March 2022 Newsletter
News & Commentaries by Ron Robins
Latest Podcast: The Most Ethical Companies and Best Renewables Articles covered: “The 10 most innovative companies in corporate social responsibility of 2022”; “5 Must-See Picks Just Added to RBC’s ESG Darlings List”; “3 Top Artificial Intelligence Stocks to Buy in March”; and more! Stocks covered include Sweetgreen, Lululemon, SolarEdge Technologies Inc., Johnson Controls PLC, Enphase Energy Inc., and more.
— By Ron Robins
ESG Is The Third Wave Of Change In Asset Management After Graham And MPT. “Amy Domini, one of Time’s 100 Most Influential People, started one of the first socially responsible funds 30 ago. She sees ESG as the third major wave of change in asset management, with Benjamin Graham’s value investing and modern portfolio theory being the first two significant waves of change.”
[COMMENTARY]In this article one of the greats of socially responsible investing and ESG — Amy Domini — provides terrific insights into her investing approach.
ESG Is The Third Wave Of Change In Asset Management After Graham And MPT, by Jacob Wolinsky and Michelle Jones, March 28, 2022, Forbes, USA.
The Rise of Anti-ESG Shareholder Proposals. “These proposals, though few, are increasing and contribute noise to analyses of ESG voting… Issues include ideological diversity of the boards, lobbying, charitable donations, and, more recently, issues around racial justice.”
[COMMENTARY]Apparently, these ‘anti’ ESG proposals are mostly from conservative groups.
The Rise of Anti-ESG Shareholder Proposals, by Ruth Saldanha, March 28, 2022, Morningstar, Canada.
ESG Standards Talk: A Step Towards One Global Disclosure Standard? “Finally we are looking at the possibility of one comprehensive global standard for disclosure on sustainability and ESG, which will help to develop a transparent and comparable understanding of how to report sustainability risks and what they mean.”
[COMMENTARY]It seems that many of the leading ESG standards’ organizations have some kind of understanding regarding ESG reporting. It’s been a long time coming. Hopefully, it will provide stakeholders with corporate information that’s material to the company’s financial position and allows for cross-company comparisons. I just hope that such corporate reporting has independent auditing of the information and data provided by companies.
ESG Standards Talk: A Step Towards One Global Disclosure Standard? By Felicia Jackson, March 24, 2022, Forbes, USA.
Green investing: the global system for rating companies’ ethical credentials is meaningless. “As the war in Ukraine rages, finance professionals on Wall Street and in Europe recently attracted outrage by suggesting that investing in arms manufacturers should be treated as ethical investing.
In the fight against tyranny, they argued that such an investment ‘preserves peace and global stability’ and defends ‘the values of liberal democracies’. As such, it belongs in the increasingly lucrative investment category known as ESG or environmental, social and governance…
Unfortunately, the label is not currently worth the paper that it’s written on – and not only because of the controversy over defence contractors. My recent research shows that this completely undermines ESG’s potential as a force for good. As we shall see, however, regulators are at least making moves in the right direction.”
[COMMENTARY]It was inevitable that the ESG ‘label’ would be abused in various ways. Advisors, ethical and sustainable investors, need to do their homework. New regulations and reporting standards will help. However, it’s still buyer beware!
Green investing: the global system for rating companies’ ethical credentials is meaningless, by Marc Lepere, King’s College, March 23, 2022, UK.
Why ESG Investors Put Too Much Emphasis on the Environment. “SEC Chairman Gary Gensler recently announced plans to formulate a human capital disclosure requirement for public companies. Reporting metrics might include worker turnover, skills and development training, compensation, benefits and workforce demographics related to diversity, health and safety.”
[COMMENTARY]It’s quite likely that most large companies determine these metrics anyway for internal assessments and use. Also, I agree that many ESG investors would be interested in such data. However, the increasing paperwork burdens being placed on businesses, particularly smaller enterprises, might be coming somewhat onerous.
Why ESG Investors Put Too Much Emphasis on the Environment, by John Engle, March 22, 2022, yahoo.com, USA.
Hedge Funds Balk at ‘Really Problematic’ Rules Steering ESG. “Hedge funds keen to get a piece of the $40 trillion ESG market are voicing growing frustration over what they say is an absence of clear regulations for one of their most popular investment strategies.
Firms including Man Group Plc and BlueBay Asset Management LLP say disclosure rules for environmental, social and governance investing still don’t explain how hedge funds should account for short selling. As a result, many are now turning to their lawyers to help them avoid the kinds of legal risks that might arise if they misstate their ESG positions.”
[COMMENTARY]Short selling has always been controversial. However, given proper rules — such as only being able to short a stock after a price uptick — it’s been part of stock market practices for millennia. It seems the new European Sustainable Finance Disclosure Regulation doesn’t adequately cover rules for short-sellers.
Hedge Funds Balk at ‘Really Problematic’ Rules Steering ESG, by Lisa Pham, March 18, 2022, Bloomberg, UK.
Clarity AI: Only 7% of a Sample of 31,000 Equity Funds Have More Than 10% ‘Green Revenues,’ as Defined in the EU Taxonomy. “The EU Taxonomy aims to align market participants on definitions of sustainability, but investors need to dig deeper to know just how ‘green’ a fund really is.”
[COMMENTARY]I believe that it’s a great idea ethical and sustainable that funds differentiate themselves according to how ‘green’ their revenues are. And it’s happening. I really like what Corporate Knights are doing too. See Report: Meet the top 200 companies investing in a clean energy future.
Clarity AI: Only 7% of a Sample of 31,000 Equity Funds Have More Than 10% ‘Green Revenues,’ as Defined in the EU Taxonomy, press release, March 17, 2022, Clarity AI, USA.
Coming to Terms with a Maturing ESG Landscape. The momentum and support for environmental, social and governance (ESG) integration into the investment process has reached critical mass. Most companies now recognize the strategic need to have an ESG story, and some are even leveraging ESG leadership as a key differentiator from competitors.”
[COMMENTARY]This article is an informed opinion on the state of ESG today and where it’s likely heading.
Coming to Terms with a Maturing ESG Landscape, by Peter Reali, Jennifer Grzech, and Anthony Garcia, at Nuveen. March 17, 2022, Harvard Law School Forum on Corporate Governance, USA.
The False Promise of ESG. “But do ESG ratings really deliver on the promise? Are highly-ranked ESG businesses really more caring of the environment, more selective of the societies in which they operate, and more focused on countries with good corporate governance?
In short, is ESG really good? The answer is no. We demonstrate this by focusing on a group of companies that are now at the center of the world’s attention: businesses with substantial operations in Russia.”
[COMMENTARY]The title is misleading and only appropriate in a narrow sense. It’s appropriate to European-based high ESG performing companies with operations in Russia. However, I acknowledge and am concerned about how ESG company measures are determined of subsidiaries in developing countries.
The False Promise of ESG, by Jurian Hendrikse et al, March 16, 2022, Harvard Law School Forum on Corporate Governance, USA.
Morningstar’s Jon Hale: Advisors’ ESG ‘Wave-Off’ Is History. “Speaking with Barron’s Advisor, Hale says sustainable-fund active managers may need to tweak their approach to continue outperforming. He weighs the potential impact should the Labor Department reverse the Trump-era policy of blocking retirement advisors from environmental, social, and governance (ESG) investment strategies.
And he explains why some financial advisors call creating a sustainable-investing niche the smartest thing they’ve ever done.”
[COMMENTARY]Steve Garmhausen of Barron’s interviews John Hale, Morningstar…s global head of sustainability research. There are some good insights into the present-day situation concerning sustainable investing.
Morningstar’s Jon Hale: Advisors’ ESG ‘Wave-Off’ Is History, by Steve Garmhausen, March 11, 2022, Barron’s, USA.
The failed promise of ESG and the Wall Street Journal. “In a just-published series of critical articles in The Wall Street Journal, columnist James Mackintosh outlines the ‘failed promise’ of ESG investing and describes it as ‘absurd’ to claim that investments in green bonds deliver higher yields.
He also warns that ‘bubbles’ in sustainable investing can ‘sink your portfolio’ and lectures that investors who think they can both save the world and make a profit need to go back to basics. His conclusion: ‘These investments don’t do much to make the world a better place.'”
[COMMENTARY]Mr. Howell reviews James Mackintosh’s WSJ article and provides great insight into the pros and cons of ESG investing. Nonetheless, Mr. Mackingtosh’s article can only be seen as a ‘hit’ job on the ESG approach.
The failed promise of ESG and the Wall Street Journal, by John Howell, March 9, 2022, GreenBiz, USA.
Will Financial Advisors Need to Become JEDI Masters to Retain their Clients? “GenderSmart recently created an investor toolkit that applies an impact lens of justice, equity, diversity and inclusion (JEDI).
Financial advisors should note that 35% of clients who have sustainability goals are looking to switch wealth managers in the next three years, over twice as many as among clients without sustainability goals (15%).”
[COMMENTARY]In studies looking at the investment goals of women and younger people, many are seeking to move their money (much of it inherited) to advisors who cater to clients with ethical and sustainability investment goals.
Will Financial Advisors Need to Become JEDI Masters to Retain their Clients? by Andrea Longton, March 7, 2022, Wealth Management, USA.
ESG Funds’ Lack Truth in Labeling: Study. “94 funds had ‘ESG’ in their names yet 60 of those earned a ‘D’ or an ‘F’ on one or more ESG criteria.”
[COMMENTARY]As You Sow and a team from the University of California did the study. So it’s a quality study. This study provides more ammunition for the SEC to act aggressively on ESG fund greenwashing.
ESG Funds’ Lack Truth in Labeling: Study, by John Sullivan, February 27, 2022, 401K Specialist, USA.
How Does Incorporating ESG Relate to Fiduciary Duty? “In ourannual survey of attitudes towards responsible investment, institutional investors cited fiduciary duty as the top reason for incorporating ESG in their investment approach.”
[COMMENTARY]There’s still much confusion concerning the role of ESG and sustainability in fiduciary duty. However, many experts in the field are arguing that with increasing climate change upon us and dramatically rising insurance costs as a harbinger of them, accounting for ESG and sustainability in a portfolio has to be included in good fiduciary management.
How Does Incorporating ESG Relate to Fiduciary Duty? By Melanie Adams, February 22, 2022, Responsible Investment Association of Canada, Canada..
Values: Building a Better World for All, by Mark Carney, Signal 2021.
“Writing with the benefit of almost two decades at the heart of global financial policymaking higher circles, Mark Carney’s indispensable new book asks how we can go from knowing the price of everything to understanding its true value. From the Great Financial Crisis to climate change and the coronavirus pandemic, this is the essential handbook for 21st century leaders, policymakers and everyone who wants to build a fair and sustainable world.”–Christine Lagarde, former chair and managing director of the IMF and president of the European Central Bank.”