April 2015 Newsletter

April 2015 Newsletter

News & Commentaries by Ron Robins


The World’s Most Reputable Companies In 2015. “The Global RepTrak list stands out from other corporate lists… because it aims to quantify the way companies are perceived by consumers… rather than looking at how companies manage their internal affairs… According to RI′s data, 83% of consumers say they would definitely buy products sold by companies with top reputations while only 9% want to buy from companies with poor reputations… Google scores No. 2 on the list, just behind BMW and above Daimler.”

[COMMENTARY] The Forbes article covering the Global RepTrack 100 list is highly informative. It refers to Google’s problems with anti-competition regulators in Europe and why they’re having zero effect on its reputation and that no oil and gas producers are on the list as they’re perceived as being polluting and unethical!
The World’s Most Reputable Companies In 2015, by Susan Adams, April 21, 2015, Forbes, USA.

Meet the Best for the World (of Certified B Corporations) Overall Honorees for 2015. “The Best for the World Honorees are recognized for creating the most positive social and environmental impact. These companies have earned an overall score in the top 10% of all Certified B Corporations on the B Impact Assessment, a rigorous and comprehensive assessment of a company’s impact on its workers, community, and the environment.”

[COMMENTARY] This is a fascinating list to review when considering the first major B corp. listing on the NASDAQ last week, that of Etsy, an online and offline marketplaces to buy and sell handmade items, vintage goods, and craft supplies.
Best for the World Overall Honorees for 2015, April 21, 2015, B Lab, USA.

Research Documents Positive Link Between Corporate Human Resources Policies & Investment Outcomes. “Of the many studies of human capital policies, the new paper examines 92 that focus on the links to corporate financial performance. The authors find that a large majority of the studies – conducted over several decades and encompassing dozens of countries and industries – reported positive correlations…

However, investors face significant challenges in attempting to incorporate human capital metrics into investment analyses. For example, there are no standard metrics or definitions and there is no clear consensus about which HR policies in what combinations have the most impact on financial outcomes.”

[COMMENTARY] Intuitively, we know that properly managed human resources and their development are significant to a company’s progress. This report is the first to correlate human resources policies to investment outcomes. What this report could do is to encourage investors/fund managers to ask companies for much more detail about their human resource policies, training etc., to try to understand the potential links between good and bad human resource policies with respect to corporate financial performance.

The report also opens-up a new field of academic enquiry into these linkages.
Research Documents Positive Link Between Corporate Human Resources Policies & Investment Outcomes, press release, April 23, 2015, Investor Responsibility Research Center Institute & Harvard Law Labor & Worklife Program, USA.

Canada′s greenest employers help the Earth … and their bottom lines.“As environmental leaders, they′ve put their strategy into action through multiple initiatives, both formal and informal, both corporate and employee-led. For many organizations, building sustainability isn′t a trendy thing to do, but has evolved to become a part of how they operate, notes Richard Yerema, managing editor of Mediacorp Canada.”

[COMMENTARY] We know that corporate sustainability has a long way to go, so it’s good that attention — and awards — is creating a competitive atmosphere to encourage it while raising its profile corporately. Many of the initiatives cited could clearly demonstrate a corporate financial benefit. It would have been great if such benefits could’ve been ascertained and made public.
Canada′s greenest employers help the Earth … and their bottom lines, by Diane Jermyn, April 22, 2015, The Globe and Mail, Canada.

Why Gender Matters to Investors. “A 2014 Credit Suisse study of 3,000 companies assessing the level of women in senior management found that more diversity in management coincides with better corporate performance and higher stock-market valuations.”

[COMMENTARY] The writer also cites several other studies that include those by Thomsen Reuters and McKinsey, which all find that women on boards leads to greater financial performance and increased stock values! With results like this it behoves ethical investors to consider gender/diversity screening in stock evaluations if they do not already do so.
Why Gender Matters to Investors, by Joseph F. Keefe and Sallie L. Krawcheck, April 21, 2015. (This article originally appeared in the April 2015 issue ofGreen Money Journal on “Women and Investing”), TriplePundit, USA.

Fossil-Free Portfolios Outperform Those With Coal, Gas, Oil. “MSCI Inc. calculates that portfolios without coal, gas and oil earned 1.2 percent more since 2010. Average fossil-free returns have been 13 percent a year, as opposed to 11.8 percent for conventional investors, reports The Guardian. Sure, during this period the price of oil tanked, driving down shares of companies, but fossil-free indexes outperformed before this happened, said MSCI. And the volatility of oil shares is another reason to get out of these stocks.”

[COMMENTARY] These results should be a wake-up call to all those fund managers who say their returns will suffer going fossil fuel-free. With such data and today’s oil and gas prices — plus renewables becoming increasingly competitive — we might finally be witnessing the beginning of the relative decline of the entire fossil fuel industry. Many ethical investors have longed for this moment.
Fossil-Free Portfolios Outperform Those With Coal, Gas, Oil, April 13, 2015, SustainableBusiness.com News, USA.

The Type of Socially Responsible Investments That Make Firms More Profitable, Harvard Business Review. “We find that firms making investments and improving their performance on environmental, social, and governance (ESG) issues exhibit better stock market performance and profitability in the future…

However, not all such initiatives are equally beneficial. My research, with Mozaffar Khan and Aaron Yoon, suggests companies should stick to social and environmental issues that are strategically important for their business if they want such efforts to contribute to the valuation.”

[COMMENTARY] The points made in this article are important for both company managers and investors. The article is written by one of the most well respected researchers in this field.
The Type of Socially Responsible Investments That Make Firms More Profitable, by George Serafeim, April 14, 2015, Harvard Business Review, USA.

2015 Proxy Preview of 433 resolutions. “Corporate political activity of all sorts and environmental matters—predominantly climate change—continue to vie for top billing with 26 percent and 27 percent of the total, respectively; increasingly these are linked by investors who seek corporate action to bypass some of the vitriol that stymies government solutions. All told, environmental and sustainable governance resolutions combined represent 39 percent of the total so far, as in 2014, while political activity accounts for just over one-quarter of the total—down 4 percentage points from last year′s mid-February share.”

[COMMENTARY] The survey is a compilation of three data sources: As You Sow, Sustainable Investments Institute (Si2), and Proxy Impact. As many ethical investors take a keen interest in proxy voting, so I’m providing a link to this surveyhere.

Sweden tops in the EU in ESG ranking (for government bonds). “Bond investors looking to remain true to their environmental, social and governance principles have a new tool: a ranking of European Union member countries. The study, ’EU Member States under the Spotlight,’ ranked the 28 countries based on 67 human rights and 17 environmental indicators, including gender equality, labor rights, freedom of expression, and protection of the environment.”

[COMMENTARY] Such rankings for government bonds are becoming more common. Incidentally, though not directly ranking countries’ bonds,EIRIS Country Sustainability Ratings andRobecoSAM’s Country Sustainability Ranking both offer useful insights for judging government issued bonds on ESG issues.
Sweden tops in the EU in ESG ranking, by Sophie Baker, April 6, 2015, Pension&Investments (subscription … which is free … is required), USA.

2015 SHARE Model Proxy Voting Guidelines for institutional investors.“These guidelines have been developed by SHARE as a model for use by Canadian pension funds. The guidelines are written in the first person—“[the fund]”—to make them similar to guidelines that would be adopted by a board of trustees.”

[COMMENTARY] All voting investors might want to look at these guidelines. They’re informative on numerous issues of concern to every stockholder.
2015 SHARE Model Proxy Voting Guidelines, SHARE, March 2015, Canada.

The moral maze: How poor company ethics can cost investors. “The Chartered Institute of Internal Auditors′ study shows that while 91 per cent of the FTSE100 refer in their annual reports to their high standards of business ethics and integrity, only 8 per cent provided a specific metric of their company′s ethical performance.”

[COMMENTARY] Most firms are good at touting their ethical codes and standards, but in reality quite a few don’t live up to them. Furthermore, though the public, regulators, and politicians cry out for improved corporate ethics, evidence suggests that these groups are equally guilty of unethical conduct.

The problem of poor ethics in companies simply reflects the level of ethics in the population generally. Also, studies demonstrate that the richer one is the more likely one is to engage in unethical behaviour. The investment industry is populated with high net worth individuals so it is no accident that there might also be a higher incidence of unethical activities in the industry.

Some of you might be interested to read,How Ethics Benefits Corporate Profits.
The moral maze: How poor company ethics can cost investors, by Joanne Frearson, March 17, 2015, Business Reporter, UK.

Featured New Books

(Investing for the Soul receives commissions on some book sales.)

Impact Investment: A Practical Guide to Investment Process and Social Impact Analysis, by Keith A. Allman, Wiley Finance 2015.
“A detailed guide which is a ’must read ’ for new and seasoned investors as well as those seeking investments to support entrepreneurial, social, and environmental ventures that aim to generate financial returns. The manual describes every step of a rigorous investment journey … from investment analysis and valuation, to preparation of a term sheet, to closing the deal and post-investment monitoring and exit. In that sense, it is a primer for anyone wishing to understand what a thorough financial investment process looks like, whether an investor or an entrepreneur seeking investment.”—Pamela Hartigan, Director, Skoll Centre for Social Entrepreneurship, Sa…d Business School, University of Oxford.

State of the World 2015: Confronting Hidden Threats to Sustainability, by The Worldwatch Institute, Island Press 2015.
“In State of the World 2015, the flagship publication of The Worldwatch Institute, experts explore hidden threats to sustainability and how to address them. How will nations deal with migration as climate change refugees cross borders in order to escape flooding, drought, or other extreme weather events? What will happen to the price and availability of fossil energy—the foundation of industrial civilization–as these resources oscillate between surplus and scarcity? If perpetual economic growth on a finite planet is impossible, what are the alternatives? Can national governments manage the transition?”—Book description.

The Little Big Number: How GDP Came to Rule the World and What to Do about It, by Dirk Philipsen, Princeton University Press 2015.
“GDP is not just a number but is code for a set of economic values and principles that we’re not supposed to question. Philipsen breaks that taboo by critically assessing the origins and impacts of our overreliance on this flawed metric. Anyone who wants to understand our economy’s weaknesses–and how to make them better–needs to read this book.”—Annie Leonard, author of The Story of Stuff and executive director of Greenpeace USA.

Reframing the Game: The Transition to a New Sustainable Economy, by Mike Townsend, Greenleaf 2015.
“This Special Issue of Building Sustainable Legacies brings together key voices in business and academia that show us how to accelerate towards this tipping point by exploring the role that business in society, responsible education, leadership techniques and legal reform will have in shaping the new sustainable economy.”—Book description.

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