September 2014 Newsletter

September 2014 Newsletter

News & Commentaries by Ron Robins


Socially Responsible Investments Can Match Broader Market Gains: TIAA-CREF. “A recent TIAA-CREF white paper authored by Lei Liao and Jim Campagna found that investors with a conscious don′t have to sacrifice gains to put their money where their beliefs are. Liao and Campagna analyzed the performance of several leading equity-focused SRI indexes…the Calvert Social Index, Dow Jones Sustainability U.S. Index (DJSI U.S.), FTSE4Good US Index, MSCI KLD 400 Social Index, and MSCI USA IMI ESG Index…in relation to the performance of broader benchmarks. They found ’no statistical difference’ in the SRI index′s returns when compared to the broader market.”

[COMMENTARY] Well designed studies on SRI vs conventional investment portfolios consistently demonstrate that there’s no performance loss by applying SRI screens. In fact, the majority of studies using ESG criteria demonstrate superior stock returns. TIAA-CREF has over $500 billion in assets.
Socially Responsible Investments Can Match Broader Market Gains: TIAA-CREF, by Teresa Rivas, September 25, 2014, Barron’s, USA.

Montreal Carbon Pledge Attracts Large Institutional Investors. “A group of large institutional investors have signed on to the Montreal Carbon Pledge, agreeing to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Overseen by the UN-backed Principles for Responsible Investment, the pledge hopes to attract $3 trillion of portfolio in time for next year′s UN climate change conference.”

[COMMENTARY] The pledge is good news for those of us interested in this issue. One concern though: how smaller listed companies have the resources to gather such information.
Montreal Carbon Pledge Attracts Large Institutional Investors, by Doug Watt, September 25, 2014, SRI Monitor, Canada.

US Sustainable Investment Association calls for US Government to demonstrate leadership in climate crisis and set price for carbon.“National governments and multilateral organizations must create the framework to enable the additional trillions of dollars in investments needed in low-carbon technologies and climate change adaptation. We urge the US government to demonstrate leadership by supporting multilateral efforts to impose a meaningful price on carbon and to stop subsidizing carbon pollution. With these policy signals, investors can fully rise to the challenge of building the low-carbon future.”

[COMMENTARY] Though I agree with the above sentiment I first believe that there has to be a global understanding of what are the real total societal costs of different types of energy production–and Britain’s Carbon Trust has hit this nail on the head.

From aCarbon Trust September 23, 2014, press release, “The redefinition of the electricity cost calculation from the most prominently used Levelised Cost of Electricity (LCoE), to Society′s Cost of Electricity (SCoE), means additional factors not normally accounted for are included which presents a more complete picture on the cost-benefit of energy. Additional factors include subsidies, grid access costs, variability costs, social costs, economic benefits and geopolitical impact.”

Were this new definition adopted, many renewable and alternative energy sources would demonstrate superior long run financial returns and beneficial societal and climate impacts. Then, governments will be able to more easily regulate in ways that favour renewable and alternative energy. Until then, it’s an uphill battle to convince the likes of US Republicans!
US Sustainable Investment Association calls for US Government to demonstrate leadership in climate crisis and set price for carbon, press release, September 22, 2014, US SIF: The Forum for Sustainable and Responsible Investment, USA.

Site of interest: Climate Bonds Initiative. “The Climate Bonds Initiative is an international, investor-focused not-for-profit. It’s the only organisation in the world focusing on mobilizing the $80 trillion bond market for climate change solutions.”

[COMMENTARY] It has several high level partners, but needs more of them to get off the ground in a big way. I’m sure it will happen. The site has some useful resources for ethical investors under the tab, ’Resources.’
Climate Bonds Initiative, UK.

Launch of Solactive CK Low Carbon Indices. “The Solactive CK Low Carbon Index family is the first in the industry to use the Sustainable Industry Classification System… (SICS…), established by the Sustainability Accounting Standards Board… (SASB…) to categorize industries based on resource intensity, sustainability impact, and sustainability innovation potential.

A defining feature of these Low Carbon Indices is that they ensure a minimum 50% reduction in carbon intensity against the market benchmarks, as verified by South Pole Carbon.”

[COMMENTARY] These new indices represent a unique and interesting approach for sustainable investing. Congratulations to the sponsors. Though launched September 25, I couldn’t find a link to them for current values and holdings.
Launch of Solactive CK Low Carbon Indices, press release, September 25, 2014, Corporate Knights Capital and Solactive, September 25, 2014, Canada/Germany.

Rockefellers, Heirs to an Oil Fortune, Will Divest Charity From Fossil Fuels. “John D. Rockefeller built a vast fortune on oil. Now his heirs are abandoning fossil fuels. The family whose legendary wealth flowed from Standard Oil is planning to announce on Monday that its $860 million philanthropic organization, the Rockefeller Brothers Fund, is joining the divestment movement that began a couple years ago on college campuses.”

[COMMENTARY] This is significant! It brings into public awareness that despite the hoopla about shale gas and oil, the future for fossil fuels is growing dimmer. The Rockefellers are to be congratulated. Their precedent could set the stage for many others to divest themselves of fossil fuel investments. It could increase the funds moving towards alternative and renewable fuels. It’s a good day for investors oriented to sustainable investing.
Rockefellers, Heirs to an Oil Fortune, Will Divest Charity From Fossil Fuels, by John Schwartz, September 21, 2014, The New York Times, USA.

New report (from UN Principles for Responsible Investment) shows that ESG can mitigate risk, provide value in debt capital markets. “Analysis of Environmental, Social and Governance (ESG) issues such as corruption and climate change should be considered as a natural fit for fixed income investors as it can help to manage risk and identify credit strength, according to a new report released by Principles for Responsible Investment (PRI).

Thereport is intended as a guide for fixed income investment managers and their clients on how to incorporate ESG into their investment strategies to gain the available information advantage.”

[COMMENTARY] That latter point, “to gain the available information advantage,” is really what will increasingly attract fund managers. Not only have we seem inordinate confirmation of higher returns when ESG analysis is applied to equities, but that same type of confirmation is coming with fixed income investments. Most ethical investors have only thought of applying ESG to their stocks. This is a prompt to them that they should also apply such values and analysis to their fixed income investments as well.
New report shows that ESG can mitigate risk, provide value in debt capital markets, September 18, 2014, KFW Group, Germany.

Shares prices boosted by corporate sustainability policies, says University of Oxford study. “The University of Oxford′s Smith School of Enterprise and the Environment and Arabesque Asset Management, a sustainable investor, carried out a so-called meta-study of more than 190 academic studies and other literature on the impact of environmental, social and governance (ESG) policies on performance.

They found that corporate sustainability helps to lower a business′s cost of capital and boosts a company′s operating performance.

In addition, 80pc of studies … 31 out of 39 … showed a ’positive correlation’ between sustainability and stock market performance.”

[COMMENTARY] Send(the full report–scroll down to New Paper Published) to all those advisors and fund managers still dubious of socially responsible-ethical investing! Their claims that such investing lowers returns are nonsense.
Shares prices boosted by corporate sustainability policies, by Ben Martin, September 15, 2014, The Telegraph, UK.

Shareholder pressure fails to promote sustainable practices … survey.“Barely one in 10 companies feel compelled to improve their sustainability record, despite pressure from institutional investors, a study by the UN-backed Principles for Responsible Investment (PRI) has found.”

[COMMENTARY] The criticism seems to be that shareholder activism concerning corporate sustainability efforts is too diffuse, short-term in nature, and not focused on specific, identifiable actions that companies can undertake. One great finding: 80% of executives viewed sustainability as a key competitive advantage!
Shareholder pressure fails to promote sustainable practices … survey, by Jonathan Williams, September 12, 2014, IPE, UK.

Banks showing limited commitment to responsible investing. “Only 7% of banks surveyed by Sustainalytics report that the share of responsible assets is more than 5% of total assets under management. Nearly all of these institutions are from Europe, with three from North America and one from South America.

Another 96 institutions (27%) either have less than 5% of AUM dedicated to RI assets or do not disclose the value of their RI assets. Two hundred and forty-one institutions (67%) don′t provide any evidence of RI assets under management.”

[COMMENTARY] The research findings of the Sustainalytics survey are quite an indictment of western banking. In comparison with the investment industry–which is increasingly applying ESG in stock and portfolio selection–banking institutions are way behind.
Banks showing limited commitment to responsible investing, by Doug Watt, September 12, 2014, SRI Monitor, Canada.

Study links high ESG ratings to positive investment portfolio performance. “Asset managers can create better-performing portfolios by excluding stocks with lower environmental, social and governance (ESG) ratings, according to new research. The study by New Amsterdam Partners used the Thomson Reuters Corporate Responsibility Ratings, which screens the ESG ratings of almost 5,000 companies.”

[COMMENTARY] Of course, one needs to understand all the screening parameters and methodologies of this study to competently remark as to its conclusions. Nonetheless, at face value and considering the reputation of the study’s sponsors, the study appears to offer further confirmation that screening companies for their ESG performance can be profitable.
Study links high ESG ratings to positive investment portfolio performance, by Tom Revell, September 5, 2014, Blue & Green Tomorrow, UK.

Featured New Book

The Breakthrough Challenge: 10 Ways to Connect Today’s Profits With Tomorrow’s Bottom Line, by John Elkington and Jochen Zeitz, Jossey-Bass 2014.
“John Elkington and Jochen Zeitz argue in this lucid, compelling, forward-thinking book that humanity′s collective self-interest will be best served by enlightened business leaders. As practical as it is inspiring, this case for doing well by doing the right thing should be required reading for anyone seeking to build a truly successful 21st century business.”—Jeff Skoll, first president, eBay, and founder and chairman, the Skoll Foundation, Participant Media, and the Skoll Global Threats Fund.

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