June 2015 Newsletter

June 2015 Newsletter

News & Commentaries by Ron Robins


Companies with recent ESG rating gains may outperform benchmarks.“Stocks with fast ESG improvement outperform benchmark by 2.2 percent a year, MSCI report shows… For the research, MSCI adopted an ‘ESG momentum′ strategy by overweighting stocks that had improved their ESG ratings (according to MSCI′s own calculations) in the preceding 12 months. The firm also adopted an ‘ESG tilt′ strategy that overweights companies that have already established high ESG ratings.”

[COMMENTARY]This data should encourage many companies to seriously improve their ESG activities. Again, it’s another report — of many — demonstrating how stocks evaluated utilizing ESG criteria can outperform.
Companies with recent ESG rating gains may outperform benchmarks, by Adam Brown, June 26, IR Magazine, UK.

Helsinki Stock Exchange leads 2015 pack as most sustainable stock exchange. “The Helsinki Stock Exchange topped Corporate Knights Capital′s Measuring Sustainability Disclosure: Ranking the World′s Stock Exchanges 2015 ranking for the second year in a row. The Euronext Amsterdam took second spot, followed by the Copenhagen Stock Exchange and the Australian Securities Exchange. The Johannesburg Stock Exchange, which placed eighth, is the only stock exchange in the top 10 from an emerging economy.”

[COMMENTARY]It’s terrific that someone is rating global stock exchanges on their sustainability disclosure policies (for listings). Thank you Corporate Knights! Downloadfull report.
Helsinki Stock Exchange leads 2015 pack as most sustainable stock exchange, June 26, 2015, Corporate Knights, Canada.

Private impact investing yielded financial performance in line with similar private investment funds with no social objective, according to new impact investing benchmark. “Together the diverse array of funds in the Impact Investing Benchmark posted an IRR of 6.9% as of June 30, 2014. A comparative universe of private investment funds with no social impact objectives and with the same vintage years returned 8.1%, according to Cambridge Associates data.”

[COMMENTARY]The headline does not quite match the data. Nonetheless, it’s terrific to see that impact investing can provide good returns. Smaller impact funds did better than large ones. The new Cambridge Associates Impact Investing Benchmark is going to be interesting to watch. Read the press release for more information.
Private impact investing yielded financial performance in line with similar private investment funds with no social objective, according to new impact investing benchmark, press release, Cambridge Associates and the Global Impact Investing Network (GIIN), USA.

High Income Women and Social Responsibility. “Only 15 percent of high income women say they give no thought to the social responsibility of investments, compared to 40 percent of all other affluent investors. However, what they think about socially responsible investing is unique to that demographic.”

[COMMENTARY]The boards of most social and community organizations are well represented with affluent women, so it’s not too surprising that many affluent women want SR-ethical investments. I think this survey’s findings are useful — particularly for investment advisors and financial planners who might want to emphasize SR-ethical investments to such clients.
High Income Women and Social Responsibility, by Kent McDill, June 13, 2015, Millionaire Corner, USA.

The Next ESG Hot Spot: India? “Investors using environmental, sustainable, and governance-based (ESG) screens in India would have outperformed their peers in all types of economic cycles, two academics have claimed. In a paper examining the performance of the Indian stock market, Vanita Tripathi and Varun Bhandari, from the Delhi School of Economics, found companies that had adopted ESG principles outperformed the rest of the index.”

[COMMENTARY] As in many developing countries, SR-ESG-ethical investment vehicles are rare. The authors of this study not only show the outperformance of Indian investments utilizing ESG screens, but advocate their greater use in India.

It’s noteworthy that Indian Prime Minister, Narendra Modi, came to power largely because of his promise to rid India of corruption. So, tying together that popular demand with the superior financial returns of SR-ESG-ethical screens could give way to greatly expand investment products based on those screens. (Seestudy. Also relevant:India, Ancient Economic Behemoth, to Overtake China.)
The Next ESG Hot Spot: India? By Elizabeth Pfeuti, June 18, 2015, Chief Investment Officer, USA.

2015 RIA (Canada) Guide to Responsible Investment. “The Guide is a valuable resource for investment advisors and investors who are interested in responsible investment products and services. The Guide includes: The latest research, news, and updates about responsible investment (RI) in Canada; editorial content from Canadian RI industry experts and thought leaders; a directory of RI funds available in Canada; a directory of companies providing RI products and services in Canada.”

[COMMENTARY] This is a terrific guide to responsible investing, not just for Canadians, but valuable to investment professionals and investors everywhere! Thank you RIA for publishing it.
Guide to Responsible Investment, June 17, 2015, RIA, Canada.

Ameriprise subsidiary launches socially responsible municipal bond fund. “The Minneapolis-based institution′s global asset management group, Columbia Threadneedle Investments, launched the Columbia U.S. Social Bond Fund on March 26. Ameriprise said the Columbia fund is a first-of-its-kind municipal product that uses a mix of environmental, social and governance (ESG) criteria as the basis for its investments.”

[COMMENTARY] I mention this fund as it represents a new class of ESG funds — focusing on the issues of US municipalities. It’ll be most interesting to see how this fund performs. As we all know, numerous US municipalities are facing daunting financial problems.
Ameriprise subsidiary launches socially responsible municipal bond fund, by Patrick Kennedy, June 12, 2015, StarTribune, USA.

Shareholders push companies to change executive pay. “Responding to pressure from investors, a third of companies say they have changed their executive pay compensation plans, according to a new survey from the National Association of Corporate Directors (NACD) released Tuesday… more than half of respondents, 57 percent, said their boards expanded compensation explanations in their company proxy statements as a result of shareholder feedback and 30 percent (one-third) changed their executive compensation plans outright.”

[COMMENTARY] It’s great that compensation committees are providing more complete explanations and some even changing their compensation plans, but what’s missing from this report is how much of a reduction (probably none) was there in executive pay.
Shareholders push companies to change executive pay, by Lydia Wheeler, June 2, 2015, The Hill, USA.

Canada′s top 50 socially responsible corporations: 2015. “For the seventh year, Maclean′s [a prominent Canadian magazine] has partnered with Sustainalytics, the leading independent provider of environmental, social and governance research, to determine the Top 50 Most Socially Responsible Companies in Canada.”

[COMMENTARY] Sustainalytics is one of the world’s premier CSR/SRI research firms and its insights into such corporate information are second to none. This is a trustworthy ranking.
Canada′s top 50 socially responsible corporations: 2015, by Julie Smyth, June 8, 2015, Maclean’s, Canada.

Inside GRI′s new ‘beyond reporting′ strategy. “Today, the Global Reporting Initiative is unveiling plans to launch what it calls ’the next era of sustainability reporting… The goal is to… standardize it across sectors and borders… As part of its new strategy, GRI ’envisions a future beyond reports, where information from sustainability reporting empowers decision making throughout organizations,’ in the words of Michael Meehan, GRI′s CEO.”

[COMMENTARY] This will be a great move by GRI to get companies to actualize their sustainability reporting into evolving sustainability initiatives — and hopefully, initiatives that can be measured and related to increasing company profits. That would not only help environmental causes, but please stockholders and their stock price!
Inside GRI′s new ‘beyond reporting′ strategy, by Joel Makower, June 9, 2015, GreenBiz, USA.

Linking CDP and GIC′s Investor Expectations: Oil and Gas Company Strategy. “In order to assist investors in identifying relevant information on carbon asset risk within CDP′s dataset and inform their engagement activities with oil and gas companies, this document links relevant questions from CDP’s 2015 climate change questionnaire with the expectations andguiding questions outlined in the GIC′s Investor Expectations: Oil and Gas Company Strategy document.”

[COMMENTARY] This is a useful document for fund managers, particularly, on how to dialogue with fossil fuel companies with respect to their actions — or lack thereof — concerning climate change.
Linking CDP and GIC′s Investor Expectations: Oil and Gas Company Strategy, June 5, 2015, CDP, UK.

New Research Reveals Discrepancy Between Public and Business Ethics [in UK]. “The third annual ‘Great British Money Survey′ reveals 70% of people would be unhappy if they discovered their money was being invested in unethical businesses… More people think that corporate tax avoidance is an unethical business activity than pornography or selling arms, a stark fact when 98% of the FTSE 100 engage in some form of tax avoidance.”

[COMMENTARY] It’s a common complaint around the world that most of the mainstream investment industry does not consult its retail clients about their real personal values — and how they want them reflected in their investments!
New Research Reveals Discrepancy Between Public and Business Ethics, June 5, 2013, Acquisition International, UK.

Climate change: new investment risk demands action by investors, cautions new research — Mercer. “Depending on the climate scenario which plays out, the average annual returns from the coal sub-sector could fall by anywhere between 18% and 74% over the next 35 years, with effects being more pronounced over the coming decade (eroding between 26% and 138% of average annual returns over the next 10 years).

Conversely, the renewables sub-sector could see average annual returns increase by between 6% and 54% over a 35 year time horizon (or between 4% and 97% over a 10-year period) depending on the climate scenario.”

[COMMENTARY] Mercer has been engaged with ESG and sustainability matters for many years. This report adds to a growing body of literature that show investors must rethink their investments in the wake of climate change and associated potential, government regulations. Register to download the actual reporthere.
Climate change: new investment risk demands action by investors, cautions new research, press release, June 4, 2015, Mercer, UK.

2015 Newsweek Green Rankings. “The Newsweek Green Rankings consist of two separate rankings. The U.S. 500 ranks the 500 largest publicly-traded companies in the United States by market capitalization, while the Global 500 looks at the 500 largest publicly-traded companies globally by market capitalization as determined by Bloomberg as of March 4, 2015… Newsweek partnered with Corporate Knights Capital and HIP Investor to complete the 2015 Newsweek Green Rankings.”

[COMMENTARY] This is a list for all green-ethical investors to review. As with all these rankings and lists, it’s worthwhile to understand the methodology behind them. Clickhere for the methodology underlying these rankings.
2015 Newsweek Green Rankings, June 4, 2015, Newsweek, USA.

The Best 50 Canadian 2015 Corporate Citizens — Corporate Knights.“The top company on the Best 50 list this year is Tim Hortons… Vancity and Mountain Equipment Co-op finished second and third respectively… Teck Resources, in fourth place… Telus rounded out the top five.”

[COMMENTARY] This is always a great list to see and to read their commentary. Whether you’re Canadian or an ethical investor from elsewhere, you might want to review the Corporate Knights findings.
The Best 50 Canadian 2015 Corporate Citizens — Corporate Knights, survey, June 3, 2015, Corporate Knights, Canada.

Cut your portfolio′s risk — and feel good as well. “’In the past, many of the RI studies only looked at financial performance. However, we know environmental, social and governance factors seem to lower risk in an investor′s portfolio,’ says Dr. Tessa Hebb, director of the Carleton Centre for Community Innovation at Carleton University, who conducted the study on behalf of OceanRock [Investments Inc.].

’We found that RI funds are able to protect investors from downside risk in their equity portfolios.’”

[COMMENTARY] This study used the data on about 100 Canadian RI funds. It’s really exciting to find the downside risk mitigated by RI screens. This study could be deserving of the prestigious SRI Moskowitz Prize! The study is availablehere.
Cut your portfolio′s risk — and feel good as well, by Clare O’Hara, The Globe and Mail, May 31, 2015, Canada.

BlackRock, Ceres create ESG governance guide for institutional investors. “The 68-page ’21st Century Engagement: Investor Strategies for Incorporating ESG Considerations into Corporate Interactions’ suggests tactics, including step-by-step advice, for use by institutional investors. BlackRock and Ceres plans to conduct a series of outreach programs and training events at conferences and in webinars, some by invitation only and some open to asset owner trustees and investment managers.”

[COMMENTARY] It’s fascinating to see the world’s largest asset manager — with almost $5 trillion in AUM — being so engaged with ESG and working so cooperatively with Ceres! This a powerful combination promoting ESG to institutional investors who can no longer ignore the inherent value in integrating ESG into their investment mandates. As some commentators have suggested, not using ESG in managing some funds could be cause for charges of fiduciary mismanagement.
BlackRock, Ceres create ESG governance guide for institutional investors, by Barry B. Burr, May 28, Pensions & Investments, USA.

Featured New Book

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

Sustainable Frontiers: Unlocking Change through Business, Leadership and Innovation, by Wayne Visser, Greenleaf 2015.
“Combines the latest developments with scholarly and wide-ranging business examples”—Laura J. Spence, Professor of Business Ethics, Royal Holloway University of London.

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