House at the TBLI Conference Europe 2010 in London this week.” Congratulations to Sustainalytics and especially to Michal Jantzi and friends at Jantzi-Sustainalytics.
Sustainalytics named Best ESG Research House, by Doug Watt, November 12, 2010, SRI Monitor, Canada.

8% Of UK Savers Have Green & Ethical Investments; 37% More Want To Do So Soon. [COMMENTARY]“Penny Shepherd MBE, UKSIF Chief Executive, said: ’Recent environmental and economic crises have made people think more carefully about the long term impacts
of their financial decisions. After a decade that almost ended in global financial meltdown, attitudes are changing from greed is good to green is good … less Gekko more Eco. The 2010s are well set to become the decade of financial responsibility, as more people consider how they can make a difference with their money.’”

The UKSIF just ended a very successful promotional week in the UK for ethical investing. Well done to all involved. The US, Canada and other countries should promote such a week too!
From greed is good to green is good: 2010s set to become decades of financial responsibility, press release, November 10, 2010, UKSIF, UK.

73% Of UK Public Want British Banks To Have Ethical Lending Policies. [COMMENTARY]“73% of the British public think that banks should have ethical lending policies in place to prevent them from investing in, or lending to, companies involved in controversial areas such as arms manufacturing, or companies with poor records on the environment and human rights, according to new research released today.” The interest in ethical finance and investing appears to be an unstoppable trend, not only in the UK, but around the world. However, this contrasts, I believe quite sharply, with the lack of teeth in new financial regulations that have appeared in the US, EU, or in Basel 3, etc.
Public want banks to lend ethically, survey finds, press release, November 8, 2010, EIRIS, UK.

UK Ethical Investing Shows Biggest Annual Increase In Past Decade. [COMMENTARY]“The amount of money saved or invested ethically by consumers has shown its biggest annual increase in a decade according to a new report released today (6 November) by
Co-operative Financial Services (CFS). Total money invested ethically rose 34 per cent to …19.2bn, from …14.3bn in the previous 12 months. In comparison, total deposits and investments grew 15 per cent over the same period.”
Again the UK shows itself as a leader in ethical investing.
Ethical savings and investments up a third, press release, November 8, 2010, Co-operative Financial Services, UK.

Most Chinese Companies Uninvolved In CSR. [COMMENTARY]“More than 70 percent of China’s top corporations do not engage in corporate social responsibility, according to a recent report by the Chinese Academy of Social Sciences (CAS)… There were 300 companies that participated in the evaluation, and only China Ocean Shipping Group Company (COSCO) scored 80 points, putting it into the ’excellent’ category.” I suppose this is not unexpected. However, I suspect that the Chinese do want to do better in regard to CSR given the recent bad publicity of worker suicides at some of their factories.
70% of China’s top companies shirk corporate responsibility, By Zhang Qian, November 5, 2010, People’s Daily Online, China.

New US SEC Proxy Vote Rule Not For 2011. CalSTERS Threatens Legal Action. [COMMENTARY]“The US Securities & Exchange Commission has said it does not expect proxy access (the ability to nominate company directors for a shareholder vote) to be available to investors for the 2011 AGM season, following a legal challenge from the US Chamber of Commerce and Business Roundtable. The legal action taken at the end of September by
the Chamber of Commerce has prompted California State Teachers′ Retirement System (CalSTRS), the $131.8bn scheme … the second largest in the US … to threaten its own legal riposte against what it called a ’roll back’ on shareholder rights… “

Continuing, “In August, the SEC approved rules to give shareholders who own 3% of a company′s stock for at least three years the right to have their board nominee included in companies′ proxy materials.”

It seems to me that the Chamber of Commerce fears too many corporate boards and board members will be threatened with the new SEC ruling. After all, shareholders may actually want to replace some board members and boards! The new SEC ruling allows the opportunity to get more corporate boards truly focused on environmental, social and governance (ESG) matters. I hope that the pressure from CalSTERS and others moves the SEC to implement the rule soon!
SEC says proxy vote rule won′t make 2011 AGM season, CalSTRS threatens legal action, by Hugh Wheelan, November 5, 2010, Responsible Investor, UK.

Recent Commentaries by Ron Robins on

Religion: A Force In Ethical & Green Investing, November 11, 2010.

Gold Price Suppression: The Hidden Truth, November 25, 2010.

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