August 2017 Newsletter

August 2017 Newsletter

News & Commentaries by Ron Robins


Why FAs Are Still Reluctant to Jump on ESG Bandwagon. “Asset managers and major brokerages think there′s big money to be made shilling these funds to advisors, with the likes of BlackRock, Bank of America and UBS highlighting the growing acceptance and mainstream popularity of SRI and ’impact investing’ strategies. But many advisors don′t seem to be biting. A survey of advisors from the Financial Times′ list of top RIAs last year showed just 4% of firms were focused on SRI opportunities.”

[COMMENTARY] Advisors in this piece argue there’s little demand by clients for SRI products. However, I wonder if they even ask their clients about potential interest in SRI/ESG investing? In most investor-advisor surveys the advisors fail to ask that question.
Why FAs Are Still Reluctant to Jump on ESG Bandwagon, by Murray Coleman, August 16, 2017, Financial Advisor, USA.

The Carbon Clean 200 2017 Q3 Update is now available. “A growing movement of investors representing more than $5.2tn in assets under management have signed a pledge to divest some portion of their fossil fuel holdings. But where to invest this capital?

The Clean200 list ranks the largest publicly listed companies by their total clean energy revenues, with environmental, social, and governance screens to help ensure the companies are indeed building the infrastructure and services needed for the ’Great Energy Transition’ in a just and equitable way. Notably, this new report highlights the fact that clean energy investments greatly outperform stagnating fossil fuel stocks.”

[COMMENTARY] The Clean 200 is an important listing for ethical investors of the leading carbon clean companies globally. Perhaps one of the most surprising findings is that China leads with 68 companies, double that of the USA!
Click here for The Carbon Clean 200 2017 Q3 Update, August 15, 2017, Corporate Knights/AS YOU SOW.

Millennials are driving a $9 trillion change in investing. “Millennials are driving the nearly $9 trillion sustainable investing market, according to a survey of 1,000 investors by Morgan Stanley’s Institute for Sustainable Investing.”

[COMMENTARY] Morgan Stanley’s research confirms the results of other surveys. (And still, too many advisors and brokers aren’t aware of this.)
Millennials are driving a $9 trillion change in investing, by Frank Chaparro, August 10, 2017, Business Insider, USA.

20 Undervalued, Sustainable Stocks — Morningstar. “We screened the Morningstar US Sustainability Index to find some undervalued stocks that score well on ESG metrics. Sustainability assessments are provided to Morningstar by researcher Sustainalytics (of which Morningstar has a 40% ownership stake).”

[COMMENTARY] I’m delighted to see that Morningstar is starting to freely share some of the individual Sustainalytics stock ratings. This is good news for all investors who don’t have access to Sustainalytics individual stock ratings’ services.
20 Undervalued, Sustainable Stocks — Morningstar, by Karen Wallace, August 9, 2017, Morningstar, USA.

The race to embrace ESG ratings. “Major investment firms are snapping up environmental, social and governance (ESG) ratings companies at a rapid clip — three hookups within just the past year.”

[COMMENTARY] It’s to be expected that many of the rising ESG raters would be acquired by somewhat related and established firms. It demonstrates ESG’s coming-of-age. Is it good or bad for investors? Only in five, ten, or more years will we know.
The race to embrace ESG ratings, by Anya Khalamayzer, August 10, 2017, GreenBiz, USA.

More Evidence of Solid Performance From Sustainable Funds. “Investors in funds that incorporate environmental, social, and governance factors into their process appear not to suffer a performance penalty.”

[COMMENTARY] Morningstar’s Jon Hale has another insightful post reviewing the recent performance of ESG funds. And he says these funds continue to demonstrate good relative performance.
More Evidence of Solid Performance From Sustainable Funds, Jon Hale, August 3, 2017, Morningstar, USA.

New study suggests screening for SRI costs 4.8% annually in stock performance. Is this an outlier?
“Using a sample of 1000 firms from the U.S., Europe, and Asia, between 2005 and 2014, we find evidence for the taste effect [for SRI] and estimate the associated under performance at 4.8% annually. Our results are robust against different model specifications and test assets.”

[COMMENTARY] This study reminds me of one or two others that also show that screening for SRI/CSR delivers poor relative stock performance. My concern with these few studies is how they define SRI/CSR. Studies looking at ESG — as distinct from SRI/CSR — almost universally indicate positive or outperformance in regards to stock or portfolio performance. It’ll be good for the academics to have a public debate on these studies!
The Price of Taste for Socially Responsible Investment, by Rocco Ciciretti University of Rome II, Ambrogio Dalo University of Rome, and Lammertjan Dam University of Groningen, CEIS Working Paper No. 413, July 2017, Italy.

Integrated Reporting: The South African Experience. “Few countries can claim that integrated reporting (IR) is common among domestic companies. An exception is South Africa, with many listed and public organizations having produced integrated reports for over six years. The emergence of IR as the dominant form of corporate reporting in South Africa has produced a significant number of internal and external benefits for the companies that have adopted it.”

[COMMENTARY] I’ve been observing and writing about the development of ESG and IR in South Africa for some time.(See Ethical Investing Shines in Africa As Economy Grows, June 18, 2010.)

This CPA Journal article illustrates the benefits of IR to companies and investors. Hopefully, South Africa’s beneficial experience with IR will hasten its adoption globally.
Integrated Reporting: The South African Experience, by Leigh Georgia Roberts, July 2017, The CPA Journal, USA.

Featured Book

Sustainable Investing: Revolutions in theory and practice, by Cary Krosinsky and Sophie Purdom, Routledge 2016.
“As we make the vital sustainability and low carbon transition, we are finally moving from persuading to doing, from testing to investing. This book gives a great guide to the reasons change is needed, the methods, tools and ideas to make that change, plus all the latest thinking that goes along with that.”—Dave Gorman, Director of Social Responsibility and Sustainability, Responsible Investment lead, University of Edinburgh, UK.

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