February 2016 Newsletter

February 2016 Newsletter

News & Commentaries by Ron Robins


CFA Institute Survey: Investors Want Transparency, Ethics, Performance.Key findings:

  • “Retail investors′ trust in financial services increased in the U.S., U.K. and Australia, fell in Canada and Hong Kong since 2013.

  • Investment costs are even more important than performance to investors globally, and firms are not meeting expectations in this area.

  • Institutional investors rank ethical standards above all else in important attributes of a firm.

  • Investors in China and India lean toward robo-advisor options, whereas investors in Canada, the U.S., and U.K. still value human interaction.

  • Transparency and cybersecurity are key concerns among investors.

  • A third of investors feel that another financial crisis is likely within the next three years, and about half of investors lack confidence in their firm′s ability to manage through a crisis.”

[COMMENTARY]The survey, “From Trust to Loyalty: A Global Survey of What Investors Want,” is a follow-up to the 2013 Edelman/CFA Institute Investor Trust Study. This is a remarkable survey with important results that all investors — and particularly advisors — might want to consider.
CFA Institute Survey: Investors Want Transparency, Ethics, Performance, press release, February 17, 2016, CFA Institute, USA/UK.

92% of pension funds plan to upgrade governance: report.“[State Street Corporation’s report] Pensions with Purpose: Meeting the Retirement Challenge report, which is based on responses from 400 pension professionals in 20 countries, found that respondents believe their board′s expertise is not strong enough in critical areas and must be improved, with 45% planning to increase training and education opportunities for board members… also found… funds will continue to diversify their investment strategies, with 83% expressing moderate or high interest in environmental, social and governance (ESG) investments.”

[COMMENTARY]Always an issue is that many board members of pension funds are not necessarily knowledgeable in financial matters — particularly the latest trends such as ESG. It’s also good to hear the continuing confirmation that pension fund manager’s are really interested in ESG!
92% of pension funds plan to upgrade governance: report, by Jennifer Paterson, February 17, 2016, Benefits Canada, Canada.

Companies that Treat Employees Well Attract 35% More Investment From SRI Funds. “Now, a study has found that practicing good employee relations can also be profitable in terms of investment.

New research concludes that it′s worth thirty-five percent more investment from socially responsible funds. The study, conducted by Onur Tosun, Assistant Professor of Finance at Warwick Business School in Coventry, England, studied one thousand five hundred eighty-five U.S. corporations, and forty-seven socially responsible investment funds, using measurement criteria from the KLD Index and the US Forum for Sustainable and Responsible Investment. He found that those companies who treated their employees the best attracted the most money from SRI funds.

[COMMENTARY]It seems obvious that this should be true. However, it’s good that someone has studied it and found it valid. This study could entice more companies to put some emphasis on the ’S’ in ESG.
Companies that Treat Employees Well Attract 35% More Investment From SRI Funds, by John Howell, February 15, 2016, USA.

Investors Call For Mining Companies To Address Climate Risks.“A group of shareholders called the ‘Aiming for A′ investor coalition is asking three giant mining companies to be more transparent about the climate change risks to their businesses. The investors are responsible for over $8 trillion in assets. Shareholder resolutions to Anglo American, Glencore and Rio Tinto include support from four of the world′s largest pension funds.”

[COMMENTARY]With a view shared by most ethical investors, this investor coalition calls on three huge extractive companies to clearly explain and attempt to quantify their climate change risks. I guess if these companies agree, it could force many others in these and related industries to similarly release such information and data.

(For some companies there could even be opportunities. For instance, silver is used in photovoltaic solar panels.)
Investors Call For Mining Companies To Address Climate Risks, by Gina-Marie Cheeseman, February 12, 2016, TriplePundit, USA.

Sustainalytics’ “10 for 2016” Report Presents Key Investor Insights into the COP21 Agreement. “The report′s bottom-up assessment looks at 10 companies, spanning six countries and nine industries, that are taking significant steps to get ahead of the climate change curve. The companies featured showcase diverse approaches to tackling climate change, from disruptors like Tesla on energy storage to Borregaard on petrochemical alternatives to Cisco on the Internet of Things.”

[COMMENTARY]Sustainalytics does excellent work in illustrating the type of sustainable activities that companies in many sectors might emulate. This report provides insights for ethical investors about what they might look for when reviewing potential investments through a sustainability lens.
Sustainalytics’ “10 for 2016” Report Presents Key Investor Insights into the COP21 Agreement, February 10, 2016, Sustainalytics, Global.

Green Bank Network aims to unleash private clean energy capital.“During the Paris climate conference, six green banks and two nonprofit organizations jointly announced the opening of the network Dec. 7. The network will accelerate clean energy installations and mobilize private investments worldwide… The six participating green banks are Connecticut Green Bank, Japan′s Green Fund, Malaysian Green Technology Corporation, UK Green Investment Bank, NY Green Bank and Australia′s Clean Energy Finance Corporation.”

[COMMENTARY]The joining of these banks could be the beginning of a global green bank network. We will see if over time it becomes a significant player in global green energy finance. Some green banks, like the UK’s Triodos Bank, seem to be left out.
Green Bank Network aims to unleash private clean energy capital, by Yinong Sun, February 9, 2016, GreenBiz, USA.

The First Benefit Corporation IPO Is Coming, And That′s A Big Deal. “Get ready for the first public stock offering by a chartered Benefit Corporation. This ain′t no friendly neighborhood organic coffee roaster, either. Laureate Education promises to operate as a triple-bottom-line business, but this is a much bigger, more complicated deal.

Laureate is the world′s largest for-profit operator of online and campus-based higher education. It owns, controls or manages 88 institutions that enroll more than 1 million students, 90 percent of whom live outside the United States. It has been growing rapidly, and in 2014 its revenues exceeded $4.4 billion. It′s a 16-year-old company, but it announced its new charter as a Delaware Benefit Corporation just four months ago, on the same day it registered for its IPO.”

[COMMENTARY]Major investors in Laureate are KKR and the World Bank’s International Finance Corporation! So this deal looks like it will be very widely watched and could the beginning of a whole new era of financing for companies focused on triple bottom line results. Ethical investors everywhere could get excited and interested in such deals.
The First Benefit Corporation IPO Is Coming, And That′s A Big Deal, by Brad Edmondson, February 4, 2016, TriplePundit, 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 somewhat about ESG.
Investors still sceptical about ESG, by Andrew Pearce, January 26, 2016, Financial News, UK.

JPM teams up with World Bank and S&P for ESG platform. “JP Morgan Investment Bank′s structured products team has launched a new ESG-related platform alongside index provider S&P and World Bank, the group has announced.

The platform is called JP Morgan Ethos Investments and it is aimed at investors seeking to deploy capital in ESG-focused assets by investing across trackers, principal protected products, equity, credit and fixed income.”

[COMMENTARY]This new product will be fascinating to watch. It certainly has a blue-chip pedigree. Clearly, with this type of backing it could go far.
JPM teams up with World Bank and S&P for ESG platform, by Silvia Sciorilli Borrelli, February 1, 2016, Citywire Selector, UK.

Adviser launches ethical online investment service for the UK.“Bromige Financial’s expertEthical website is powered by Parmenion and will provide advice exclusively on ethical investments. The company said it wants to make specialist advice on ethical products more affordable for consumers.”

[COMMENTARY]On-line investment advisory services are proliferating, but I believe this is the first in the UK to offer purely ethical products.
Adviser launches ethical online investment service, by Carmen Reichman, February 1, 2016, Professional Advisor, UK.

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