January 2012 Newsletter

January 2012 Newsletter

News & Commentaries by Ron Robins


Companies Adopting Sustainability Outperform Financially, Say Harvard & London Business School Researchers.– [COMMENTARY] “Companies that adopted environmental, social and governance policies in the 1990s have outperformed those that didn’t.” One wonders how much more effort it takes to convince companies–and particularly investment advisors–that sustainability pays! Most investors realize this. It’s a pity that their advisors usually don’t.
Is sustainability now the key to corporate success? By Robert Eccles, Ioannis Ioannou, and George Serafeim, January 6, 2012, The Guardian, UK.

Nanomaterials Need Further Study For Health & Environmental Risks, Says US National Academy of Sciences. – [COMMENTARY] “Tiny substances called nanomaterials have moved into the marketplaceover the last decade, in products as varied as cosmetics, clothing and paint… nanotechnology market… represented $225 billion in product sales in 2009 and is expected to grow rapidly in the next decade.”

I’m totally astonished how the protectors of our health and environment have let nanomaterials grow to such a mammoth industry without any real oversight! I’ve been warning for years that letting nanotechnology run amok might be as harmful to us as letting a deadly flu virus out of the lab. Ethical investors might want to review the products in some of the companies they own that use nanotechnology and really ask themselves if they want to own stock in such companies.
With Prevalence of Nanomaterials Rising, Panel Urges Review of Risks, by Cornelia Dean, January 25, 2012, The New York Times, USA.

Corporate Knights Lists Its Top Global 100 Sustainable Companies.– [COMMENTARY] “The Global 100 is an annual project initiated by Corporate Knights Inc., the company for clean capitalism. The Global 100 is the most extensive data-driven corporate sustainability assessment in existence, and inclusion is limited to a select group of the top 100 large-cap companies in the world. Launched in 2005, the annual Global 100 is announced each year during the World Economic Forum in Davos.”

The top three companies are, Novo Nordisk A/S, Natura Cosmeticos SA, and Statoil AS. Most of the best companies are European. The highest-ranking US company, Life Technologies Corp., comes in at 15th.
2012 Global 100 Most Sustainable Companies, January 25, 2012, Corporate Knights, Canada.

UK Holden & Partner’s Show No Significant Difference In Capital Appreciation Between An Ethical And ’Conventional’ Portfolio.– [COMMENTARY] “Over the last five years Holden & Partners have worked with a charity client who have strict ethical screens, including animal testing, intensive farming, tobacco and human rights (among others)… One of the main concerns for the charity trustees has been thelong term impact on performance that such a screen would have… from a capital perspective an active manager in the UK market can perform in line with the broader market, even with an ethical screen which excludes almost half of the market.”

Another broker study showing that even excluding half of the companies in a given stock market, an ethical investment portfolio does not mean lower returns.
Holden & Partners analysis suggest that ’ethical screens’ do not necessarily impact on performance, by Mark Hoskin, January 19, 2012, Holden & Partners, UK.

Green Bond Bankers In Japan, Sweden Beat US. – [COMMENTARY “Five of the 10 top underwriters on about $7 billion of the bondsissued by international finance institutions were drawn from the two countries, according to a ranking by Bloomberg New Energy Finance released today. London-based HSBC Bank Plc and JPMorgan Chase (JPM) & Co. of New York took third and fourth place.”

We are just in the early stages of green bond issuance. I believe that they will become a major force in debt finance in the years to come.
Green Bond Bankers in Japan, Sweden Beat U.S. to $7 Billion, by Sally Bakewell, January 24, 2012, Bloomberg, UK.

Major US Investors Seek Disclosure Of Company Lobbying Activities.– [COMMENTARY] “Investors today announced the filing of shareholder resolutions at 40 corporations, for votes at 2012 shareholder meetings; the resolutions urge the corporations to report on lobbying expenditures, including indirect funding of lobbying through trade associations.” To me, it would seem that such reporting should be part of the annual management’s review of company operations. It should be enforced by auditors as full and fair disclosure.
Investors Announce New Shareholder Initiative Seeking Disclosure of Company Lobbying Activities, press release, January 19, 2012, American Federation of State, County and Municipal Employees, USA.

Attitudes Of Religious Organisations Towards Responsible Investment, Survey. – [COMMENTARY] “Religious organisations are major investors… An important question for them is how to make investments in, and to earn returns from, companies and activities
that are consistent with their religious beliefs or that even support these beliefs. Religious organisations have pioneered responsible investment… Although our results cannot be generalised because of the non-random character of our sample, six main characteristics of faith consistent investing are drawn: investing is not perceived as being in contradiction with religious values… “

Everyone interested in faith-based investing should review this important survey.
From Preaching to Investing: Attitudes of Religious Organisations Towards Responsible Investment, by C…line Louche, Daniel Arenas and Katinka C. van Cranenburgh, Journal of Business Ethics, DOI 10.1007/s10551-011-1155-8.

FORTUNE Magazine Lists Top 100 US Companies To Work For. – [COMMENTARY] “Call it a hat trick: for the first time in the 15-year history of Fortune′s Best Companies to Work For list, we have a three-time champion, as Google reclaims the top spot for workforce happiness (it debuted on our list at no. 1 in 2007, and stayed there in 2008). We′ve had a couple double headers before — Container Store, SAS and Edward Jones have all clinched the no. 1 spot twice — but Google this year marks the first three-peat.”

Such top companies often outperform in the stock market too. Is that a co-incidence? I don’t believe so. Ethical investors might want to review this year’s top one-hundred companies.
The Best Companies to Work For, by Leigh Gallagher, January 19, 2012, FORTUNE, and100 Best Companies To Work For, FORTUNE, USA.

Efficiently Weighted Indices Can Lead To SRI Outperformance … EDHEC.– [COMMENTARY] “Investors can achieve outperformance with socially responsible investment (SRI) indices if they use efficient weights, says financial research centre EDHEC-Risk Institute, despite its earlier studies suggesting SRI funds produced little alpha.” This article should be read by all ethical investors, as it offers an interesting perspective on how to perhaps construct outperforming ethical investment portfolios.
Efficiently weighted indices can lead to SRI outperformance … EDHEC, by Nina R…hrbein, January 17, 2012, IPE, France.

American Socially Responsible Investors Don’t Want to Sacrifice Returns, Wharton Study. – [COMMENTARY]“Investors interested in socially responsible investing do not necessarily expect to sacrifice a portion of their gains. Thus, to encourage socially responsible investing, its returns should be comparable to returns for conventional investing.”

Fortunately, the conclusion generally drawn from the dozens of studies indicate that over the long term, socially responsible-ethical investors don’t have to sacrifice returns. However, this study does contradict many surveys that show SR-ethical investors would tolerate lower returns if they are invested in industries and companies that relate to their values.

It could be that many newly converted SR-ethical investors, investing in green-sustainable companies, don’t really share the same values of the more traditional SR-ethical investors.
Socially Responsible Investing, by Olivia S. Jung, January 12, 2012, Wharton, University of Pennsylvania, USA.

Sustainability Nears A Tipping Point, Says MIT Sloan Survey. – [COMMENTARY] “In our survey, we found that more respondents than ever before say their companies are putting sustainability on their management agendas. Our survey this year involved 2,874 managers and executives from 113 countries… According to the respondents, 70% of companies that have placed sustainability on their management agendas have done so in the past six years; 20% have done so in just the past two years.”

These findings are welcome news and should warm the hearts of ethical investors.
Sustainability Nears a Tipping Point, by David Kiron, Nina Kruschwitz, Knut Haanaes and Ingrid von Streng Velken, December 2012, MIT Sloan Management Review, USA.

UK Markets Value Corporate Social Responsibility.– [COMMENTARY “In this paper, using corporate social responsibility (CSR) measures constructed from EIRIS data and mapped onto Environment,Employee and Community dimensions, as well as a Composite indicator, we show that all two out of the three dimensions of CSR, together with the Composite measure, are positively valued by markets… Overall, our results are consistent with CSR engagement enhancing shareholder value.”

This study is further confirmation that companies that score highly on CSR engagement (and incorporating it), perform better financially and in financial markets.
Do Markets Value Corporate Social Responsibility in the United Kingdom? By Graham Buckingham, Alan Gregory, and Julie M. Whittaker, December 2011, University of Exeter, UK.

Socio-Psychological Motives Of Socially Responsible Investors–A New Harvard Study. – [COMMENTARY]“In the aftermath of the 2008/09 World Financial Crisis, SRI is an idea whose time has come. Socially conscientious asset allocation styles add to expected yield and volatility… The pursuit of crisis-robust and sustainable financial markets through strengthened Financial Social Responsibility targets at creating lasting societal value for this generation and the following.” It is great to see researchers getting around to this type of study.
Socio-Psychological Motives of Socially Responsible Investors, by Julia M. Puaschunder, December 30, 2011, Harvard University, USA.

New Book

Screw Business as Usual, by Richard Branson, Portfolio Hardcover 2011.
“Doing the right thing can be profitable. I will show how this works step by step in the following pages. It’s the core message of this book. I often say, ’Have fun and the money will come.’ I still believe that,but now I am saying, ’Do good, have fun and the money will come.’”—
Richard Branson.

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