November 2022 Newsletter
News & Commentaries by Ron Robins
Latest Podcast: Best Alternative Energy Stocks. Plus… Articles include: “12 Best Alternative Energy Stocks To Buy Now”; “3 Stocks to Buy in CleanE energy”; “3 Renewable Energy Stocks That Are Too Cheap to Ignore”; “Renewable Energy Stocks You Should Be Buying Before 2022 Is Over”; “10 Cheap ESG Stocks to Buy Now”; and seven more!
Linking Executive Compensation to ESG Performance. “The vast majority of S&P 500 companies are now tying executive compensation to some form of ESG performance…growing from 66 percent in 2020 to 73 percent in 2021.
The most significant increase was found in companies… use of diversity, equity & inclusion (DEI) goals, rising from 35 percent in 2020 to 51 percent in 2021, as investors and other stakeholders continue to focus on diversity.”
[COMMENTARY] Seeping through into C-suite thinking is the realization that different perspectives on issues have proven to be more profitable. Diversity also improves a company’s ESG ratings!
Linking Executive Compensation to ESG Performance, by Merel Spierings, The Conference Board, Inc., November 28, 2022, Harvard Law School Forum on Corporate Governance, USA.
Britain takes first step to regulate company ESG raters. “Providers of environment, social and governance (ESG) ratings on companies will be asked to apply a voluntary best practice code as a first step to regulating the sector, Britain’s Financial Conduct Authority said on Tuesday.”
[COMMENTARY] With the maturation and the rising importance of ESG it’s to be expected that some regulation of ESG raters will occur. My sincere hope though is that it doesn’t stifle differing perspectives concerning the evaluation of companies rated.
Britain takes first step to regulate company ESG rater, by Reuters, November 22, 2022, UK.
The Evolution of ESG Reports and the Role of Voluntary Standards. “In our paper, we examine the evolution of ESG reports for S&P 500 companies and explore how the content of ESG reports has evolved in the absence of regulation. We also document how this content changed around the introduction of voluntary disclosure standards that defined a comprehensive set of financially material ESG issues…
We also find evidence that firms in the same sector increasingly use similar language over time, as do firms across sectors, meaning that firms may be coalescing around a common ESG vocabulary.”
[COMMENTARY] The research shown in this article is highly encouraging in that it shows not only are companies providing much greater ESG metrics but that the metrics used tend to become somewhat standardized within each industry. This allows — even without regulation — for increasingly greater insight into ESG relationships on an intra-industry basis.
The Evolution of ESG Reports and the Role of Voluntary Standards, by Ethan Rouen, Kunal Sachdeva, and Aaron Yoon, November 21, 2022, Harvard Law School Forum on Corporate Governance, USA.
Here comes the “S” in ESG. “As a constellation of social risks emerge, research points to opportunities for investors.”
[COMMENTARY]As Mr. Lanz states, social risks for companies are growing and he provides terrific insight into them and how they can be managed. He also indicates that companies managing these risks well might provide better returns for investors.
Here comes the “S” in ESG, by Dustyn Lanz, November 16, 2022, Investment Executive, Canada.
It’s Time to Focus on the “G” in ESG. “For all the debate surrounding the use of ESG for investing, virtually no attention has been paid to a core tension in the ESG policies of major investors and rating agencies — the discordance of the ‘G’ from the ‘E’ and ‘S.'”
[COMMENTARY]Some years ago I remember reading research showing that most investment analysts considered the “G” — governance — as being the most important in the ESG framework. I believe as this article suggests that it’s foundational to engaging all the components of “E” and “S”!
It’s Time to Focus on the “G” in ESG, by Leo E. Strine, Jr., Justin L. Brooke, Kyle M. Diamond, and Derrick L. Parker Jr., November 18, 2022, Harvard Business Review, USA.
ESG advocates run the risk of limiting their choices of investments | Retire on Track. “For example, take a look at ESG ratings from MSCI, an attempt to provide objective scores for socially aware investing. Many of the companies fall into just a limited number of industries: lots of semiconductor suppliers, banks, internet firms, software companies, and so on. I doubt you’d want a portfolio with that little diversification. (To be fair, there are a few steel producers, automakers, and other traditional manufacturers.)”
[COMMENTARY]Mr. Guido makes the usual ‘woke’ criticisms. But let’s understand that most ESG investors invest for the long run and aren’t necessarily concerned about missing out on the possible ‘short-run’ profits of say, the oil industry. Also, activist ESG investors will often invest in companies and industries with poor ESG-carbon metrics to encourage them to perform better.
It’s shown that the greatest stock capital gains can be achieved by investing in companies that start on the ‘low ESG’ spectrum and make rapid gains in their ESG activities.
ESG advocates run the risk of limiting their choices of investments | Retire on Track, by Evan Guido, November 14, 2022, Herald-Tribune, USA.
Internal Audit’s Role Within ESG. “As companies are undertaking environmental, social, and governance (ESG) initiatives, there is often the question on what should, and even what can, an internal audit (IA))department do in relation to these seemingly new areas. IA’s role within an organization has always been to help monitor and address its risks, whether financial, regulatory, technology, or operational. Thus, IA is uniquely posed to tackle ESG.”
[COMMENTARY]This article offers a good insight into the important role that internal auditing can play in a company’s success with its ESG activities.
Internal Audit’s Role Within ESG, by Nina Kelleher and R. Charles Waring, November 14, 2022, EisnerAmper, USA.
It’s Time for ESG to Fight Back. “But despite the momentum, the anti-ESG crowd has handed a gift to ESG proponents, crossing a line free-market purists had not previously stepped over. Anti-ESG activists have legitimated consideration of values, not just value, in making investment choices. Unfortunately, ESG champions are squandering this gift, sticking to a risk-based financial argument and not embracing the more values-based line of attack that will resonate with more Americans.”
[COMMENTARY]Yes, the anti-ESG crowd is proclaiming that values other than strictly financial returns are fine to include in pension fund strategies! How ironic! So, we in the ‘ESG community’ need to point this out to them!
It’s Time for ESG to Fight Back, by David H. Webber, November 11, 2022, Barron’s, USA.
Investment Update: Majority Of Financial Advisors Unconvinced About Funds’ Sustainability Claims. “The vast majority of financial professionals are unwilling to back completely the sustainability claims made by investment funds, according to research from the Association of Investment Companies (AIC),writes Andrew Michael.”
[COMMENTARY]In reality, claims by individual passive ESG funds that they’re influencing — for the better — actions of companies in the economy and that their funds are bound to outperform conventional funds, are hard to prove. Hence, advisors and investor skepticism .
Nonetheless, the entire ESG phenomenon is having significant beneficial impacts on the economy from many angles. For instance, higher stock valuations of companies engaging in ESG initiatives spur companies to perform better on ESG measures, etc.
Investment Update: Majority Of Financial Advisors Unconvinced About Funds’ Sustainability Claims, by Andrew Michael and Jo Groves, November 8, 2022, Forbes.com, USA.
Why we need to prioritise nature alongside the climate transition. “As Schroders publishes its Plan for Nature, here’ why it matters… The world has woken up to the vital role that nature plays in supporting our economy and society. With more than half of our global GDP dependent on the natural world, we believe that the reality is stark: nature risk is fast becoming an integral factor to investment risk and returns.”
[COMMENTARY]Many ethical and sustainable investors have long wondered how the contribution of our natural endowment can be ‘costed’ into our products and services. A time is coming when we will have clearer insights into that. This paper by the UK investment firm Shroders presents a related perspective on this subject.
Why we need to prioritise nature alongside the climate transition, by Schroders, November 2, 2022, UK.
Climatenomics, by Bob Keefe,Rowman & Littlefield Publishers 2022.
“As Climatenomics shows us, it takes government, business, and all of us working together, regardless of politics. Elected officials and all who care about our planet should read, learn – and take action!”… Arnold Schwarzenegger, 38th Governor of California.