May 2019 Newsletter

May 2019 Newsletter

News & Commentaries by Ron Robins


Many Institutional Investors Confuse ESG with Socially Responsible Investing. “Institutional investors must be careful when navigating the legal issues relating to environmental, social, and governance (ESG) factor integration, or they may risk running afoul of their fiduciary duties, according to a white paper from Randy Bauslaugh, a partner in the Canadian law firm McCarthy T…trault, and Hendrik Garz of Sustainalytics, a provider of ESG research.”

[COMMENTARY]It’s clear that many fiduciaries must make investments on that which promotes profits and not on ethical grounds, hence this warning. However, I suspect that most fiduciaries aware of this. Nonetheless, for many smaller pension funds and non-profits managing internally, might need to be reminded of this.
Many Institutional Investors Confuse ESG with Socially Responsible Investing, by Michael Katz, May 29, 2019, Chief Investment Officer, USA.


Are investors willing to pay a “greenium” for sustainable stocks? “New study, by David Larcker and Edward Watts at Stanford Graduate School of Business, finds that municipal bond investors demanded exactly the same returns for green municipal bonds as for virtually identical non-green bonds issued on the same day by the same municipality.”

[COMMENTARY]Perhaps it’s because investors view much municipal investment — which is frequently infrastructure related — as green?
Are investors willing to pay a “greenium” for sustainable stocks? By Edmund L. Andrews, May 29, 2019, Fast Company, USA.


Green bond black hole leaves investors exposed. “According to the Climate Bonds Initiative, a body financed mainly by the finance industry, only two-thirds of issuers provide investors with regular updates on the use of proceeds. Even among those that do, the quality of data varies wildly, with some issuers unwilling to provide specific project data due to confidentiality issues.”

[COMMENTARY]When you buy a green bond, how do you know that the proceeds of that bond will go towards real green issues? For instance, proceeds of the recent RBC green bond, according to Bloomberg, could be used for environmental projects of tar sands companies. That might be alright with some investors, but not all.

This article makes clear that some sustainable investors are getting into difficulty investing in some green bonds as the proceeds from the bonds are investing in projects that are contrary to their covenants. The article outlines some ways that green bond issuers and investors can come together on these problems.
Green bond black hole leaves investors exposed, by Gareth Gore, May 24, 2019, Reuters, USA.


How Investors Apply ESG Priorities. “Across a list of 16 ESG-related topics, a majority of people said each issue was important in their decision to invest in a company, yet when asked if they have ever intentionally made an investment decision based on those same issues, a large discrepancy exists, with fewer than half saying they have taken action in many cases.”

[COMMENTARY]I think the finding that a little less than half of investors have taken investment actions based on their values is misleading. It’s probably a lot less than that. Consider that in the US, Canada, and Europe, retail ethical and sustainable funds represent only about 2-4% of all retail fund assets.

Investors are increasingly showing the right attitude and ethical and sustainable investing is growing though (mostly at the institutional level)–but they’re a long way from actually applying their values to their investments.
How Investors Apply ESG Priorities, by Kelly LaVigne, May 17, 2019, US News, USA.


Investors worldwide support ESG investing, but still want performance. “Worldwide investor demand for environmental, social and governance (ESG) investing is strong, according to a survey conducted by Natixis Investment Management, with 76% of individual investors globally and 71% of U.S. investors saying it is important to have the ability to invest according to personal values and ethical requirements.”

[COMMENTARY]Reading the survey question in the above quote suggests it might be difficult for someone to answer ‘no’. Such survey questions need to be more specific to get useful answers. Nonetheless, the sheer number of such surveys with similar results does indicate mass acceptance of ESG analysis.
Investors worldwide support ESG investing, but still want performance, May 16, 2019, InvestmentNews, USA.


Announcing CR Magazine’s 100 Best Corporate Citizens of 2019! “Owens Corning, Intel and General Mills top 20th annual cross-industry, U.S. ranking. Corporate Responsibility Magazine (CR Magazine) announced today its 20th annual 100 Best Corporate Citizens ranking, recognizing outstanding environmental, social and governance (ESG) transparency and performance amongst the 1,000 largest U.S. public companies.”

[COMMENTARY]CR Magazine always produces an interesting list. At the bottom of the PDF listing the companies is information pertaining to how their rankings are obtained. It’s worth reading so that you know how their rankings were arrived at and whether you believe they’re important to you.
Announcing CR Magazine’s 100 Best Corporate Citizens of 2019! by Robbie Lock, 3BL Association, May 15, 2019, USA.


Morningstar Launches ESG Asset Allocation Managed Portfolios. “Morningstar on Thursday announced the launch of the Morningstar ESG Asset Allocation Managed Portfolios, a series of five funds of ETFs and mutual funds, for advisors whose clients are concerned about environmental, social and governance issues… analysis of 56 Morningstar ESG screen indexes found that since 2009 41 outperformed their non-ESG counterparts, according to Dan Lefkovitz, Morningstar index strategist.”

[COMMENTARY]This is new territory for Morningstar. It’ll be fascinating to see how they perform. I presume that Sustainalytics is engaged with them on this.
Morningstar Launches ESG Asset Allocation Managed Portfolios, by Bernice Napach, May 10, ThinkAdvisor, USA.


Tim Nash’s sustainable stock showdown: battle of the burger chains. “Burger King set to join A&W in serving up new plant burger, but does that make its parent co, RBI, a sustainable investment?”

[COMMENTARY]With so much interest by investors in Beyond Meat — the recent vegan burger IPO — it’s a good time for a responsible review of how such interest might influence ethical and sustainable investors investment views on the fast food industry. Tim’s review is of Burger King’s and A&W’s Canadian companies.

I tried a Beyond Burger yesterday and noticed it was near twice the price of regular burgers. Yet, sales are so good that it’s lifting A&W’s sales significantly.
Tim Nash’s sustainable stock showdown: battle of the burger chains, by Tim Nash, May 6, 2019, Corporate Knights, Canada.


Wahed Becomes the First Globally-Accessible Halal Robo-Advisor. “The first halal robo advisor in the United States today announces it is expanding its operations globally. The platform, which was previously available only to US and UK communities, now provides access to Islamic value-based investing to residents of over 130 countries including key markets across Nigeria, India, Pakistan and the MENA region.”

[COMMENTARY]The potential for such a robo advisor is huge, considering the growing wealth of the world’s 1.8 billion Muslims. If they aren’t careful, it’s possible that many American and European investment advisors, particularly, could lose out to Muslim advisors such as this. Also, halal investing could be considered another branch of ethical investing. Hence, it helps spur ethical investing generally.
Wahed Becomes the First Globally-Accessible Halal Robo-Advisor, press release, May 7, 2019, Wahed Inc., USA.


Money Management Institute and Morningstar Launch Sustainable Investing Curriculum To Prepare Financial Advisors for the Growing ESG Market. “The eight-course online curriculum provides financial advisors with an introduction to the fundamentals, principles, and practices of sustainable and environmental, social, and governance (ESG) investing, enabling them to start client conversations and integrate sustainable investing into their practices. Sustainable investing refers to the incorporation of ESG factors and their impact into investment decisions.”

[COMMENTARY]The Money Management Institute first launched an ESG training product for advisors in 2017. From what I see, this is a substantial upgrading of that product.
Money Management Institute and Morningstar Launch Sustainable Investing CurriculumTo Prepare Financial Advisors for the Growing ESG Market, press release, Money Management Institute and Morningstar, May 4, 2019, USA.


Beyond Meat goes public with a bang: 5 things to know about the plant-based meat maker. “The maker of the Beyond Burger, which is sold at Whole Foods and restaurant chain TGIF, among others, priced its initial public offering at $25 a share Wednesday evening, raising at least $240 million at a valuation slightly shy of $1.5 billion.”

[COMMENTARY]I’m delighted to see not only did this offering happen at all — but that there is so much interest in it that it nearly tripled in price in its first days of trading. Most of the interest probably comes from younger investors. The underwriters probably significantly underestimated demand for the shares but did hold another 1.44 million shares in reserve.

It’s an exciting short term play but with so many competitors to its products over the medium to long-term, it’s not obvious it will be a winner yet.
Beyond Meat goes public with a bang: 5 things to know about the plant-based meat maker, by Ciara Linnane, May 4, 2019, MarketWatch, USA.


ETF vs. SMA: Which Is Better for Sustainable Investing? “SMAs are ideal for values-based investing as they allow investors to actively screen for certain product areas (e.g. oil, tobacco), or ‘bad actors’ that they deem antithetical to their values. They also allow for more specificity, e.g. designating a certain percentage of revenue from carbon emissions to be included in one…s portfolio.

Furthermore, because SMA investors directly own the underlying securities, they can opt to play an active shareholder role, working to impact corporate behavior through voting proxies or shareholder resolutions.”

[COMMENTARY]An SMA is a separately managed account available at many financial institutions. The author of the article suggests that — from a US perspective — they can be better for ethical and sustainable investors than ETFs. This is a worthwhile read for all investors.
ETF vs. SMA: Which Is Better for Sustainable Investing? By Johny Mair, April 30, 2019, ThinkAdvisor, USA.


Fund managers worth $10.2tr urge oil firms to align with Paris Agreement goals. “Oil companies will cease to be attractive investments unless they quickly adopt low carbon business models that support the Paris Agreement’s climate targets, new findings from a major survey of 39 fund managers responsible for $10.2tr of assets worldwide suggest…

Only 18 per cent said they believed oil companies would remain good investments if their businesses are still focused on fossil fuels in five years’ time… “

[COMMENTARY]President Trump can play the oil card but it’s the fund managers that have the aces. And they’re getting fearful of oil.
Fund managers worth $10.2tr urge oil firms to align with Paris Agreement goals, by Michael Holder, April 29, 2019, BusinessGreen, UK.


Fund buyers to increase ESG exposure. “Two thirds of fund buyers plan to increase their allocation to environmental, social and governance (ESG) funds in 2019, according to data compiled by Natixis.”

[COMMENTARY]Over 200 fund managers, insurers and wealth managers were surveyed. Again, the wisdom of ESG-based investing is being acknowledged.
Fund buyers to increase ESG exposure, by David Thorpe, April 29, 2019, FT Advisor, UK.

Featured Book

The Ethical Investor…s Handbook: How to Grow Your Money Without Wrecking the Earth, by Morten Strange, Marshall Cavendish International (Asia) Pte Ltd., 2019.
…Strange is articulate, has a great sense of understanding of the subject and a good turn of phrase, combined with the financial rigour, to tackle one of the key challenges facing investors who are not convinced by climate change … I would thoroughly recommend this book!…… Lawrence Gosling Editor-in-chief, WhatInvestment (UK).

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