January 2022 Newsletter
News & Commentaries by Ron Robins
————————————————————-
Latest Podcasts:
————————————————————-
Latest Podcast: ESG Dividend Stocks. Global 100 Companies. Plus… “Podcast covers…QUALCOMM, NextEra Energy, Texas Instruments, Cabot Corporation, Kimco Realty, Hewlett Packard Enterprise Company, Amgen, Moelis & Company, Artisan Partners Asset Management, Novavax, Vir Biotechnology, SSE, Greencoat UK Wind, and funds iShares ESG Aware MSCI USA ETF, Invesco ESG Nasdaq-100 ETF, and Xtrackers S&P 500 ESG ETF.”
— By Ron Robins
————————————————————-
How does ESG impact the function of audit? “Auditors need to stay abreast of the evolving issues and reporting requirements connected to ESG or they risk leaving themselves vulnerable to charges of professional negligence.”
[COMMENTARY]Environmental groups in many countries are taking governments to court to force them to not only meet their climate change commitments but also to ensure a clean future environment. It’s understandable, therefore, that companies — and their auditors — could face similar legal challenges by stakeholders of these companies.
How does ESG impact the function of audit? By Allianz Global Corporate & Specialty, January 2022, Germany.
————————————————————-
Wall Street blunts momentum of fossil fuel divestment. “Both Citi and BlackRock see potential downsides to withdrawing their funds from fossil fuel companies. And it’s not all about profits, but rather having a say over how those firms navigate what may be arocky clean energy transition, they said.”
[COMMENTARY]I’ve been agreeing for some time now with the opinion that engaging in dialogue with companies who are ESG/fossil-fuel use laggards is a good policy. Also, there’s the added investment benefit that as these laggards implement ESG/fossil-fuel reduction policies the shares of such companies are likely to see better gains than already highly performing companies on those metrics.
Wall Street blunts momentum of fossil fuel divestment, by Andrew Freedman, January 20, 2022, AXIOS, USA.
————————————————————-
Switch to ESG indices has not pleased all European investors. “Not all professional fund buyers are happy with passive funds being repurposed as sustainable.”
[COMMENTARY]When funds switch their goals, it’s easy to understand that current holders of those funds might feel cheated. Ethically, shouldn’t the fundholders have a voice in such matters?
Switch to ESG indices has not pleased all European investors, by Ed Moisson, January 19, 2022, Financial Times, UK.
————————————————————-
Study Shows Canadian Financial Advisors are Comfortable Engaging With Clients on ESG, but Subject Matter Knowledge Is Limited. “Some advisors appear to be overestimating their knowledge. Advisors’ demonstrable knowledge was similar regardless of their self-assessed knowledge levels. Of those advisors who said their RI knowledge was excellent or very good, one-fifth did not correctly identify 3 true statements out of 10 statements about RI.”
[COMMENTARY]The good news is that most Canadian advisors are fine engaging clients on ESG considerations concerning their portfolios. However, since many, many, advisors lack ESG product knowledge, their ability to suitably advise clients on ESG investments rings hollow.
Study Shows Canadian Financial Advisors are Comfortable Engaging With Clients on ESG, but Subject Matter Knowledge Is Limited, press release, January 19, 2022, Responsible Investment Association, Canada.
————————————————————-
The 100 most sustainable corporations of 2022. “Corporate Knights’ 2022 ranking of the world’s 100 most sustainable corporations is based on a rigorous assessment of nearly 7,000 public companies with revenue over US$1 billion.”
[COMMENTARY]One of the best, if not the best, independent assessments of the most sustainable companies whose stocks you can buy.
The 100 most sustainable corporations of 2022, by Corporate Knights staff, January 19, 2022, Canada.
————————————————————-
The European Central Bank’s vision for green bond standards forgoes inclusivity. “The European Central Bank has suggested that the proposed EU Green Bond Standard (EU GBS) become mandatory for all green bonds. Karim Henide disagrees.
He writes that the EU GBS is so narrow that only a fraction of the current green bond market is eligible under this standard. Issuers on the margins may not have the capacity to adhere to the degree of ambition and scrutiny expected at the level of the EU GBS label.”
[COMMENTARY]Is this another case of bureaucrats not listening to markets! Yes, the green bond market needs regulation, but if the regulation is rigid and costly, it’ll harm the development of climate change.
The European Central Bank’s vision for green bond standards forgoes inclusivity, by Karim Henide, January 17, 2022, London School of Economics, London, UK.
————————————————————-
Opinion: Do ‘ethical’ pension funds have a private equity problem? “‘The people running public pension plans these days like to boast about their ‘ethical’ investment policies, for example when it comes to the environment or‘diversity, equity and inclusion.‘ Meanwhile they pourbillions of dollars into secretive private-equity funds in pursuit of extra profits. Now comes yet more evidence that some of those private-equity managers in turn are using that money for the opposite of ethics.”
[COMMENTARY]The article describes some unsavory practices in these relationships!
Opinion: Do ‘ethical’ pension funds have a private equity problem? By Brett Arends, January 12, 2022, MarketWatch, USA.
————————————————————-
Can Global Regulators Save the ESG Movement From Itself? “Without state intervention and global standards, the environmental, social, and governance movement is a recipe for greenwashing and corporate deception.”
[COMMENTARY]Yes, I favor increased government regulation concerning corporate ESG reporting standards, how they’re measured, and who gets to audit them. We’re certainly not there yet.
Can Global Regulators Save the ESG Movement From Itself? By Michael Moran, January 10, 2022, Foreign Policy, USA.
————————————————————-
The Non-Performance Benefits of ESG Investing. “The above findings should not lead to questioning whether ESG strategies can offer substantial value to investors.
Instead, they suggest that investors who look for value-added through outperformance are looking in the wrong place — ESG strategies should be considered for the unique benefits they can provide, such as hedging climate or litigation risk, aligning investments with norms and making a positive impact for society.
In addition, ESG investors get an added benefit by employing strategies that tilt toward factors with higher expected returns — a strategy employed by the sustainable investment funds of Dimensional.”
[COMMENTARY]Two particularly interesting studies are reviewed here. What has always concerned me in most ESG portfolios is the overweight of tech and financials in them. Now, if in the years ahead we are to fulfill our renewable energy ambitions, massive increases in mining for lithium, copper, cobalt, silver, etc., will be needed. Will ESG investors and funds turn to miners that mine in a ‘most’ sustainable way?
The Non-Performance Benefits of ESG Investing, by Larry Swedroe, January 3, 3022, Advisor Perspectives, USA.
————————————————————-
4 Best ESG Stock Screeners. “While this list is a great starting point for any potential ESG investors, it’s essential to supplement it with your own research as well.”
[COMMENTARY]I’m biased towards Sustainalystics since I’ve been aware of their sincerity and quality of ESG research since their beginning days over two decades ago!
4 Best ESG Stock Screeners, by The Impact Investor, January 1, 2022, USA.
————————————————————-
ESG shares underperform oil and gas in 2021. “As of December 29, US giants Exxon and Chevron had added 48 per cent and 40 per cent respectively in 2021. The duo have helped power global energy equity funds past many of the hundreds of US and European sustainable funds as defined by Morningstar, a data provider.”
[COMMENTARY]In my view, there are two reasons this is happening. First, still relatively high fossil-fuel demand yet with low investment in new replacement production that is forcing higher fossil-fuel prices. Secondly, it could be that divestment helped forced down the price of many fossil-fuel producer stocks to a point that higher fossil-fuel prices gave way to higher profits. Thus, their shares became attractive to many investors and sent their stock prices higher.
ESG shares underperform oil and gas in 2021, by Patrick Temple-West and Kristen Talman, December 30, 2021, Financial Times, UK.
————————————————————-
Today’s widely adopted ESG ratings and net-zero pledges are mostly worthless, two pioneers of sustainable investing say. “Scores of new funds are claiming to practice environmental, social and governance investing, but their managers are failing to put in the work of determining whether companies they own adhere to those standards. And that’s leading to style over substance, two long-time ESG portfolio managers said in an interview.”
[COMMENTARY]There are some useful insights in this article concerning ESG ratings. However, I stand by my contention that just as investors have differing views about a stock, so should ESG raters have different opinions too. However, I do believe that ESG raters need to be transparent about their methodologies and market performance integrated into their data.
Today’s widely adopted ESG ratings and net-zero pledges are mostly worthless, two pioneers of sustainable investing say, by Debbie Carlson, December 28, 2021, MarketWatch, USA.
————————————————————-.
Featured Book
Making Money Moral: How a New Wave of Visionaries Is Linking Purpose and Profit, by Judith Rodin and Saadia Madsbjerg, Wharton School Press 2021.
“Anyone who wants to understand the link between capital markets and progress towards a more sustainable, peaceful, and prosperous world should put this book at the top of their reading list. Through real-life examples and in-depth conversations with experts, Making Money Moral demonstrates the power of bringing together the world of finance and the world of impact.”–Jeff Skoll, Founder and Chairman, Skoll Foundation, Co-Founder, The Rise Fund.
