November 2013 Newsletter

November 2013 Newsletter

News & Commentaries by Ron Robins


Study: Educated Dutch women favouring SR/ethical investing more relaxed about returns. “Investors with a large proportion of educated female members have extra reason to take socially responsible investing seriously, but can possibly relax about poor returns. That is a fascinating finding of Rachel Pownall, an associate professor of Tilburg University, who has published groundbreaking work on the nuances of responsible investing.”

[COMMENTARY] Would this be the same for American, Canadian, or British women? This would be an interesting question to ask them. If the answer was similar, it might change the way the SR/ethical funds industry in those countries market to women. However, as many studies demonstrate there really is no need to expect lower returns from SR/ethical funds or portfolios.
A new understanding of responsible investing preferences, by Dan Billingham, November 27, 2013, Top 1000 Funds, Australia.

New index says GlaxoSmithKline and Unilever among most sustainable investments. “Swiss sustainability rating agency Inrate has released a new index that ranks Stoxx Europe 50 companies on their environmental and social performances.”

[COMMENTARY] As usual with these ratings, one must understand the methodology underlying them–then decide whether they make sense according to your values.
New index says GlaxoSmithKline and Unilever among most sustainable investments, by Ilaria Bertini, November 24, 2013, Blue & Green Tomorrow, UK.

License to Ill: The Effects of Corporate Social Responsibility and CEO Moral Identity on Corporate Irresponsibility. “They [the study authors] found firms that engaged in prior socially responsible behavior are more likely to then engage in socially irresponsible behavior and that this tendency is stronger in firms with CEOs who attempt to put forth a moral image.”

[COMMENTARY] What an extraordinary finding! The study by researchers Elaine Wong at the University of California and Margaret Ormiston of the London School of Economics, examined the CEO comments and subsequent actions of Fortune 500 companies from 2002. What ethical investors should know is that company actions are more important than the comments of their executives.
License to Ill, by Sean Nealon, November 20, 2013, UCR Today, USA.

Callan: One-fifth of institutional investors incorporate ESG into investing. “Only about one-fifth (22%) of U.S. institutional investors incorporate environmental, social and governance strategies into their investment decision-making, with only an additional 7% considering it, according to a new survey conducted by Callan Associates… By asset owner type, 35% of foundations incorporate ESG strategies; 22% of endowments; 15% of public pension funds; and 14% of corporate pension funds.”

[COMMENTARY] Notice that only 14% of US corporate pension fund managers incorporate ESG strategies! Many pension fund managers (as well as other asset managers) wrongly believe that they can’t legally incorporate ESG strategies into their pension management activities as it is not a fiduciary responsibility. In fact, there’s evidence they have it backwards. Not accounting for ESG performance in companies they invest in could expose them to legal action by clients if losses occur due to the manager ignoring ESG factors. In time, the vast majority of asset managers will have to incorporate ESG analysis in their stock selections.
Callan: One-fifth of institutional investors incorporate ESG into investing, by James Comtois, November 21, 2013, Pensions & Investments, USA.

Big US Banks Lag in Social-Responsibility Scores: Report. “Bank of America (BAC), Bank of New York Mellon (BK), Citigroup (NYSE: C), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) all scored 60 or below out of a possible 100 points in a study by the Interfaith Center on Corporate Responsibility. The study measured the seven banks′ performance in responsible lending, risk management, executive compensation and political contributions.”

[COMMENTARY] No surprises from this study. As US companies significantly lag their European counterparts in CSR activities, it’s unsurprising that America’s major financial institutions also score poorly in this dimension.
Big Banks Lag in Social-Responsibility Scores: Report, by Sarah Todd, November 20, 2013, American Banker, USA.

Ceres campaigns that fossil fuel companies bear enormous financial risks due to climate change. “As the world moves toward a low-carbon future, these [increasing] energy reserves [of fossil fuel companies] could actually become a financial liability for both the fossil fuel companies and their investors – meaning billions of dollars of carbon assets could be stranded in the ground.”

[COMMENTARY] This is a theme getting increasing play now–especially with some US companies boasting of their hugely growing oil reserves due to fracking, etc. But what some experts are saying is that because future governments will likely have to impose significant restraints on fossil fuel usage, that much of these new reserves will not be used. Thus, these reserves are probably bogus with hugely negative financial implications for the firms boasting them.
Ceres campaigns that fossil fuel companies bear enormous financial risks due to climate change, press release, November 13, 2013, Ceres, USA.

PwC Poll Shows Increasing Focus on Sustainability Factors in Dealmaking. “Environmental, social and governance (ESG) matters are becoming increasingly important in the deal market, according to a recent poll of over 300 professionals conducted by PwC US. The poll, conducted during PwC’s recent webcast, Integrating environmental, social and governance (ESG) issues in deals and valuing their impact, found that 68 percent of participants who are planning a divestiture, acquisition, merger or IPO in the next 12 months plan to evaluate ESG considerations when planning their transactions.”

[COMMENTARY] It’s the recognition that all stakeholders are increasingly aware that ESG issues play an important role in valuing companies and assets. For instance, who wants to buy an asset that might have significant environmental problems–and costs!
PwC Poll Shows Increasing Focus on Sustainability Factors in Dealmaking, press release, November 13, 2013, PwC’s Sustainable Business Solutions, USA.

Stock exchanges at forefront of developing sustainability initiatives. “Stock exchanges across the world, in both developed and emerging markets, are increasingly at the forefront in developing sustainability initiatives, according to a new report. EIRIS, a global provider of research into corporate environmental, social and governance (ESG) performance, interviewed 11 stock exchanges for the report.”

[COMMENTARY] It’s interesting that some stock exchanges believe that they first must deal with their own sustainable issues before tightening ESG regulations for the companies they list. It’s good that stock exchanges are creating new ESG rules for their listed companies, but they can only do so much. They don’t want to make ESG rules so strict that they frighten away companies to other exchanges. In the end, it’s up to investors to demand that companies improve their performance on ESG issues, and nothing will work better than stock prices exhibiting premiums for companies that excel on ESG.
Stock exchanges at forefront of developing sustainability initiatives, by Charlotte Malone, November 11, 2013, Blue & Green Tomorrow, UK.

Survey reveals sustainability is stalled at most companies. “The findings, from the ’2013 BSR/GlobeScan State of Sustainable Business Survey,’ tell us two things: Sustainability professionals recognize that integrating sustainability across the business is a critical priority; but the vast majority of companies are still some distance from full integration.”

[COMMENTARY] Chris Coulter, the author of this survey and article–and who I know–has given us great insight into this area. Sustainability for most company managers is ’nice to have, but not really important to me.’ Until the public demands governments act more on sustainability issues and for companies to see a premium stock price as a result of increasing their sustainability practices, most companies are unlikely to make sustainability a true core issue. It all comes down to public perception and the need for action concerning climate change.

In the US, for instance, the public is evenly split between those that believe in human-caused climate change and those that don’t.
Survey reveals sustainability is stalled at most companies, by Chris Coulter, November 5, 2013,, USA.

UBS: China can make ‘generational leap′ in responsible investment.“Socially responsible investment (SRI) has the potential to grow rapidly in China, according to a report from finance giant UBS. Despite the concept of social enterprise sill being nascent in the country, the younger generation is driving growth in the sector.”

[COMMENTARY] It wouldn’t surprise me in the years ahead to see China overtake all developed countries in the development of SRI/ethical investing. I say this for several reasons: their desire to rid themselves of pollution that’ll lead to an emphasis on sustainability; that China is already outspending all developed countries on sustainable infrastructure; and their desire for higher ethical business conduct after so many scandals.
UBS: China can make ‘generational leap′ in responsible investment, by Charlotte Malone, November 6, 2013, Blue & Green Tomorrow, UK.

Carbon tax revenues could dwarf fossil fuel losses. “Fossil fuel companies stand to miss out on $9 trillion to $12 trillion in profits by the end of the century if carbon emissions are taxed at a high enough level to meet international climate goals… That′s because demand for coal, oil, and natural gas would fall as prices are pushed higher, leading companies to leave vast volumes in the ground, according to a new study.”

[COMMENTARY] You may recall my posts a few days ago about how fossil fuel companies might have to take big hits to their earnings and the value of their reserves in the years ahead. This study provides some great background as to how that might play out.
Carbon tax revenues could dwarf fossil fuel losses, by John Upton, November 5, 2013, grist, USA.

SRI Research: CSR-Related Shareholder Wins Get Bottom-Line Results.“Adopting corporate social responsibility (CSR) shareholder resolutions leads to large increases in shareholder value and operating performance, according to the study winning the 2013 Moskowitz Prize for Socially Responsible Investing… Specifically, Flammer’s [the award winner] results show that the stock market reacts positively to the passage of close call CSR proposals (e.g., reducing CO2 emissions, implementing equal employment opportunities policies, etc.).”

[COMMENTARY] The Moskowitz Prize is the most respected award in the socially responsible-ethical investing arena. The 2013 winner highlights something very important and should encourage company shareholders and management to respond positively to shareholder proxies that involve environmental, social and governance (ESG) issues. This is a landmark study. Congratulations to Caroline Flammer!
SRI Research: CSR-Related Shareholder Wins Get Bottom-Line Results, press release, October 29, 2013, First Affirmative Financial Network, USA.

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