February 2014 Newsletter

February 2014 Newsletter

News & Commentaries by Ron Robins


Pricking The ’Bubble’ Of Banking By Calling The Sector To Account.“Last month the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) signed a memorandum of understanding to more closely collaborate to ’advance the evolution of corporate disclosure and communicate value to investors.’ It was a very important statement of intent, cutting across the factionalism that sometimes dogs a sector intent on sustainability and corporate social responsibility (CSR). It also lifted CSR, sustainability and Environmental, Social and Governance (ESG) risk out of their individual niches and brought them together into a very ‘real′ world of accounting for better, more strategic corporate disclosure.”

[COMMENTARY] Will banks adopt these recommendations? I believe they will–in time. It’ll only take a few top banks to do it and all the others will follow. And it’ll be ethical investors that’ll lead the fight forward. Banks and financial institutions will want to incorporate these reporting standards so as to benefit their reputations which will assist in enhancing all aspects of their business activities. The ones who do it first might also reap benefits in their stock prices. Studies show the pioneers in CSR activities have better financial and stockholder returns than those that come later.
Pricking The ’Bubble’ Of Banking By Calling The Sector To Account, by Dina Medland, February 24, 2014, Forbes, USA.

Example for all university finance students–University of Pittsburgh students score with SRI portfolio. “After managing a theoretical portfolio of socially responsible stocks for a few years, the students invested $100,000 in real money Feb. 4, 2013, from a grant they received from business school dean John T. Delaney. Over the next year, their 30-stock portfolio earned 23.6 percent, outperforming the S&P 500, which returned 19.8 percent over the same period.”

[COMMENTARY] Many finance students at colleges and universities get to ’play’ with hypothetical investment portfolios–but few are able to use an SRI orientation. The results of the University of Pittsburgh students are great and I wish them continued success as they set a wonderful example to others.
Heard Off the Street: Pitt student investing club teaches the value of ethical conduct, by Len Boselovic/Pittsburgh Post-Gazette, February 22, 2014, Pittsburgh Post-Gazette, USA.

Environmental profit and loss: The new corporate balancing act.“Current corporate accounting has a significant omission that creates a blind spot for corporate risks in terms of understanding impacts (and dependencies) on natural systems. The consequence of this omission starkly was highlighted by the recent TEEB for Business Coalition’s commissioned Trucost report, which identified $7.3 trillion in environmental externalities for certain businesses globally.”

[COMMENTARY] It’s about time that companies began financially accounting for possible externalities related to ESG factors. One excuse has always been that such externalities are difficult to financially measure. Well, that’s fine–just simply provide a range and show how financial accounts could be impacted. That’s a lot better than shareholders getting hit-over-the-head with surprising costs! (Actually, there could even be instances of surprising upsides to revenues too.)

The main point is to be ethical and honest in financial accounting. Everyone familiar with financial accounting knows how subjective it all is and that companies keep different sets of books for tax purposes, for operations management, etc. I’m just suggesting one more set. I know it’s the set that I’d take most seriously too.
Environmental profit and loss: The new corporate balancing act, by David Meyers and Sissel Waage, February 18, 2014, GreenBiz, USA.

GlobeScan and SustainAbility publish survey, Rate the Raters. “As with the 2012 survey, NGOs are again most trusted by experts to judge corporate sustainability performance, but ratings are catching up. Governments and journalists remain least trusted. The five most credible ratings remained the same as in 2012, although the order shuffled. The top five in 2013 are CDP, the Dow Jones Sustainability Index, Access to Medicines Index, the FTSE4Good Index Series and oekom Corporate Ratings.”

[COMMENTARY] Those who perform sustainability ratings are a mixed group. It’s great that GlobeScan and the firm Sustainability surveyed the experts who really know and study the output of the sustainable/ESG rating groups. You can download the study at the following link.
The 2013 Ratings Survey: Polling the Experts, GlobeScan, Canada.

Fracking is depleting water supplies in America’s driest areas, report shows. “America’s oil and gas rush is depleting water supplies in the driest and most drought-prone areas of the country, from Texas to California, new research has found. Of the nearly 40,000 oil and gas wells drilled since 2011, three-quarters were located in areas where water is scarce, and 55% were in areas experiencing drought, the report by the Ceres investor network found.”

[COMMENTARY] It’ll be interesting to see if the US droughts begin impinging on the fracking boom. Then there are the mounting environmental problems too. Add to that future concerns about restricting carbon-based fuels’ use and the subsequent possibility of large write-downs of such assets. You see where I stand. I think that’s where most ethical investors stand as well.
Fracking is depleting water supplies in America’s driest areas, report shows, by Suzanne Goldenberg, February 5, 2014, The Guardian, UK.

Royal London: sustainable investors should consider health and safety. “Royal London Asset Management (RLAM) has pointed out the benefits of taking health and safety issues into consideration when selecting investments. The firm′s Review of Sustainable Investing looks at the steps the firm has taken to ensure sustainability over the last year and trends in the area.”

[COMMENTARY] Royal London’s report cites how BP’s stock lost 54% and suspended dividends after its Gulf oil spill. Also, their report cites the lack of standardization in reporting health and safety issues. Unfortunately, this is a problem everywhere. So, though one would like to take health and safety issues into account when investing–the lack of reliable and standardized data makes this challenging. Where data is reported though, it’s still worth reviewing to see if it might affect your holdings.
Royal London: sustainable investors should consider health and safety, by Charlotte Malone, Blue & Green Tomorrow, February 5, 2014, UK.

Exciting new index: The Natural Capital Leaders Index. “The Natural Capital Leaders index is designed to recognize companies demonstrating natural capital leadership … and in addition, break new ground by identifying those companies that are truly ‘moving the needle′ by decoupling growth from natural capital impact. The Natural Capital Leaders Index features two categories of leaders: Natural Capital Efficiency Leaders used natural capital most efficiently to generate revenue over the past year; Natural Capital Decoupling Leaders increased revenue while decreasing natural capital impacts over the most recent five year period.”

[COMMENTARY] It’ll be fascinating to see how these indices perform. I would be interesting to know if they ’back-tested’ these indices and to know those results. Looking through the constituents of these indices one sees many recognizable names.
The Natural Capital Leaders Index, Trucost, UK.

Stock exchange aims to reinvent investing for birds, bees and trees.“Intrinsic Value Exchange’s (IVE) mission is ’transform intrinsic value into financial capital for natural and societal assets — things like clean air, water, wildlife and human potential,’ according to its website. ’This transformation provides direct incentives to protect and invest in these assets and opens a powerful pathway to sustainable economic growth that is in step with ecological and societal values.”

Continuing, “Launched in May with a crowdfunding campaign on Indiegogo, IVE would create an online trading exchange where investors could buy and sell these assets in the same way as a traditional stock or commodity futures market. Originally slated for a beta release late last year, the San Francisco-based organization now hopes to begin testing its first products by June, said IVE co-founder Douglas Eger.”

[COMMENTARY] Wow! What an extraordinary and worthwhile concept. Can it really be done? I guess we’ll know in the next few years. Meanwhile, I wish them every success. I’m sure that many ethical investors will want to participate in this.
Stock exchange aims to reinvent investing for birds, bees and trees, by Heather Clancy, January 31, 2014, GreenBiz.com, USA.

Concept of CSR in new Indian law differs from that in the developed world.Under the new Companies Act, CSR will become mandatory for companies… from April 1, 2014… [16,245 registered companies above a certain size] will have to spend at least two percent of their three-year average profit every year on CSR activity… anything done [for] the employees is not CSR, it is a human resource activity. Compliance with any rule or regulation is not CSR… The old way of writing a cheque for religious cause or an activity that benefits their own workers will not be considered CSR.”

[COMMENTARY] It’s obviously a product of different environments and income levels, but India’s new CSR legislation appears to have a particularly large focus on philanthropic endeavours. There are numerous definitions of CSR, but one I like is by Lord Holme and Richard Watts of the World Business Council for Sustainable Development. They write that, “Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”
CSR will be mandatory for corporates from April 1, by Ians Chandigarh, January 29, 2014, Deccan Herald, India.

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