February 2018 Newsletter
News & Commentaries by Ron Robins
It’s official: Sustainability strategies boost revenue. “The survey found the potential to expand revenues was the most important factor when deciding to implement sustainability strategies, with 39 percent of respondents citing revenue growth as a priority. Cutting costs was identified as the main driver for sustainability initiatives by 35 percent of respondents, while 30 percent said they primarily were seeking to boost brand reputation.”
[COMMENTARY]The survey by ING shows that companies are finally understanding the benefits of sustainable strategies. It’s good news for the global economy and for ethical investors.
It’s official: Sustainability strategies boost revenue, by Madeleine Cuff, February 22, 2018, GreenBiz, USA.
Every CFO Should Know This: ’The Future Of Banking’ Ties Verified ESG Performance To Cheaper Capital. “Danone′s third-party-verified ESG performance will be ’directly impacting, upwards or downwards, the margin payable to the banks over the entire duration of the facility.’”
[COMMENTARY]This is great news and provides even more encouragement for companies to engage in ESG activities. Independent studies had verified that companies with high ESG ratings generally have a lower cost of capital. However, this is possibly the first time that it’s been directly linked to credit facilities!
Every CFO Should Know This: ’The Future Of Banking’ Ties Verified ESG Performance To Cheaper Capital, by Jay Coen Gilbert, February 20, 2018, Forbes, USA.
Banking on a Low-Carbon Future: Are the World′s Largest Banks Stepping Up to the Risks & Opportunities of Climate Change? “Banks are exposed to climate-related risks through their lending and financial service activities, including project finance, equity and debt underwriting. These risks are real and wide-ranging. A recent study estimates that the value at risk for investors from climate change, under a business-as-usual scenario, may be equivalent to a permanent reduction of up to 20% in portfolio value in just over a decade.”
[COMMENTARY]Great analysis of the state of global banking with respect to their financial risks and opportunities concerning fossil fuels.
Banking on a Low-Carbon Future: Are the World′s Largest Banks Stepping Up to the Risks & Opportunities of Climate Change? February 2018, Boston Common Asset Management, USA.
Carbon Clean 200–2018 Q1. “We are happy to present the 2018 Q1 Clean200… list of publicly traded companies that are leading the way with solutions for the transition to a clean energy future.”
[COMMENTARY]This is a terrific list by two of the most respected organizations in the ESG space. And unlike most other ESG related rated rankings, this list is updated quarterly!
Carbon Clean 200–2018 Q1, February 16, 2018, As You Sow and Corporate Knights, Canada.
Ethisphere Institute Announces 135 Companies Honored as World′s Most Ethical Companies. “Ethisphere′s notion that financial value and ethics are inexorably tied together has been borne out through long-term tracking of how the stock prices of publicly traded honorees compare to the U.S. Large Cap Index. The research found that listed World′s Most Ethical Companies outperformed the large cap sector over five years by 10.72 percent and over three years by 4.88 percent. Ethisphere refers to this as the Ethics Premium.”
[COMMENTARY]Ethisphere’s report is the absolute opposite of ReRisk’s report below! Here we have the most ethical companies — according to their methodology. It’s a good idea to read Ethisphere’s and RepRisk’s reports together.
Ethisphere Institute Announces 135 Companies Honored as World′s Most Ethical Companies, press release, February 12, 2018, Ethisphere, USA.
RepRisk Releases the Most Controversial Companies 2017 Report. “Eight of Ten Companies Included Were Exposed to Severe Governance Issues, in Particular Bribery and Corruption.”
[COMMENTARY]Interestingly, RepRisk believes 2017 could be a landmark year when ’when the tide started to turn against corporate corruption.’ This RepRisk report is useful reading for ethical investors. See it here.
RepRisk Releases the Most Controversial Companies 2017 Report, press release, February 13, 2018, RepRisk, Switzerland.
Ethics in the markets. Some real concerns!
(1) Insider trading has been rife on Wall Street, academics conclude–The Economist, “INSIDER-TRADING prosecutions have netted plenty of small fry. But many grumble that the big fish swim off unharmed. That nagging fear has some new academic backing, from three studies. One argues that well-connected insiders profited even from the financial crisis. The others go further still, suggesting the entire share-trading system is rigged.”
Insider trading has been rife on Wall Street, academics conclude–The Economist, February 10, 2018, The Economist, UK.
(2) Does CEO Pay Structure Incentivize Actions that Destroy Long-Term Value? “The research finds that a high amount of equity vesting will increase the likelihood that a company will revise guidance upward; reduce research and development and capital expenditures; buy-back shares or increase the amount of its share buy-back; and even enter into merger and acquisition activity. It paints a clear and bold portrait of short-termism with concern for long-term value creation faded into the background.”
Does CEO Pay Structure Incentivize Actions that Destroy Long-Term Value? Press release, February 12, 2018, IRRC Institute, USA. (They’re offering a webinar on this subject on February 14. Sign up on the web page.)
[COMMENTARY]The above studies should alarm most investors. Why haven′t the regulators — including the US SEC and numerous other watchdog agencies — conducted their own research on these issues as they pertain to their activities? Are they told to look the other way? I believe we’re heading for a mammoth crisis of confidence if such issues aren’t properly addressed.
One-third of [UK] investors deem social impact just as important as returns. “The survey findings also show that 65% of Londoners are looking to make more environmental investments, and that they are twice as likely to prefer investing in SMEs, rather than stocks and shares, than people from other regions.”
[COMMENTARY]Here we have another survey showing UK investors becoming more interested in socially and environmentally responsible investing.
One-third of [UK] investors deem social impact just as important as returns, by Chris Seekings, February 9, 2-018, The Actuary, UK.
When ethical investment desires equal a demand for returns. “There has been a significant shift in UK investor behaviour, with 60 per cent of investors looking to make more social investments in 2018, according IW Capital’s latest nationally representative data, which surveyed 2,004 national respondents.”
[COMMENTARY]Another good survey showing how investors are increasingly interested in ethical investing. Given the recent huge increase in market volatility, it’ll be fascinating to see at the end of 2018 how real were the survey’s predictions.
When ethical investment desires equal a demand for return, by Ingrid Smith, February 7, 2018, What Investment, UK.
Yahoo Finance Expands Offerings as Only Free Provider of Sustainability Scores, across Desktop and Mobile Web. “Conscientious investors will be able to track the Environment, Social and Governance (ESG) scores of more than 2,000 publicly traded companies, only on Yahoo Finance.”
[COMMENTARY] More wonderful news for the retail investor interesting in obtaining free corporate ESG ratings! Sustainalytics is demonstrating that it wants its quality ESG research freely available to all investors. Thank you Sustainalytics!
Yahoo Finance Expands Offerings as Only Free Provider of Sustainability Scores, across Desktop and Mobile Web, press release, February 1, 2018, Sustainalytics, USA.
Barron′s 100 Most Sustainable Companies. “Barron′s offers our first ranking of the most sustainable companies in the U.S. We have always aimed to provide information about what keenly interests investors—and what affects investment risk and performance.
The term ’sustainability’ doesn′t have a single definition, but for years now, European investors have looked at environmental, social, and governance factors—qualitative measures that people believe promote a company′s long-term health and growth prospects.”
[COMMENTARY] Now we know that sustainability and ESG have arrived in America! One of the founders of ESG investing in the US, Calvert Research and Management, did the research. As such, it’s methodology looks good. However, surprisingly, their list differs from many others in not including Google, Facebook or Amazon!
Barron′s 100 Most Sustainable Companies, by Leslie P. Norton, February 3, 2018, Barron’s, USA.
Strong ESG policies are no protection against scandal. “Companies that aim to do good for society by adhering to environmental, social and governance policies are more likely to encounter lawsuits and regulatory actions, says BlackRock.”
[COMMENTARY] At first glance this is a surprising finding. However, high performing ESG companies are held to high standards, so when they don’t meet those standards there’s perhaps greater disappointment and backlash against them. Nonetheless, it’s important to know the facts!
Strong ESG policies are no protection against scandal, by Chris Flood, February 2, 2018, Financial Times, UK.
CUNY, Harvard scientists team with UBS Asset Management on sustainable investing framework. “The team leveraged recent advances in several scientific disciplines, including earth observation and modeling, epidemiology, and public health, and linked these data to corporate operational and financial data to show how products and services can contribute to more sustainable environmental and human systems.
The research suggests a new way to assess the sustainability of corporations for investors, who are increasingly interested in this investment approach. A key is to provide systematic, transparent, and verifiable metrics of success based on well-accepted scientific approaches, in contrast to the self-disclosure of beneficial actions that are claimed typically by companies themselves.”
[COMMENTARY] This is truly ground-breaking work and particularly important for ethical investors. I just wonder if their research will be proprietary or available freely to all investors? This project has the potential to significantly enhance corporate ESG and financial analysis!
CUNY, Harvard scientists team with UBS Asset Management on sustainable investing framework, press release, February 1, 2018, Advanced Science Research Center, GC/CUNY, USA.
Utilities may suffer ’significant losses’ from carbon taxes. “A new paper from Trucost, part of S&P Dow Jones Indices, suggests major companies across the electric utility, chemicals and automaker industries could suffer ’significant losses’ from new carbon pricing policies or carbon taxes introduced as part of nations’ climate efforts.”
[COMMENTARY] It seems that some defensive stock plays might not be so reliably defensive after all. Many investors and fund managers might want to re-evaluate their premises and holdings after reading Trucost’s report.
Utilities may suffer ’significant losses’ from carbon taxes, by Madeleine Cuff, January 26, 2018, BusinessGreen, USA.
Conscious Investing: Practitioners’ views on holistic investing approaches that benefit people and the planet, by Christin ter Braak-Forstinger, Harriman House 2017.
“Now is the time to rethink growth and radically change the way of investing in order to save the planet. With her book Conscious Investing, Christin ter Braak-Forstinger provides a comprehensive guide for the societal shift towards sustainability.”—Dr. Franz Fischler, President of the European Forum Alpbach.