January 2016 Newsletter

January 2016 Newsletter

News & Commentaries by Ron Robins


The SEC Isn′t Enforcing Climate Risk Disclosures By Fossil Fuel Companies. “Peabody Energy is not the only fossil fuel company to fail to disclose climate change risks. ExxonMobil, the largest oil and gas company in the U.S., is being investigated by both California and New York for not disclosing climate risks to investors and the public. So, what does it say about the SEC?”

[COMMENTARY]Probably certain economic elites who are hugely invested in fossil fuels are restraining the SEC. However, their power is waning! I expect the SEC to be much more forceful on corporate disclosure of climate change impacts in the years to come.
The SEC Isn′t Enforcing Climate Risk Disclosures By Fossil Fuel Companies, by Gina-Marie Cheeseman, January 28, 2016, TriplePundit, USA.

RepRisk Special Report: Most Controversial Companies (MCC) 2015.“How a company manages environmental, social, and governance (ESG) issues is now seen as directly linked to its operational excellence and social license to operate. ESG risks … such as environmental degradation, human rights abuses, and corruption … can also translate into compliance, reputational, and financial risks.”

[COMMENTARY]Among their top companies for ESG risk are: Uber Technologies Inc., Takata Corp., HSBC Private Bank (Suisse), Sony Corp., Volkswagen AG., and GM. It’s interesting to read their analysis of how they view the issues related to these, and many other, companies.
RepRisk Special Report: Most Controversial Companies (MCC) 2015, January 2016, RepRisk, Switzerland.

Socially Responsible Firms Tend to Pay Less Taxes. “If you cynics figured the do-gooders pay less in taxes, you′re right, according to a study published in the January/February issue of the American Accounting Association journal, The Accounting Review.

The study finds that a higher CSR corresponds to lower taxes paid. In a sample of US companies with an effective tax rate averaging 26 percent, the do-gooders ranking in the top fifth of CSR paid an average of 1.7 percentage points below other companies … and, ultimately, about 6 percent less when factoring in other differences in tax rates.”

[COMMENTARY]This is a puzzling finding. Even the authors of the study were at a loss as to the reasons why this is happening. If anyone has some good theory or insight into this, please let me know.
Socially Responsible Firms Tend to Pay Less Taxes, by Terry Sheridan, January 25, 2016, Accountingweb, USA.

2016 Global 100 Most Sustainable Corporations in the World Ranking. “European companies continued to dominate the ranking, comprising 53 per cent of the total. North American companies made up 27 per cent of the remainder, followed by a combined 20 per cent from Asia, Africa and Australia.”

[COMMENTARY]This annual ranking by Corporate Knights is worthwhile reading for all SR-ethical investors.
2016 Global 100 Most Sustainable Corporations in the World Ranking, January 21, 2016, Corporate Knights, Canada.

Corporate Risk Disclosures Dominated by Non-Specific “Boilerplate” and Fail to Provide Investors with a Clear Risk Picture, New Study Finds. “The findings are contained in a new study, The Corporate Risk Factor Disclosure Landscape, published today by the Investor Responsibility Research Center Institute (IRRCi). Ernst & Young LLP (EY) was the primary research entity and contributor to this report. The study examines the risk disclosures of 50 large companies, including the five largest publicly traded companies in ten different industries with an aggregate market capitalization of approximately $8 trillion.”

[COMMENTARY]This study comes at an opportune time as ESG factors are increasingly integrated into mainstream investment analysis. Analysts and funds will demand greater corporate disclosure of risks and companies that don’t respond appropriately will likely be punished with lower stock prices. So we’re going to have much more transparency of risk by companies in the future.
Corporate Risk Disclosures Dominated by Non-Specific “Boilerplate” and Fail to Provide Investors with a Clear Risk Picture, New Study Finds, press release, January 21, 2016, Investor Responsibility Research Center Institute (IRRCi)/Ernst & Young LLP (EY), USA.

Morningstar ethical rating could cost funds billions. “High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article.

Asset managers fear losing billions of dollars as a result of a Morningstar initiative that will enable investors to compare the ethical ratings of thousands of funds tracked by the data provider. Morningstar will release the environmental, social and governance scores of a large proportion of the 200,000 funds it tracks for the first time before the end of March.”

[COMMENTARY]Sustainalytics has the contract to supply Morningstar with ESG ratings on some 4,500 companies, who will in turn apply those ratings to fund holdings. Since most investors are now interested in sustainability, a funds ESG rating could become a big deal for all fund managers — forcing them to improve their ESG scores! This is wonderful news for ethical investors and for those of us desiring the greatest use possible of ESG criteria in funds’ management.
Morningstar ethical rating could cost funds billions, by Attracta Mooney, January 17, 2016, Financial Times, UK.

Ethical investing: making money, making a difference. “’We surveyed about 1,100 investors last year from coast to coast [in Canada], and 92% said that it was important for them to invest in products that are consistent with their own personal values,’ says Chris Nickerson, senior vice president, sales and distribution, NEI Investments. ’And 71% of Canadians want their investments to help change or make companies better.’”

[COMMENTARY]Non SR-ethical investment advisors should understand they can do even better for themselves and their clients when they know the personal values of each client.
Ethical investing: making money, making a difference, by Donald Horne, January 12, 2016, Wealth Professional, Canada.

Europe Leads Sustainable Investing. “San Lie, director of manager research, Benelux with Morningstar′s EMEA fund research team said in the firm′s latest bi-monthly magazine that $13.6 trillion was invested in sustainable assets in Europe compared to $6.6 trillion in the US. Lie said that a total of $21.4 trillion was invested globally in ESG (environmental, social and governance) assets in 2014, 60% more than in 2012.”

[COMMENTARY]This article further discusses how institutional investors a far ahead of individuals in using ESG criteria in selecting investments. However, in all surveys of individual investors a significant proportion of them want to invest with ESG/ethical criteria in mind. Thus, again, I suggest it’s the advisors not doing their job of ’knowing their client’ is where the real bottleneck lies for individual investors.
Europe Leads Sustainable Investing, January 5, 2016, Markets Media, USA.

Investment Managers Raising ESG Offerings To Meet Demand, Study Says. “Over 75 percent of investment managers are increasing their use of environmental, social and governance products and impact investing to meet customer demand, according to a survey released this week by Tiburon Strategic Advisors.”

[COMMENTARY]The 75% figure is the highest I’ve seen among such surveys. Seeing that it was reported by a reputable advisors magazine, it has some credibility.
Investment Managers Raising ESG Offerings To Meet Demand, Study Says, by Ted Knutson, December 31, 2015, Financial Advisor, USA.

Investors still sceptical about ESG. “Almost two-thirds, some 64%, of institutional investors polled by Natixis Global Asset Management in its annual survey said environmental, social and corporate governance measures offered by fund managers were ’primarily a PR tool’.”

[COMMENTARY]The findings in this Nataxis survey run almost counter to other surveys of investors. Actually, when I read this article I wondered how thoroughly those institutional investors were aware of the research that predominantly finds utilizing ESG criteria generally improves returns. The survey — and the tone of the article — left me believing that most of those surveyed were still a little ignorant about ESG.
Investors still sceptical about ESG, by Andrew Pearce, January 26, 2016, Financial News, UK.

50 Best (US) Workplaces for Diversity. “Fortune and Great Place to Work partnered with Essence and People en Espa…ol to survey companies that make inclusiveness a top priority. Rankings were determined by employee feedback and the representation of racial and ethnic minorities and women.”

[COMMENTARY]Among public companies, the top three are: Camden Property Trust (which was ranked #1 over all); Ultimate Software (#4); and Workday (#6). This is a must see list for those ethical investors who rate diversity highly when selecting investments.
50 Best (US) Workplaces for Diversity, Forbes, December 2015, USA.

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