May 2015 Newsletter

May 2015 Newsletter

News & Commentaries by Ron Robins


Seven out of 10 companies would turn their backs on unethical investments, finds PwC poll. “A stark 97 per cent of respondents said they expected responsible investment to grow in importance over the next two years, because of increasing concerns over upholding fiduciary duty, reputational risk and corporate values.”

[COMMENTARY] This Pricewaterhouse Coopers (PwC) poll is yet one more indication of the growing importance of ethical investing. (See my editorial,How Ethics Benefits Corporate Profits.)
Seven out of 10 companies would turn their backs on unethical investments, finds PwC poll, by Jessica Shankleman, May 27, 2015, BusinessGreen, UK. (To view article requires subscription or registration for a free 2-week trial.)

Canada′s 2nd annual Responsible Investment Week, next week, June 1-5.Responsible Investment Week is a week dedicated to education and awareness about responsible investment (RI). The Responsible Investment Association (RIA) is coordinating a week of events across Canada to promote learning about environmental, social, and corporate governance (ESG) issues that affect investments.

RI Week events will explore opportunities to invest in a more sustainable future, and provide attendees with opportunities to network with industry leaders, hear from ESG experts and catch up on the latest issues, trends and developments in the field.”

[COMMENTARY] The main events are planned in Banff (RIA Annual Conference), Toronto, Montreal, and Vancouver. I hope the many Canadians visiting this site can attend and get involved!
Canada′s 2nd annual Responsible Investment Week, next week, June 1-5, Responsible Investment Association, Canada.

Climate change threat demands reform to financial system … UNEP.“’Blowback’ from climate change could wreck the financial system unless regulators rewire it to ditch fossil fuels. So says Nick Robins, former head of HSBC′s climate change unit and author of a UNEP report published today, which urges sweeping reforms to shift multi-trillion flows of international finance to insulate countries from global warming.”

[COMMENTARY] ThisUNEP report is the strongest warning yet to the global financial system concerning how it needs to adjust in the face of stranded and marked down fossil fuel assets. Also, the report serves as a wake-up call to all fund managers and investors that losses on their fossil fuel holdings could be massive were there to be real global action to hold the world to the 2… C rise that scientists and governments say is necessary to avert catastrophic climate change.
Climate change threat demands reform to financial system … UNEP, by Alex Pashley, RTCC, UK. has released its CR Reporting Awards for best CSR reports. “You can download the full CRRA’15 report, which includes the latest statistics and trends, from the banner on our home page at (Free registration/Sign in required to download).”

[COMMENTARY] Their report is well worth reviewing to see how the best corporate reports handle carbon disclosure, materiality issues, etc. Clickhere to register/download it.

Socially Responsible Investors Focus Most on the Environment. “Investors who wish to promote social responsibility are most focused on the environment and invest accordingly.”

[COMMENTARY] Millionaire Corner is doing a great job with their surveys revealing how the affluent invest (or not) in SR-ethical investing.
Socially Responsible Investors Focus Most on the Environment, by Donald Liebension, May 21, 2015, Millionaire Corner, USA.

Oxford Joins Cambridge With Ethical Move on Investments. “Oxford University, one of the world′s oldest schools, has joined the ranks of British universities shunning investments in carbon-intensive energy projects… This follows a decision by Oxford′s arch-rival, Cambridge University, to appoint a new committee to beef up its ’socially responsible’ investment policy.”

[COMMENTARY] With such prestigious academic institutions taking an ethical stand against fossil fuel investments, the fossil free divestment movement gains additional momentum. It seems these great universities are also applying ethical criteria to other investments as well. SR-ethical investing — which when I started familiarizing myself with it over forty years ago — has come a long way!
Oxford Joins Cambridge With Ethical Move on Investments, by Juliet Samuel, May 18, 2015, The Wall Street Journal, USA.

Shareholders′ Votes Have Done Little to Curb Lavish Executive Pay.“It′s been five years since the Dodd-Frank law required that companies let investors vote on their executive pay practices. The idea, lawmakers said, was to give shareholders a chance to sound off when compensation plans are not in their best interests.

But has putting these matters to a vote done anything to rein in executive pay? Not a chance. Since these votes started being tallied, C.E.O. pay has risen on average 12 percent annually.”

[COMMENTARY] We have what is akin to the ’tulip mania’ in executive compensation — everyone pushing the compensation envelope as far it will go. As is noted in the article, unless such shareholder resolutions are binding on companies, not much will change.

Furthermore, executive compensation committees — themselves usually executives at other companies — recommend management compensation packages that try to outdo their competitors. Also, shareholders largely believe that the companies they invest in should offer the biggest pay packets to attract the best talent. Hence, the say on pay laws and resolutions, though nice in theory, have proved useless in halting the compensation frenzy.
Shareholders′ Votes Have Done Little to Curb Lavish Executive Pay, by Gretchen Morgenson, May 16, 2015, The New York Times, USA.

RepRisk and CSRHub study finds link between perceived Corporate Social Responsibility (CSR) performance and reputational risk.In addition, the data indicates that companies that have strong CSR programs as measured by CSRHub, in the areas of Human Rights and Supply Chain, Leadership Ethics, and Resource Management, seem to have lower risk exposure, whereas those companies who have strong programs in Community Development and Philanthropy, Environment Policy and Reporting, or Compensation and Benefits seem to have higher risk exposure.”

[COMMENTARY] I think that most ethical investors assumed such a link, but it’s good to get the hard data to support it and the detail as to what are the most important linkages.
RepRisk and CSRHub study finds link between perceived Corporate Social Responsibility (CSR) performance and reputational risk, press release, May 14, 2015, CSRHub/RepRisk, Switzerland/USA.

Does “Socially Responsible Investing” Mean Anything to You? “In general, the younger the investor, the more familiarity he has with socially responsible investing. Among investors under the age of 36, familiarity with ’socially responsible investing’ was at 47.42, and familiarity with ’Impact investing’ was at 35.76.

There was also a trend shown that the wealthier the investor, the more familiarity he has with socially responsible investing. Ultra High Net Worth investors with a net worth between $5 million and $25 million reported familiarity with ’socially responsible investing’ at 55.11, well above the average, while Mass Affluent investors with a net worth between $100,000 and $1 million were at 42.24.”

[COMMENTARY] The data are from the same survey as the item immediately below. I find the most interesting aspect here is that the very rich are more aware of SRI than the ’poorer’ rich.
Does “Socially Responsible Investing” Mean Anything to You? By Kent Mcdill, May 12, 2015, Millionaire Corner, USA.

Socially Responsible Investing: Who Cares? “More than one quarter of all investors under the age of 45 have at least 25 percent of their investable assets invested in socially responsible companies. Conversely, more than 45 percent of all investors over the age of 45 do not invest in socially responsible companies.

[COMMENTARY] This survey finds what other similar surveys found: younger investors, particularly female, favour SRI.
Socially Responsible Investing: Who Cares? Press release, May 13, 2015, Spectrum Group, USA.

How to Avoid the Next Sovereign Debt Crisis. “Applying environmental, social, and governance (ESG) criteria to government bonds can help investors steer clear of the most indebted nations, according to Standard & Poor′s Dow Jones Indices (S&P DJI).”

[COMMENTARY] This coming from S&P-DJ is a tremendous endorsement for bond ratings utilizing ESG factors! Since the build-up in sovereign debt has been so extraordinary in recent years, additional sovereign debt catastrophes are inevitable. All investors might want to review their bond holdings in the light of ESG criteria.
How to Avoid the Next Sovereign Debt Crisis, by Nick Reeve, May 5, 2015, Chief Financial Officer magazine, UK.

Survey: Adoption of ESG Criteria Growing Among Hedge Fund & Private Asset Managers. “Although the results revealed that 60% of hedge fund managers were still reluctant to introduce ESG criteria into their investment approach, this is a big improvement over the results from the company′s last survey in 2011, when 75% of managers were reluctant. Meanwhile, the percentage of managers that do incorporate ESG criteria has increased significantly from 25% to 40% over the same time span.”

[COMMENTARY] Surveys showing greatly increased adoption of ESG criteria in stock/portfolio selection by fund managers are everywhere these days. And for good reason as anyone who follows these studies/surveys knows that they repeatedly show the use of ESG criteria produces better returns.
Survey: Adoption of ESG Criteria Growing Among Hedge Fund & Private Asset Managers, May 5, 2015, FIN Alternatives, USA.

(1) Risky management. “85 per cent of the world′s largest global asset owners are climate ’laggards’ that have taken little to no action to insulate themselves from the growing risks presented by climate change, says a new report by the Asset Owners Disclosure Project (AODP).”
Risky management, April 29, 2015, Corporate Knights, Canada.

(2) G20: fossil fuel fears could hammer global financial system.“Top energy watchdog says two thirds of all assets booked by coal, oil and gas companies may be worthless under the ’two degree’ climate deal… World leaders are increasingly concerned that a $6 trillion wave of investment into the nexus of oil, gas, and coal since 2007 is based on false assumptions, leaving companies with an overhang of debt and ’stranded assets’ that cannot easily be burned under CO2 emission limits…

The G20 has asked the Financial Stability Board in Basel to convene a public-private inquiry into the fall-out faced by the financial sector as climate rules become much stricter. All member countries have agreed to co-operate or carry out internal probes, including the United States, China, India, Russia, Australia, and Saudi Arabia.
G20: fossil fuel fears could hammer global financial system, by Ambrose Evans-Pritchard, April 29, 2015, The Telegraph, UK.

[COMMENTARY for (1) & (2)] We all know how most money managers — particularly those in North America — are fossil fuel diehards. Yet, as the world awakens to the fact that the burning of fossil fuels has to be significantly reduced the portfolio losses could be immense. And the wake-up call could come in December from the 2015 United Nations Climate Change Conference in Paris.

Featured New Books

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

Investing with Impact: Why Finance is a Force for Good, by Jeremy Balkin, Bibliomotion 2015.
“Jeremy′s work is inspiring and important and speaks to the potential of a generation ready to change the world. He is a role model for young people eager to find new and innovative ways to make a difference.”—Lynn Schusterman, co-chair of the Charles and Lynn Schusterman Family Foundation.

The Greening of Asia: The Business Case for Solving Asia’s Environmental Emergency, by Mark L. Clifford, Columbia University Press, 2015.
“In this well-researched and ultimately optimistic account, Clifford makes the case that environmental policies ’can and must be fixed’ and gives us examples of companies that have worked to find private-sector solutions. In doing so, Clifford sheds much-needed light on the workings and future of the region’s efforts on the environment, and on the need for governments to set clear rules so that business can do its part to solve the region’s environmental crisis.”—Joseph E. Stiglitz, 2001 Nobel Laureate in Economics.

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