September 2011 Newsletter

September 2011 Newsletter

News & Commentaries by Ron Robins


Sustainable Companies Are More Profitable According To CDP.– [COMMENTARY] “Consider this: Global 500 companies that have demonstrated leadership in carbon disclosure or performance yielded twice the average return as the index as a whole between January 2005 and May 2011. ’It suggests a strong correlation between higher financial returns and good carbon disclosure and good carbon performance,’ said Paul Simpson, chief executive officer of the Carbon Disclosure Project (CDP).” The information that reduction of carbon use might help corporate profits continues to mount. It is also good news for ethical investors.
CDP’s Annual Report Finds Sustainable Companies are More Profitable, by Tilde Herrera, September 14, 2011, ClimateBiz, USA.

Almost 30% Of US DC Pension Plans Could Offer SRI Options Within 3 Years. – [COMMENTARY] “As many as 29% of defined contribution plans could offer socially responsible investment options in the next two to three years, based on the results of a survey of DC plans by Mercer and the U.S. SIF Foundation. Of the 421 plan executives who responded to the survey, 14% offer at least one SRI option and 15% of those that don’t are considering or planning to add one to their investment lineup…” This is good news for those with US DC pension plans.
Almost 30% of DC plans could offer SRI option, by Timothy Inklebarger, September 27, 2011, Pensions & Investments, USA.

Sino Forest, Auditors & Investment Firms, Sued By Two Of Canada’s Largest Ethical Fund Managers. – [COMMENTARY] “Two big institutions are taking aim at Bay Street′s largest firms with a $5.8-billion proposed class action lawsuit that alleges Sino-Forest Corp. and several of its key advisors profited from misrepresentations about the company′s financial condition. Northwest & Ethical Investment LP, which manages Ethical Funds, and Comit… Syndical National de Retraite B…tirente Inc., a Quebec-based labour-sponsored retirement plan, are suing Sino-Forest, its auditors and investment bankers on behalf of investors who purchased the company′s securities between Aug. 17, 2004 and June 2, 2011.” This is a big deal in Canada. Ethics in financial dealings do matter!
Sino suit takes on the Street, by Julius Melnitzer, September 26, 2011, Financial Post, Canada.

New Canadian Blog Puts A Positive Spin On The Social-Economic Benefits Of Mining Industry. – [COMMENTARY] “Today, this economically important sector is under constant attack by a well-funded and ’web savvy’ environmental movement … which seems to dominate the Internet with their ’green’ propaganda. Partly because of this, the mining sector′s social license to operate is being questioned in many jurisdictions around the world. Republic of Mining will provide a much-needed industry perspective to a global audience that may have difficulty finding information on the many social and economic benefits, technical advances, environmental successes and current challenges of this complex sector.”

Those are fighting words! Nonetheless, this blog could be a useful site for ethical investors interested in the mining industry, though of course, it is written by someone who undoubtedly favours the industry. But many SR-ethical funds and indexes do now have mining companies in their portfolios.
Republic of Mining, Canada.

Is An ’Efficient’ SRI Index Superior? – [COMMENTARY] “Typical SRI indices respect such screenings and then simply weight the acceptable stocks by market cap, or alternatively by sustainability scores. They thus ignore the risk/return properties of stocks and in particular the correlations. Consequently, they do not necessarily reflect the performance available from a well-diversified portfolio of SRI-compliant stocks.”

Continuing, “Efficient SRI indices on the other hand, apply an optimal weighting scheme to the screened universe. They thus constitute a relevant proxy for the performance that is achievable through a sole focus on improving diversification within an SRI universe. In that sense they constitute a useful yardstick for active SRI funds from which investors would at least expect improved diversification, if not additional value added through stock picking.” This appears to be an interesting concept. I’d be curios to know what SR-ethical fund managers think of this.
Performance of Socially Responsible Investment Funds against an Efficient SRI Index: The Impact of Benchmark Choice when Evaluating Active Managers, press release September 22, 2011, EDHEC-RISK Institute, France.

US Consumers Demanding Higher CSR Standards Of Companies Even In Weak Economy. – [COMMENTARY] “These findings are reported in a Future Perspectives white paper entitled, ’Risk & Responsibility: Marketing CSR in a Time of Economic Turmoil.’ The results show that economic hardship dramatically increases risk aversion, and risk averse consumers are 50 percent more likely to agree that companies have a duty to be socially responsible and support the communities in which they operate.”

This is interesting research and adds further support as to why companies need to lead in CSR and why investors should favour such companies–especially since research suggests they are likely to have superior financial performance relative to their peers.
Corporate social responsibility in an uncertain economy, September 21, 2011, MF Monitor, USA.

Two-Thirds Of UK Public Say Charities Should Invest Ethically.– [COMMENTARY] “Two-thirds of the public believe it is ’important’ or ’very important’ that charities invest ethically, according to research from the social lender Charity Bank. The bank polled 2,087 randomly selected adults in August this year.” See my thoughts on this subject atUnethical Investing By Charities.
Charity Bank survey finds that the public approves of ethical investment, by David Ainsworth, September 22, 2011, ThirdSector, UK.

By Shunning US Megabanks, US Ethical Fund Shows Good Returns.– [COMMENTARY] “Last summer, the ’socially responsible’ Appleseed fund began barring the stocks of too-big-to-fail banks, on ethical grounds. For shareholders, it’s been a blessing… The Appleseed Fund is up 1.7% so far this year — while the Standard & Poor’s 500 Index ($INX +0.57%) is down nearly 5.4%. The fund has had a terrific record since launching in late 2006: It’s up 40%, while the S&P is barely level, even including dividends. And that’s even though Appleseed can’t invest in those wonderfully profitable and defensive ’sin’ stocks, like distillers and cigarette makers.”

Congratulations to Adam and Joshua Straus, the managers of Appleseed. I have believed for years that most ethical investors and funds investing in megabanks with unfathomable derivative positions; balance sheets with assets not reflecting true (lower) market values; and vastly overrated capital adequacy ratios–are asking for trouble. Note their now plunging stock prices!
Shunning megabanks pays off big, by Brett Arends, September 16, 2011, MarketWatch, USA.

Replacing Coal With Natural Gas Won’t Slow Climate Change, Says Study.– [COMMENTARY] “The use of natural gas rather than coal to meet the world’s energy needs might reduce emissions but would have little effect on climate change, new research has found. The study, to be published in Climate Change Letters in October, highlights the complicated way in which burning fossil fuels affects the environment.”

Since it is generally thought that natural gas is better than coal for managing climate change, this study might promote considerable controversy. Ethical investors and environmentalists particularly, might want to take note of this study.
Burning gas instead of coal will not slow climate change, September 12, 2011, BusinessGreen, UK.

GMI Launches New ESG Research Platform. – [COMMENTARY] “GMI Analyst brings together the content and tools of the Corporate Library, GovernanceMetrics International and Audit Integrity, which merged at the end of last year. The new platform, which covers 20,000companies globally, focuses on two separate ratings: an ESG rating, which measures long-term corporate sustainability, and a risk rating, which identifies companies that, in the short term, may face risks such as litigation or regulatory action.” The growing availability of increasingly sophisticated ESG analytical tools can only help ESG analysis become more popular and hence improve stockholder returns for investors in companies who demonstrate superior ESG performance.
GMI launches new ESG research platform, September 9, 2011, Inside Investor Relations/Business Insider, USA.

CA Cheuvreux, Bank of America Securities – Merrill Lynch & HSBC, Are The 2011 Leading SRI & Sustainability Brokerage Firms, Says Survey.– [COMMENTARY] “Thomson Reuters and UKSIF, the sustainable investment and finance association, announced the results of the ninth annual Thomson Reuters Extel/UKSIF Socially Responsible Investing & Sustainability Survey at an event held at the Thomson Reuters Building in Canary Wharf, London. The 2011 Survey represents the views of over 400 investment professionals from 23 countries, making it the most extensive assessment of socially responsible investing (SRI) in the European investment community.” Each year after this announcement I lament that we in North America do not have such a survey.
Thomson Reuters Extel and UKSIF 2011 Socially Responsible Investing & Sustainability Survey Results, press release, September 9, 2011, UK.

SRI-Ethical Fund Investors Primarily Want Profits, Suggests Study.– [COMMENTARY] “The results of the study show that perceived financial quality of the SRI mutual fund is the most important predictor of customer satisfaction. However, perceived social, ethical, and environmental (SEE) quality is also positively related to satisfaction for the SRI mutual fund.”

I sense that the motivation of many first time sustainable investment investors is primarily financial, whereas for the ’older’ SRI-ethical investor their deeply rooted personal values were equally valued. Pertinently, this study says that the factors associated with customer satisfaction might change over time and so need regular monitoring.
Determinants of customer satisfaction with socially responsible investments: Do ethical and environmental factors impact customer satisfaction with SRI profiled mutual funds? By Jonas Nilsson (Corresponding author) Johan Jansson, Sofia Isberg, Anna-Carin Nordvall, Ume… School of Business at Ume… University, Ume…, Sweden.

Interesting Changes In Dow Jones Sustainability Indexes: HP, Microsoft & Coca Cola Out; Kinross Gold & Newcrest Mining Ltd., In.– [COMMENTARY] Are mining companies improving their sustainability efforts?Dow Jones Sustainability Indexes-SAM.

US Food Retailers See Mostly Gains In Organic & Local Foods.– [COMMENTARY] “Food retailers see opportunity in organic food. In 2010, the organic industry overall grew by about 8 percent to $28 billion. That drove 66.2 percent of retailers to add natural and organic items to their shelves. Almost 65 percent said sales of those items increased in the prior 12 months, according to the report. Most of that growth was in the West and Northeast, which saw organic sales growth of 80 percent and 72.2 percent, respectively. In the Midwest, 19 percent of retailers reported organic sales declines.”

Continuing, “Locally sourced food, on the other hand, is popular with consumers across the board. More than 90 percent of consumers buy local food at least ’occasionally,’ 9 percent do so ’whenever possible’ and 9 percent ’never’ do, according to FMI’s consumer-focused report, ’U.S. Grocery Shopper Trends 2011.’” Given the economic environment, this data bodes well for firms catering to these trends.
Grocers Embrace Local, Organic to Try to Drive Growth in Tough Times, by Charles Redell, September 8, 2011,, USA.

UK Ethical Investment Association Presents Awards For Best Practices.– [COMMENTARY] “The Ethical Investment Association (EIA) has presented transparency awards to Ecclesiastical Investment Management, Henderson Global Investors, Jupiter Asset Management and Rathbone Unit Trust Management.” Congratulations to the award winners.
Ethical advisers praise investment houses, by Oliver Haill, September 7, 2011, FT Advisor, UK.

Insurers Unprepared For Climate Risk. – [COMMENTARY] “The vast majority of insurers are unprepared to handle climate risks even though they acknowledge the impact of climate change on extreme weather events, according to a report by investor coalition Ceres…
only 11 of 88 insurers have formal risk management plans in place.”
Anyone investing in the insurance industry because it is deemed a suitable place for ethical funds should study theCeres report!
Insurers unprepared for climate risk, by Gloria Gonzalez, September 2, 2011, Environmental Finance, UK.

Solar Power Soon To be Grid Competitive In Parts Of Europe.– [COMMENTARY] “Solar photovoltaic (PV) power generation will be grid competitive in parts of Europe as early as 2013, and across key European markets by the end of the decade, according to an industry association report … making the technology more attractive to investors.” Great news, and to be expected as carbon energy sources grow more costly while renewable energy scales up becoming ever less costly.
Solar PV edging towards grid parity in Europe, by Jess McCabe, September 6, 2011, Environmental Finance, UK.

$2.4 Tn Invested In Green Companies & Technology Between 2007 & 2011, Says GreenTransitionScorboard. – [COMMENTARY] “The Green Transition Scoreboard… (GTS) is a time-based, global tracking of [the] private financial system for sectors investing in green markets. Ethical Markets Media began reporting on the GTS in 2009, tracking private investments and firm commitments in the Green Economy since 2007. This update of the GTS finds that over $2.4 trillion has been invested in the green economy, up from the $2 trillion reported in February 2011.”

This data is impressive, especially when considering the financial duress of recent years! Well done Hazel Henderson, President of Ethical Markets Media and creator of the GTS.
Green Transition Scoreboard, August 2011 Update, September 6, 2011, Ethical Markets Media, USA.

UK Government’s …3bn Green Investment Bank Advisory Group Includes Lord Stern & Penny Shepherd (UKSIF). – [COMMENTARY] “Lord Stern of Brentford, author of the landmark Stern Review on the economics of climate change, chairman of the influential Grantham Research Institute on Climate Change, and holder of previous posts at the World Bank and the European Bank for Reconstruction and Development, is probably the most high-profile member of the group, which will hold its first meeting on 6 September.” Penny Shepherd is the Chief Executive of the UK Sustainable Investment and Finance Association. It is great to see her on the board.
Lord Stern appointed to Green Investment Bank Advisory Group, September 1, 2011, BusinessGreen, UK.

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