July 2012 Newsletter

July 2012 Newsletter

News & Commentaries by Ron Robins


Sustainable Investment Portfolios Significantly Outperform Averages, Says Study.– [COMMENTARY] “Oekom Research looked at companies in its Prime Portfolio Large Caps (PPLC) … a group of 300 major firms with sustainability accreditations … over a seven-year period between 2004 and 2011, and compared their performance against the MSCI World Total Return Index. The results are encouraging. After being weighted by market capitalisation, the PPLC displayed a 30.9% cumulative return on investment. Over the same timescale, the MSCI World achieved 26.8%. This 4.1 percentage point difference equates to a 15.3% higher return for the PPLC.”

Here’s another confirmation that investing in companies where ESG matters, pays-off. It’s still surprising to me why there is still so much resistance to ethical investing within the mainstream financial industry. Perhaps too many in the industry are more interested in making money by manipulating markets and cheating than caring about offering sound investment advice based on hard data!
Analysis shows the ‘superior performance′ of sustainable investment, by Alex Blackburne, July 13, 2012, Blue & Green Tomorrow, UK.

Ethical Misconduct Pervades The New York Fed, Most Financial Industry Regulators & Financial Institutions.– [COMMENTARY] In a series of articles in The New York Times it’s revealed how the elites in the financial industry–in London and New York most particularly–are overwhelmed by greed that totally subsumes any trace of ethical behaviour. I suggest that this is not only a problem for the financial industry, but for society in general.

But on a hopeful note, it is interesting that these problems are coming to light now. Perhaps on some level there’s some type of ’phase transition’ in ’collective consciousness’ that is bringing this about? I believe it really could be the case.
New York Fed Knew of False Barclays Reports on Rates,New Fraud Inquiry as JPMorgan′s Loss Mounts, andOnce-Stodgy World of London Banking Losing Its Old-School Ways, July 13, 2012, USA.

How Reliable Is Corporate Carbon Data? – [COMMENTARY] “Max Horster joined South Pole Carbon Asset Management two years ago to design climate-neutral investment portfolios. But there was a problem: Only 3,000 of the world′s 40,000 listed companies published emission figures, and most of those weren′t trustworthy. It′s not that companies are purposely hiding the correct numbers, he said. They just don′t put much effort into it.”

I’ve been saying for years that all sustainability and CSR reporting for public companies should be independently audited and verified, similarly to financial statements. How else can you trust them? How else can you know who’s doing best in their industry? Ethical investors ought to be vociferous in demanding such rules.
Tracking companies’ carbon emissions using public data, byKelli Barrett, July 26, 2012, GreenBiz, USA.

Banks Lacking Sustainable Values Face Destabilizing Risk: Report.– [COMMENTARY] “If the 2008 financial crisis laid bare nearsightedness in global financial markets, then the way to prevent future shocks is to give participants ’wider and better quality lenses,’ according to a new report published by the International Institute for Sustainable Development (IISD).”

When people lack a sense of inner fulfillment they tend to crave immediate gratification. Those who most fall into this mindset are in the investment/banking business. It’s a direct reflection of societal values. Society has to look and change from within first before anything meaningful will happen to investment/banking industry behaviour!
Banks Lacking Sustainable Values Face Destabilizing Risk: Report, by Peter Green, July 27, 2012, Bloomberg, USA.

S&P ESG India Index Outperforms Its Benchmark Index Since 2008. – [COMMENTARY] “The S&P ESG India has returned about 19 per cent, compared with Nifty′s 14.40 per cent this calendar year so far. Since January 2008, the index gained by 17.10 per cent, compared with the Nifty′s negative 15.79 per cent.” This type of performance is what will make most companies engage in ESG matters. And it’s happening even in the developing world!
Good corporate citizens perform well on markets, by Ravi Ranjan Prasad, July 24, 2012, mydigitalfc.com, India.

Yet Another Study Shows US Companies Lagging Europe, Japan, On ESG Disclosure.– [COMMENTARY] ” According to a new study by The Conference Board, the overall disclosure rate of this type of information by U.S. companies in the Russell 1000 is 10 percent, compared to 19 percent for a global sample of 3000 business organizations tracked by Bloomberg’s Environmental, Social, and Governance (ESG) database.”

It’s almost boring the number of such reports that have appeared in recent months. What will encourage US companies to engage more in ESG issues? I suspect it’ll really happen when companies realize it’s more profitable to incorporate ESG factors into their business practices and investors cite increasing preference for companies with outstanding ESG performance. We’re almost there!
U.S. Companies Continue to Underperform European and Japanese Businesses in Environmental and Social Disclosure, press release, The Conference Board, July 25, 2012, USA.

ESG Factors Misunderstood, Rarely Used, In US University & College Endowments, Says IRRC Study.– [COMMENTARY] “The endowment community, on the whole, exhibits a very weak understanding of ESG investing strategies, trends, opportunities, and language.” This is quite a damning report on a community of investors one would think might be in the vanguard of applying ESG principles. I have no doubt that this will be a wake-up call to many university and college communities to re-think their endowment investment practices–especially now it’s been shown that an ESG focus in portfolios usually means better returns.
Environmental, Social and Governance Investing by College and University Endowments in the United States, July 18, 2012, The IRRC Institute, USA.

Yet More Unethical Behaviour In the Financial Industry–Hedge Funds Polling Analysts.– [COMMENTARY] “They are supposed to be among Wall Street′s most closely guarded secrets: changes in research analysts′ views, up or down, of a company′s prospects. But some of the nation′s biggest brokerage firms appear to be giving a handful of top hedge funds an early peek at these sentiments — allowing them to trade on the information before other investors get the word.”

Given the revolving door between regulators and those they regulate and that the regulatory agencies are underfunded and understaffed, is it any wonder that the financial industry in its many guises gets-away with mass illegality? Politicians have been helpless to do anything about this since they rely so much on financial industry funds for their election campaigns. What a mess.

At least this stuff is coming out into the open now, and hopefully, a growing disdain for these practices might create an environment for real change. We’ll see. It might sound harsh, but I believe that a country gets the government it deserves! Good luck America.
Surveys Give Big Investors an Early View From Analysts, by Gretchen Morgenson, July 15, 2012, The New York Times, USA.

Environmental and Social Investment Implications In The Food Sector, Survey.– [COMMENTARY] “World food prices have reached record levels and show few signs of abating. Low-income consumers in the developing world have been hit especially hard, with ripple effects spreading around the globe. The long-term food outlook is no better. Water stress, resource scarcity, waste management and climate change are having a further destabilizing effect on agriculture, food sourcing and production.”

The food sector might well be an outstanding long-term investment option for many ethical investors–as well as helping to feed the world. Be careful though. Know what you’re doing!
Environmental and Social Investment Implications in the Food Sector, by Martina Macpherson, July 2012, MSCI ESG Research, Credit Suisse and WWF, USA.

New Book

Trust and Ethics in Finance: Innovative ideas from the Robin Cosgrove Prize, eds. Carol Cosgrove-Sacks and Paul H. Dembinski, Globethics Publications (2012) Free download.
“It is important to note that the prize was launched before the topic of ethics in finance became fashionable… The aim is to prompt a shift in thinking throughout the world of finance the fresh ideas submitted for the prize have global relevance. The twenty-three essays in this volume come from young researchers on six continents; their innovative ideas will contribute to future-oriented ethical solutions.”

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