April 2014 Newsletter

April 2014 Newsletter

News & Commentaries by Ron Robins


These 50 Companies Are The Champions Of The World. “The list was compiled by having all of Citi’s analysts contribute candidates, before a “selection committee” whittled the list down to 50. Among the well-known names on the list: eBay, Apple, American Express, inBev, Gilead, Starbucks, and Schlumberger.”

[COMMENTARY]Though I haven’t analyzed who is on the list, I suspect the majority of these companies are in most ethical portfolios. Still, it might be interesting for some ethical investors to review the list. It’s likely that the companies listed are also the ESG leaders in their respective industries.
These 50 Companies Are The Champions Of The World, by Joe Weisenthal, April 20, 2014, Business Insider, USA.

6,000 European Sustainability Reports… coming soon. “On 15th April, 599 members of the European Parliament passed a vote to amend Directive 2013/34/EU and require mandatory disclosure of non-financial and diversity information by certain large companies and groups on a ‘report or explain′ basis for all European-based ‘Public Interest Entities′ (PIEs) of 500 employees or more (or by parent companies of European-based 500+ PIEs). This Directive will come into force when ratified by the EU Member States in the European Council which is expected to formally adopt the proposal in the coming weeks.”

[COMMENTARY]Again, Europe leads the US in CSR! This time large European companies are now mandated to report their CSR activities and results. Again though, as I understand the legislation and the various reporting vehicles that can be used by companies, there’s no requirement for outside independent verification of exactly what any individual company reports. Furthermore, with the variety of reporting frameworks that can be used, there’s no standardization in reporting either. Despite these substantial concerns, I welcome this legislation wholeheartedly. Furthermore, since most of these companies operate in the US, Japan, etc., and many large US companies have huge European operations, this legislation will have enormous spill over effects to numerous non-European headquartered multi-national companies.
6,000 European Sustainability Reports… coming soon, by Elaine Cohen, April 17, 2014, CSR-Reporting, Canada.

Green Bond Principles Governance Framework Announced. “The governance framework of the recently-created Green Bond Principles was released today, with the support of 25 international financial institutions. The voluntary guidelines will allow for diverse stakeholder input into the Principles, provide effective oversight, and support their further development, the International Capital Markets Association, which will provide administrative duties for the project, said in a release.”

[COMMENTARY]This is a terrific development. Green bonds are going to be huge in the years ahead and it’s important that they incorporate some standardization. For instance, when can you call a bond a green bond? What defines that? Anyhow, with so many green bonds about to be issued in the future it’s good that these standards are coming out now. It’s really good news too for ethical investors who would like to replace some portion of their fixed income portfolios with green bonds.
Green Bond Principles Governance Framework Announced, April 14, 2014, Doug Watt, SRI Monitor, Canada.

RepRisk: The Most Controversial Companies of 2013. “In the course of 2013, RepRisk has detected news on thousands of companies across the globe in relation to their environmental, social and governance (ESG) risks. This report analyzes documented negative incidents, criticism and controversies related to the 10 firms that received the highest Reputational Risk Index (RRI) in 2013… The information has been captured and systematically analyzed from a wide range of third-party sources including online and print media, NGOs, government agencies, blogs and more.”

[COMMENTARY]Their most controversial companies include: HSBC Holdings PLC, GlaxoSmithKline PLC, BNP Paribas SA and Samsung Group. Ethical investors might want read what RepRisk says about each of the ten worst companies they write about.
The Most Controversial Companies of 2013, April 2014, RepRisk, Switzerland.

More institutional investors consider ditching fossil fuel stocks.“Investors have been continuing the trend toward environmental activism during the current proxy season, with more shareholder resolutions on environmental issues being filed in 2014 than any previous year.”

[COMMENTARY]At the margin, I expect continued momentum towards disinvestment in fossil fuel companies. I say ’at the margin’ because until the average voter starts to demand that their politicians legislate carbon taxes, trading and or caps, not much of significance is going to happen. Paralleling this would be the average consumer being happy with paying much higher gas prices for their vehicles and homes. It’s going to require many more extreme weather events to convince them of that! But it will happen, but who knows when. Consider this too. Look at America’s euphoria concerning shale gas and oil and then realize the enormous uphill battle disinvestment faces!
More institutional investors consider ditching fossil fuel stocks, by Glen Yelton, April 9, 2014, GreenBiz, USA.

Citigroup says the ‘Age of Renewables′ has begun. “Investment banking giant Citigroup has hailed the start of the ’age of renewables’ in the United States, the world′s biggest electricity market, saying that solar and wind energy are getting competitive with natural gas peaking and baseload plants … even in the US where gas prices are said to be low.”

[COMMENTARY]For Citigroup to come out and say this indicates that big finance is realizing the days of carbon-based energy utilities are closing. Furthermore, with their huge and unpredictable fixed costs etc., nuclear energy is going nowhere. Even China and India are switching massively to renewables. This suggests that carbon-free portfolios could outperform in future years–even in Canada. See below.
Citigroup says the ‘Age of Renewables′ has begun, by Giles Parkinson, reneweconomy, USA.

Carbon-free portfolios can outperform, even in Canada: study. “The returns of a carbon-free portfolio can closely mimic … even outperform … the returns of a broad market index, according to a study by Aperio Group. Annualized returns of Aperio′s hypothetical carbon-free portfolio in Canada were 9.23% over a 13-year period between 2000 and 2013, compared with 8.38% for the S&P/TSX Composite Index.”

[COMMENTARY]Constructing a broad market carbon-free index in Canada is a real challenge, given the huge weightings of carbon-based companies in most Canadian broad market indices. Yet, Aperio found it could be done and still able to outperform the major Toronto Stock Exchange’s S&P/TSX Composite Index! It’s very reassuring for Canadian ethical investors who want to invest primarily in their home market.
Carbon-free portfolios can outperform, even in Canada: study, by Doug Watt, April 8, 2014, SRI Monitor, Canada.

European study finds no performance differences in SRI portfolios.“A study by European asset manager Amundi concludes that incorporating SRI to the investment process produces no significant underperformance or over-performance. In addition, the study says, the inclusion of SRI criteria does not produce a significant cost on either the European or global investment universes. ’Furthermore, some SRI factors are likely to become more important in the future, with differences in corporate practices having considerable impacts on profitability. SRI management can therefore be a relatively cost-free way to benefit from this evolution.’”

[COMMENTARY]I think the last part of the above quote is significant. Many SR-ethical investors are going to be much better positioned to ride the growing wave of investment industry interest in ESG/CSR matters.
European study finds no performance differences in SRI portfolios, by Doug Watt, April 3, 2014, SRI Monitor, Canada.

Affluent Investors to Socially Responsible Investing: We’re Just Not That into You. “Just three-in-ten of households with a net worth between $1 million and $4.9 million (not including primary residence) consider social responsibility to be a primary investment factor. It is even less of a consideration for high net worth investors with a net worth between $5 million and $24.9 million (25 percent). Socially responsible investing is a higher priority among non-Millionaires with a net worth of a least $100,000.”

[COMMENTARY]These survey findings are unsurprising to me. I’ve seen several studies that show the very wealthy tend to be a little bit more selfish and willing to cheat a bit more for material gains–than those less well-off. However, even at 25% of the high net worth investors being interested in SRI are very significant! Were they to actually follow through with their values, SR-ethical investing would get a terrific lift.
Affluent Investors to Socially Responsible Investing: We’re Just Not That into You, April 4, 2014, Millionaire Corner, USA.

Norway wealth fund to ramp up renewable energy investments. “Norway’s $860 billion oil fund should scale up its investments in renewable energy and weigh the risk to future returns posed by climate change, the finance ministry said on Friday, a shift green groups said was insufficient. The switch is part of government reforms of the fund – the biggest of its kind in the world – that also include changes to its ethical guidelines and a review of its activities in emerging markets.”

[COMMENTARY]This unique fund has been a great example of applying ethical investing principles to it its assets. Now, the new right wing veering Norwegian government is scraping the committee that had that responsibility and that ethical decisions will now be made by the fund itself. It remains to be seen if they’ll uphold the previous ethical principles. Furthermore, less than 1% of the funds assets are to be invested in renewable energy. That’s just plain pitiful!
UPDATE 3-Norway wealth fund to ramp up renewable energy investments, April 4, 2014, Reuters, Norway.

Clicking Clean: How Companies are Building the Green Internet. “Here′s who hosts some of the internet′s most popular sites and services in their data centers … and whether those companies are using dirty or clean energy.”

[COMMENTARY]Greenpeace has researched and rated internet related companies concerning their green energy usage. Google, Apple and Facebook do best. Amazon, eBay and Microsoft don’t do so well.
Your Online World: #ClickClean or Dirty? April 2014, Greenpeace, USA.

Australia: reporting ‘misrepresents′ business sustainability. “Analysis undertaken for Catalyst Australia found inconsistencies between how companies ranked their application of widely-used sustainability guidelines and publicly available information used to verify this… mining giant Rio Tinto and biotechnology firm CSL had the most inconsistencies in their reporting, with 50% of Rio Tinto′s report based on information that was either missing or unexplained.”

[COMMENTARY]Without external, independently audited ESG/CSR reports, such reporting inconsistencies are not uncommon. This is a good article on the difficulties posed for companies as well as what stakeholders want concerning these reports.
Reporting ‘misrepresents′ business sustainability: study, by Kylar Loussikian, March 30, 2014, The Conversation, Australia.

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