December 2013 Newsletter
News & Commentaries by Ron Robins
New science-based study looks at who’s really leading on climate.“A new study [by Climate Counts], released today, analyzed the greenhouse gas emissions of 100 companies against science-based targets that seek to limit climate change to 2 degrees Celsius above the levels prevailing in the pre-industrial period… 49 of the 100 companies studied rated sustainably in the study, with Autodesk, Unilever and Eli Lilly earning three top spots in the ranking… The companies were chosen from among those that submitted data voluntarily through sustainability reports and through organizations such as CDP and the Climate Registry.
[COMMENTARY] Climate Counts is a good organization, and this study is a great step forward in really understanding if companies are moving towards sustainability for themselves and for the planet. Ethical investors might want to review the study for insights into what companies they believe warrant investing in.
New science-based study looks at who’s really leading on climate, by Joel Makower, December 18, 2013, GreenBiz.com, USA.
Impact investment: ESG practices increase risk-adjusted returns in the long-term. “A new report by the World Economic Forum has outlined the possibilities and strengths of impact investment, suggesting that integrating environmental, social and corporate governance (ESG) in the investment process reduces risks on long-term returns.”
[COMMENTARY] As ethical investors know–and based on massive empirical evidence–applying ESG performance measures to investment decision making improves portfolio performance. It’s great that the World Economic Forum has come to this conclusion too!
Impact investment: ESG practices increase risk-adjusted returns in the long-term, by Ilaria Bertini, December 18, 2013, Blue & Green Tomorrow, UK.
The Carbon Time Bomb in Your Retirement Account–And Bloomberg’s Carbon Risk Valuation Tool for investors. “Now Wall Street is starting to take seriously the prospect that a carbon-constrained economy could put fossil fuel companies in the red. Bloomberg terminals… have quietly added a function called the Carbon Risk Valuation Tool, or CRVT in Bloomberg-speak. The CRVT for the first time allows investors to view the impact of say, declining oil prices due to carbon regulations, on companies′ stock prices, or how a carbon tax would affect the value of a portfolio.”
[COMMENTARY] This is a brilliant idea by Bloomberg. I’ve written before that many corporate carbon assets could become worthless if those assets–particularly due to potential future government regulations to reduce carbon use–do arise.
The Carbon Time Bomb in Your Retirement Account, by Todd Woody, December 9, 2013, The Atlantic, USA.
Study: Firms with a Social Conscience Are More Stable Investments.“The researchers found the level of risk was significantly lower for firms with higher CSR scores, especially during economic downturns, as loyal customers kept sales higher during hard times than firms that did not practice CSR initiatives. That revenue and stock price stability led to lower equity costs, reducing firm risk further and making the stock even more attractive to buyers… The study also finds that timing is important, as the first firm to start using CSR practices in an industry gets a larger market share, leaving less for its competitors that adopt CSR later on.”
[COMMENTARY] All those CEOs stalling about increasing their CSR activities should read this study. It supports our long-standing contention–and continuously supported by research– that companies implementing strong CSR/ESG programmes have better financial and stock performance. Furthermore, the lead is greatest for those who are among the first in their industry to implement CSR. However, I would contend that even if a company is a real laggard in adopting CSR, that simple internal cost-benefit analysis of various CSR activities can be greatly beneficial. Think energy efficiencies and environmental risks, for instance.
Study: Firms with a Social Conscience Are More Stable Investments, by Josh Cable, December 12, 2013, EHS Today, USA.
Why are CEOs struggling to prove sustainability value to investors?“A recurring challenge faced by businesses looking to become more fundamentally sustainable is how to demonstrate the value of their initiatives to shareholders and investors. This problem was highlighted by the triennial CEO study [PDF] conducted by Accenture and the UN Global Compact (UNGC), which examined the views of more than 1,000 CEOs. In 2007, just 18 percent of CEOs reported a failure to link sustainability to business value. In 2010, this figure rose to 30 percent. By 2013, 62 percent of CEOs said they couldn’t accurately quantify the business value of their sustainability initiatives.”
[COMMENTARY] The fact that CEOs are having difficulty linking sustainability to ’business value’ is troublesome indeed! It would seem that companies simply aren’t using and implementing the right metrics to assess the financial value of sustainable initiatives. This article starts to show them how to do it. Ethical investors need to encourage the companies they invest to implement sustainable metrics. It’ll not only help a company’s financial performance–but could spur its stock price as well.
Why are CEOs struggling to prove sustainability value to investors? By Justin Keeble, December 4, 2013, GreenBiz.com, USA.
Three-quarters of investors want sustainable investment, says Dutch survey. “A new study has found that three-quarters of Dutch investors are willing to give up a portion of their pension income if it means their investments are in line with their environmental and social values. However, [the authors], also found some inconsistencies in the way investors make financial decisions. Over a third of survey respondents reported inconsistencies and the authors linked this to low levels of financial understanding.”
[COMMENTARY] To me, the findings of this study by Arian Borgers and Rachel Pownall of Tilburg University, reinforce the requirement that financial advisors should be required to truly understand the personal values of their clients. Only by knowing a client’s values can they really satisfy the client’s goals. Of course, any really good advisor is already doing this–but the majority in the industry clearly don’t. Not in The Netherlands or anywhere else for that mater.
Three-quarters of investors want sustainable investment, says Dutch survey, by Charlotte Malone, December 6, 2013, Blue & Green Tomorrow, UK.
Large Companies Prepared to Pay Price on Carbon. “More than two dozen of the nation′s biggest corporations, including the five major oil companies, are planning their future growth on the expectation that the government will force them to pay a price for carbon pollution as a way to control global warming.”
[COMMENTARY] This is a good sign that even some oil companies are preparing for eventual carbon taxes. However, as per my previous comments, carbon based extraction companies are still counting their reserves at ’full value.’ It’s quite likely that much of their reserves will prove of little value as they’ll be restricted from being used.
Large Companies Prepared to Pay Price on Carbon, by Coral Davenport, December 5, 2013, The New York Times, USA.
Novethic 2013 Survey – ESG Strategies of European Asset Owners.“This unique survey assesses the views of 165 long-term investors (pension funds, insurance companies…) in 12 countries who between them hold assets worth over …5 trillion… Awareness of ESG approaches is rising… ESG integration in practice is running out of steam… Responsible investment policies remain abstract commitments… New asset classes, new obstacles.”
[COMMENTARY] The above quotes are their key findings. Nothing too unusual in the survey results.Novethic is an excellent French SR/ethical investment research firm. This survey is worth reading for all SR/ethical investors. Download ithere.
Novethic 2013 Survey – ESG Strategies of European Asset Owners, December 3, 2013, Responsible Investor, UK.
Islamic finance to sustain double-digit growth in next 2 years: S&P.“The growth of the Islamic finance market globally has continued unabated this year, undeterred by the uncertain recovery elsewhere in the world′s financial markets, according to rating agency Standard & Poor′s. In its report ‘Islamic finance 2014: We expect double digit growth and a push for regulation and standards′, the agency said that worldwide, Sharia-complaint assets estimated at more than $1.4 trillion were expected to sustain double digit growth in the next two to three years.”
[COMMENTARY] The western financial world is slowly coming to the realization that Islamic finance is becoming a major financial force around the globe. Together with SR/ethically oriented financial/investments products, mainstream finance will change, adopting a SR/ethical approach. The growing influence of Islamic finance is good news for ethical investors.
Islamic finance to sustain double-digit growth in next 2 years: S&P, December 3, 2013, Oman Tribune, Sultanate of Oman.
New Research Study
Social Norms in Pension Funds, by Arian C.T. Borgers and Rachel A. J. Pownall, Tilburg University, November 2013, Netherlands.