January 2014 Newsletter

January 2014 Newsletter

News & Commentaries by Ron Robins


Most execs believe in sustainability, but half don’t act. “Companies largely have accepted the importance of addressing sustainability issues, yet a large gap persists in translating that awareness into action. So says a new global study by MIT Sloan Management Review and the Boston Consulting Group (BCG)… two-thirds of executives rated environmental or social issues as significant or very significant, yet only 40 percent reported their companies were ’largely’ addressing them. Just 10 percent reported their companies were ’fully’ addressing these issues.”

[COMMENTARY] Interestingly, the study says that industrial goods makers and utilities do much better on sustainability issues than ’light’ industries such as media. But the study also finds something else, something I’ve been concerned about for years: if it involves planning and or spending for things more than 3-5 years out–forget it! Again, it reflects the dominant short-term mentality in corporate management today. Too many managers today are like day-traders!
Most execs believe in sustainability, but half don’t act, by Nina Kruschwitz, January 28, 2014, GreenBiz.com, USA.

Reward Canadian mining companies for social responsibility, expert says. “A former mining executive says that if financial analysts better understood corporate social responsibility, worthy companies would see their stocks soar.”

[COMMENTARY] Mining companies aren’t on the radar for many ethical investors. Yet, they’re delighted with their new Chevy Volt which requires enormous new mineral resources and extraordinary amounts of energy to produce. Until we’re able to recycle everything–or give up our vehicles, bicycles, etc.–there’s no choice but to accept the need for mining.

Fortunately, when mining is done in an environmentally and socially responsible way–as many miners do today–it’s a win for everybody. Unfortunately, it’s the relative few ’bad apples’ that gives mining its bad rap. This mining executive is right. Investors and financial analysts need to understand and appreciate those companies employing great CSR/ESG policies.
Reward Canadian mining companies for social responsibility, expert says, by Marco Chown Oved, January 22, 2014, Toronto Star, Canada.

CSR ‘More Deeply Embedded in Firms.′ “Some 60 percent of companies have a corporate social responsibility executive, a 74 increase over what firms reported in 2010, a study says. Almost a third of these CSR execs are within one level of the chief executive and almost 100 percent of companies have a CSR budget, compared to 81 percent in 2010, according to the Carroll School of Management Center for Corporate Citizenship report.”

[COMMENTARY] Clearly, companies increasingly see the importance of CSR to their bottom line or it wouldn’t be as prevalent as it is today!
CSR ‘More Deeply Embedded in Firms,′ January 21, 2014, Environmental Leader, USA.

New website by business academics promotes ethical business research.“EthicalSystems.org is a non-profit collaboration of researchers, most of whom are based in American business schools. We all share the conviction—backed up by research—that in the long run, good ethics is good business. We believe that integrity in business can be enhanced by wise leaders who take a systems approach to their organizations and the environments in which they operate. All collaborators participate as a public service, dedicated to a common mission.”

[COMMENTARY] This site–which became public January 14–is terrific news for inspiring greater ethical conduct in business. Also, it aids the goals of ethical investing. The site details considerable research in this area. It’s well worth reviewing.
EthicalSystems.org, USA.

Google tops Fortune’s list of best companies to work for. “Fortune released its 17th annual list of the 100 best companies to work for. This year′s list includes some of the usual suspects — ahem, Google — alongside a few first-timers like The Cheesecake Factory and Hyatt Hotels. And while some of the companies are techy newcomers, with trendy perks like fitness incentives and stock options, others are more traditional companies that offer top-notch health care benefits and competitive starting salaries.”

[COMMENTARY] What is common to all these companies are that they are tops in CSR, generally highly profitable and with great stock market performance. CSR equates with higher employee loyalty, often reduces staff costs due to lower staff turnover which usually brings higher productivity–and profits! Thus, ethical investors like these companies too.
Google tops Fortune’s list of best companies to work for, by Danika Fears, January 16, 2014, Today Money, USA.

Climate change a long-term threat to investment, UN tells investors.“More than 500 investors have been told by the UN′s climate chief [Christiana Figueres] to invest in low-carbon technologies in order to avoid losing money over the long-term because of economic risks posed by climate change… ’Institutional investors who ignore the risk face being increasingly seen as blatantly in breach of their fiduciary duty to their beneficial owners … men and women who have worked hard all their lives to put away something for their retirement and for their children.’”

[COMMENTARY] Those invested in fossil fuel companies might have to seriously consider how much they want to be in them for the long term–for several reasons.

Firstly, the global fracking revolution is bringing to market huge new quantities of oil and gas that might lower fossil fuel prices. Secondly, as global warming is appreciated as a threat to humanity’s survival, government’s everywhere will induce carbon taxes and possible fossil fuel quotas. Thirdly, the increasing competitiveness of renewable energy production. Fourthly, pension funds and other asset owners, as Christiana Figueres says, due to their fiduciary duty might have to sell stocks in fossil fuel companies.

As a result of the above many fossil fuel company reserves might become stranded assets: i.e. they will have to be marked down and appear as significant losses to their companies.

Thus, absent wars and oil supply restrictions, those invested in fossil fuel companies are forewarned of some potentially huge headwinds ahead for profits.

Climate change a long-term threat to investment, UN tells investors, by Ilaria Bertini, January 16, 2014, Blue & Green Tomorrow, UK.

Also see:10 ways to generate $36 trillion of green investments by 2050, by Ceres, andThis chart makes it painfully obvious that climate deniers are ridiculous, finding that, “Only one — ONE — of the 9,137 authors of peer-reviewed climate change articles rejected anthropogenic [human induced] global warming.”

Global investment in clean energy falls for second year running.“Global investment in clean energy fell for the second year in a row to $254bn last year, with green investment in Europe crashing by 41%, new figures showed on Wednesday. The drop casts a pall over a high-profile investor summit at the United Nations on Wednesday. The summit, organised by the Ceres investor network, was supposed to build momentum for the shift to a clean energy economy … a transformation requiring global investment of some $1 trillion a year by 2030.”

[COMMENTARY] The decline in Europe was partly due to much lower solar panel costs and governments in Germany, France and Italy, reducing their financial supports for renewable energy. However, globally, there was a 20% increase in solar installations last year! One big problem in the US is that infrastructure to distribute renewable energy–as compared to natural gas–is hampered by excessive government regulation. (See:Here′s another reason why renewables are at an unfair disadvantage, by Jaafar Rizvi, January 13, 2014, grist, USA.)
Global investment in clean energy falls for second year running, by Suzanne Goldenberg, January 15, 2014, The Guardian, UK.

Investors Swayed by Corporate Social Responsibility Reputation. “When companies have a strong CSR record, investors who focus almost exclusively on financials estimate a company’s fundamental value to be about 25 percent higher than those who divide their thinking more equally between financials and CSR. When a firm has a poor CSR record, the former group’s estimate is about 9 percent lower.”

[COMMENTARY] This is another study–and from a fascinating perspective–demonstrating that CSR benefits corporate stock performance. And another positive factor for ethical investing. Study authors are: Mark E. Peecher of the University of Illinois at Urbana-Champaign, who conducted the research; colleagues W. Brooke Elliott and Kevin E. Jackson of the University of Illinois; and Brian J. White of the University of Texas at Austin.
Investors Swayed by Corporate Social Responsibility Reputation, by Michael Cohn, January 10, 2014, Accounting Today, USA.

New Research Study

The Unintended Effect of Corporate Social Responsibility Performance on Investors’ Estimates of Fundamental Value, by Mark E. Peecher of the University of Illinois at Urbana-Champaign, W. Brooke Elliott and Kevin E. Jackson of the University of Illinois, and Brian J. White of the University of Texas at Austin, The Accounting Review, January 2014, USA.

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