June 2012 Newsletter

June 2012 Newsletter

News & Commentaries by Ron Robins


Toyota, Johnson & Johnson and Honda Are The Top Global Green Brands, Says Interbrand.– [COMMENTARY] “After evaluating the world′s top brands on the basis of their performance as well as the public′s perception of their green credentials, Interbrand and Deloitte have carefully ranked—and wholeheartedly applaud—the 50 Best Global Green Brands that are featured in this report. These strong, highly innovative brands are paving the way to a new era of stability, prosperity and confidence—and they embody our greatest hopes for the future.” This list and analysis could prove useful for ethical investors.
Welcome to Interbrand’s Best Global Green Brands, June 2012, Interbrand, USA.

Fitch Says Standard Equity Analysis Mustn’t Be Forgotten In Socially Responsible Investing.– [COMMENTARY] “SRI is no protection to poor or average investment processes and Fitch highlights that SRI in itself has not improved the average risk/return profile of a European equity fund in the recent past. Even on a longer term basis, including 2008, downside protection is not statistically proven. By contrast, European SRI bond funds have delivered better returns with lower risk in the past three years.”

Fitch is of course correct. Just because you like the moral values of a company doesn’t necessarily make the company a good investment. Unfortunately, particularly for many novice ethical investors, they often disregard fundamental financial analysis. Perhaps it’s also because they don’t understand financial analysis. It’s often easier to understand a company’s moral compass than it is their financial ratios!
Fitch: SRI criteria no substitute to solid fund management processes, June 25, 2012, Reuters, UK.

UK To Give Shareholders Power Over Executive Pay. – [COMMENTARY] “Britain will legislate to give shareholders the power to reject company director pay deals in a bid to improve the link to performance and calm public anger over soaring executive earnings, Business Secretary Vince Cable said on Wednesday. The move puts Britain in the vanguard of a clampdown on corporate pay that has seen investors voicing their disapproval at FTSE 100 boardroom pay levels which have quadrupled over the past decade, far exceeding the performance of share values.”

This is precedent setting and timely! It is likely this could catch on throughout the EU and some parts of Asia too. Inward, ’old boy’ networking boards have for far too long aided each other in bumping-up executive compensation even while their employees see marginal or no gains.
UK to give shareholders power over executive pay, by Tim Castle, June 20, 2012, Reuters, UK.

An ’SRI’ Fund That Invests In Companies Which Support ’Free Market Institutions & Principles.’– [COMMENTARY] “It turns out that when management believes in creative destruction, it translates into business success over the long term. One of the best ways to determine which companies really believe in the free markets is to look at which ones donate to free market organizations… From that research, I decided to launch The Hayek Fund.”

This is a very novel approach to SRI. However, it’ll be most interesting to watch. Since its inception in September 2010, the fund claims to have outperformed the S&P 500 by gaining 37.7% vs. 27.7% for the S&P. The economist Friedrich Hayek was a co-winner of 1974 Nobel Prize in Economics. His thinking re-energized the concept of Austrian economics, which many would say is the antithesis of Keynesianism as practiced today by most western economic and political leaders.
Socially Responsible Investing with The Hayek Fund: An Index Fund for Conservatives, press release, June 20, 2012, George Jarkesy Show, USA.

Corporate Reporting On Water Use Improves But Data Still Lacking, Says Ceres.– [COMMENTARY] “Overall corporate disclosures of water-related risks have increased since 2009, but most reporting remains weak and inconsistent according to Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings, a new report issued today by Ceres. Since 2010, the Securities and Exchange Commission has required companies to disclose financially material risks from climate change to their investors. These risks include ’significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.’”

Congratulations to those companies who are taking water usage seriously. However, with increasing scarcity of fresh water and rapidly rising demand–and prices–for it, many companies appear to be choosing to avoid the future problems associated with water usage. Long-term investors should keep a weary eye on investing in companies with huge water demands–even if those companies make the ethical-socially responsible grades!
Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking, press release, June 18, 2012, Ceres, USA.

Deutsche Bank′s Climate Change Advisors Finds Academic Studies Demonstrate Stock Market Outperformance Of Companies Favouring Sustainability.– [COMMENTARY] “The findings, from a report called Sustainable Investing: Establishing Long-Term Value and Performance, were drawn up after researchers examined over 100 academic studies into sustainable investment. Every paper studied was in agreement that high ratings for corporate social responsibility (CSR) and environmental, social and corporate governance (ESG) would see a company′s capital costs be significantly lower. Meanwhile, 89% of the studies had evidence for ’market-based outperformance’ for these companies.”

This study demonstrates the power of ’meta-analysis’–of examining multiple studies related to a few variables. Too often, critics of CSR/ESG refer to only one study. Now, reviewing over 100 studies related to CSR/ESG, this study should convince even the most sceptical that all portfolios must incorporate this analysis for optimal results. Ethical investors are again vindicated!
Investing sustainably is a ‘clear win′ says study, by Alex Blackburne, June 18, 2012, Blue & Green, UK.

Stock Exchanges Commit To Promoting Sustainability Reporting. – [COMMENTARY] “A core group of five stock exchanges – NASDAQ OMX, BM&FBOVESPA, the Johannesburg Stock Exchange (JSE), the Istanbul Stock Exchange (ISE) and The Egyptian Exchange (EGX) – today announced a commitment to promote long-term, sustainable investment in their markets.”

This is a good start. Hopefully we’ll see many other exchanges taking this position soon. Among the big exchanges, nobody wants to jump out in front on this issue for fearing their listings will move to other exchanges with less demanding listing requirements.
Sustainable Stock Exchanges Initiative: Exchanges listing over 4,600 companies commit to promoting sustainability, press release, June 18, 2012, UN, Brazil.

2012 FT/IFC Sustainable Finance Awards Announced. – [COMMENTARY] “The Financial Times and IFC, a member of the World Bank Group, today announced the winners of the 2012 FT/IFC Sustainable Finance Awards, with Bridges Ventures of the UK winning the Award for Excellence in Sustainable Finance, Standard Chartered named as Global Sustainable Bank of the Year, and Kilimo Salama of Kenya taking the prize for Technology in Sustainable Finance.” Congratulations to the winners. These and similar awards help to publicize and promote sustainable investing. Thanks to the UK’s Financial Times and IFC for sponsoring them.
FT/IFC 2012 Sustainable Finance Awards, press release, June 12, 2012, UK.

CA Cheuvreux Named Leading Pan-European Brokerage Firm for Sustainability Research In Thomson Reuters Extel Survey.– [COMMENTARY] “The 2012 Thomson Reuters Extel Survey… Voting was conducted primarily online and ran from 19 March to 4 May 2012. It reflects the contribution of over 2,100 buy-side firms, 2,500 analysts from 270 brokerage firms/research houses and nearly 800 of Europe’s largest quoted companies worldwide – over 14,000 individual voters in total, casting over 950,000 votes. All data, votes received and methodology applied were independently checked and verified by Deloitte.” Why nothing similar in North America? Runners-up were Bank of America Securities – Merrill Lynch and UBS.
Thomson Reuters Announces 2012 Extel Survey Results, June 12, 2012, Reuters, UK.

Canada’s Top 50 Corporate Citizens, Corporate Knights.– [COMMENTARY] “Corporate Knights′ 11th annual Best 50 Corporate Citizens in Canada is a reflection… be it evidence of increasing diversity in the boardrooms of the nation or more efficient use of energy, water and the natural resources that are the pillars of our economy. The meaning of corporate citizenship has evolved from philanthropy as a side project to how corporations can change the world for the better through their individual core competencies.”

The top three are: Desjardins Group Diversified Financials, Vancouver City Savings C.U., and Co-operators Group. Interesting how all three are involved in the financial industry–as are many of the top performers.
The state of Canadian corporate citizenship, June 8, 2012, Corporate Knights, Canada.

72% Of US Financial Advisors Express Some Interest In Recommending Sustainable Investments To Their Clients. – [COMMENTARY] “Thirty-eight percent of financial advisors express strong interest in recommending sustainable investments to their clients; 72% express some interest. The advisors who express strongest interest in advising their clients on sustainable investment strategies tend to be female, have advanced certifications, are affiliated with national registered investment advisor (RIA) firms, have average client assets under management (AUM) between $1 million to $10 million, and have less than 10 years of tenure as advisors.”

The study also found that, “advisors are willing to place 2.5% of their total assets under management in sustainable investments for a market potential of $650 billion.” In reality, considering that around 2 to 3% of US retail mutual fund/ETF assets are already in ethical-socially responsible investments, it seems that financial advisors are still reluctant to really promote them.
New Research Shows $650 Billion Potential for Sustainable and Impact Investing, press release, June 7, 2012, PRWeb, USA.

’Saints’ & ’Sinners’ Investing. Sinners Win? – [COMMENTARY] “Money Observer′s latest analysis of the performance of the Saints and Sinners of the FTSE 100 index reveals that, once again, it′s the bad guys that have romped home. Over the past year, the Saints … or the FTSE 100 members that are also included in the FTSE4Good index of corporate social responsibility … turned …100 into …93.35 in terms of share price returns (excluding dividends). However Money Observer′s Sindex … which is made up of FTSE 100 members that don′t qualify for the FTSE4Good (30 companies in total) … still lost money but the …100 became …98.12, 5 per cent better than the Saints.”

This article describes what’s in each index. One significant reason the Saints index falls down is because of its heavy weighting in banks… “The Saints, on the other hand, have been severely handicapped by the banks and insurance companies. Royal Bank of Scotland and Lloyds Banking Group have lagged the Footsie by 96 per cent, Barclays by more than 60 per cent and HSBC by around 30 per cent.”

In reading this article I believe the Saints index should be reconstructed according to ESG criteria. The results might well turn around their findings and the Saints index might win handsomely.
The profits of sin, by Heather Connon, May 30, 2012, MoneyObserver, UK.

New Book

The Business Case for Sustainable Finance, by Iveta Cherneva, Routledge 2012.
“Highly recommended. The book provides a truly global picture, drawing on the expertise of the foremost voices in the sustainable finance space.”—
Dr. James Gifford, Executive Director, United Nations Principles for Responsible Investment.

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