February 2008

Nearly 45% Of Canadian Bank Shareholders Approve ’Say-On-Pay’ Resolution. – [COMMENTARY] Shareholders of one of Canada’s largest banks, the Canadian Imperial Bank of Commerce (CIBC), have set a major Canadian precedent. The motion calls on the CIBC to hold a non-binding shareholder resolution each year on executive compensation. “It’s the first time Canadian shareholders have seen this kind of a proposal, and normally first-time proposals get in the area of 7 percent.” So a delighted Gary Hawton told Reuters following the bank meeting. The motion indicates that investors large and small are concerned with what many believe is excessive compensation being paid to bank executives. Ethical investors looking for socially conscious banks to invest in might want to see how similar forthcoming motions fare at other Canadian banks.
Nearly 45 pct of CIBC shareholders want say-on-pay, by Lynne Olver, February 28, 2008, Reuters, Canada.

US Banks Under Pressure As Governance Issues Come To The Forefront. – [COMMENTARY] This is a good article on the coming proxy fights that US banks will face in their annual general meetings, which occur for many of them after April. Governance deserves to come under great scrutiny with losses by the banks that will be in the hundreds of billions of dollars within the not too distant future. Meanwhile the losses for the banks shareholders are even greater!
US governance activists put pressure on banks, by Shanny Basar, February 26, 2008, Financial News Online, US.

Corporate Social & Environmental Changes Not Moving Fast Enough To Avoid A Climate Catastrophe. – [COMMENTARY] The Lifeworth Review of 2007 surveyed 4,000 corporate responsibility professionals about their views concerning corporate progress in the areas of social and environmental change. Its sponsors include two elite business schools — the Cranfield School of Management in the UK and Griffith University in Australia. The report is well worth reading to get an appreciation of what global business is doing in relation to corporate social responsibility (CSR) and sustainability.
The Lifeworth Review of 2007, February, 2008, The Global Step Change, UK.

Some BIG US Businesses Are ’Two-Faced’ Concerning Climate Change. – [COMMENTARY] It seems that General Electric, Caterpillar (CAT), and Alcoa are not only members of the U.S. Climate Action Partnership (USCAP) which advocates enormous cuts to green-house gas emissions, but are also members of an organization advocating against such cuts! These and many other companies still need to figure out the advantage of using corporate social responsibility!
Green—Up to a Point, by Ben Elgin, February 20, 2008, Business Week, USA.

February 27 Is UK University Students Day Of Action For Ethical Investing. – [COMMENTARY] Students across the UK are lobbying their universities to disinvest in companies engaged in arms trading. It is wonderful to see students getting involved in an ethical investing debate.
Universities face new pressure to cut arms trade links, February 27, 2008, Ekklesia, UK.

Fidelity Shareholders May Force Giant Mutual Fund Firm To Invest In Genocide Free Investments. – [COMMENTARY] Fidelity appealed to the US Securities Exchange Commission — without success — to get this proxy vote quashed. The vote takes place on March 19. This action sets an enormous precedent for similar motions by US mutual fund shareholders, not only in the US, but potentially around the world. It also may spur other proxy actions by fund shareholders in all manner of governance issues. Mutual fund shareholders are now realizing that it is in their hands to bring a higher level of ethics into the management of their funds.
Fidelity Confirms Vote on Genocide-free Investing, press release, February 25, 2008, Investors Against Genocide, USA.

Canadian Banks’ Shareholders Urged To Support ’Say On Pay’ Proxy Resolutions. – [COMMENTARY] This is the beginning of a new era in Canada where shareholders of not only the major banks, but of many other companies as well, will be asked to have a say on managers compensation. These resolutions will not generally be binding on the management but hopefully will begin to introduce some restraint on fast growing executive compensation that often bears no relationship to longer term corporate performance. I am of the firm belief that when a management team’s compensation is tied to performance, that the compensation has to be tied mostly to medium – longer term measures!

Too many executive compensation schemes are tied to their company’s short term stock performance. This has resulted in companies buying back their shares to reduce the number outstanding in order to raise the stock price to benefit executives’ compensation. General Motors and Ford have for years ploughed huge sums into stock buybacks rather than investing such monies in new product development. Now we see the dire results! Buybacks by companies in the S&P 500 last year amounted to around $400 billion and represented around 30% of their collective corporate profits!

Well done RiskMetrics Group, (formerly Institutional Shareholder Services), Meritas Mutual Funds and others for getting this going in Canada.
Shareholders urged to support say-on-pay proposals, by Janet McFarland, February 21, 2008, The Globe and Mail, Canada.

Fund Managers Who Are Well-Connected Make Significantly Higher Fund Returns Than Poorly Connected Managers. – [COMMENTARY] “This paper… focus[es] on connections between mutual fund managers and corporate board members via shared education networks. We find that portfolio managers place larger bets on firms they are connected to through their network, and perform significantly better on these holdings relative to their non-connected holdings. A replicating portfolio of connected stocks outperforms a replicating portfolio of non-connected stocks by up to 8.4% per year. .. Our results suggest that social networks may be an important mechanism for information flow into asset prices.” This is important research. It suggests to me that such networks might be conveying insider information!
Board connections and mutual fund returns, by Lauren Cohen, Andrea Frazzini, and Christopher Malloy, National Bureau of Economic research, February 2008, USA.

Corporate Knights Lists Canada’s Top 50 Greenhouse Gas Emitters. – [COMMENTARY] This list on page 21 of the PDF document linked to below, is worth reviewing, particularly if you are a green investor looking for environmentally conscious major corporations. Most of the big emitters are, of course, energy companies.
The Carbon 50, (PDF-9.31 MB), Corporate Knights, February, 2008, Canada.

Breakthrough: 55% Of UK Independent Financial Advisors (IFAs) Would Invest Their Own Money In Green Funds. – [COMMENTARY] Virgin Money in the UK, who recently launched a green fund, got this response in a survey of 100 IFAs. For years, investment advisors were adverse to the idea of green funds. It is amazing what a little bit of publicity can do.
Half of IFAs would invest own money in green funds, by Hysni Kaso, February 14, 2008, IFAonline.co.uk, UK.

Companies With Rising Stock Prices Are Much More Green Than Those With Falling Stock Prices. – [COMMENTARY] Reporting on The Economist Intelligence Unit study, this article makes the following point. That “It [Economist Intelligence Unit] found that those ’share price climbers’ which boast growth in excess over 50 per cent over the past three years, put emphasis on environmental initiatives at board level and in nearly 40 per cent had sought to reduce green house gases…. In contrast, ’share price losers’ that have seen their share price decline by more than 10 per cent in the past three years, where two and half more times likely to have nobody in charge of sustainability than those firms’ with climbing share prices.” Again we see for companies the advantage of using corporate social responsibility, especially when it comes to green issues. It also likely indicates that companies with good green credentials are frequently stocks that are good to invest in.
Execs won over by business case for sustainable investment, by Sarah Griffiths, February 14, 2008, BusinessGreen, USA.

IBM Survey Demonstrates That Corporate Social Responsibility (CSR) Has Become Mainstream. – [COMMENTARY] Investors can gleam some insights into how CSR is being adopted by companies by reading this survey.
Doing Well by Doing Good: IBM Study Says Businesses Seeking Growth Through Social Responsibility, February 12, 2008, CNNMoney.com, USA.

Another Study Showing Corporate Social Responsibility (CSR) Improves Corporate Financial Performance. – [COMMENTARY] For companies, the advantage of using corporate social responsibility is clear: it improves financial performance, so concludes a study that led to the awarding of a Ph.D. to Lammertjan Dam at Netherland’s University of Groningen. Ethical investors continue to find support for their investing stance with studies like this one.
Corporate social responsibility increases company value, February 11, 2008, Innovations Report, Netherlands.

Sovereign Wealth Funds (SWFs) Resist Calls For Ethics Codes. – [COMMENTARY] Probably much larger on the world scene then even hedge funds, SWFs, owned by state governments such as China and Russia, are resisting western government attempts to have a code of conduct and which explicitly disavow political interference. I have seen estimates, as in this article that suggest they have about $2.5 trillion in investments now but could grow to $15 trillion by 2015. Might I say that the west is in a particularly poor bargaining position to impose ethical codes on the SWFs, since the west is relying on them to bail out its financial system! It is bad, but popular, western economic policies and the spend now pay latter attitude that has gotten us to this point. Higher consciousness is not only called for by government owners of the SWFs, but of western societies too.
Overseas Funds Resist Calls for a Code of Conduct, by Steven R. Weisman, February 9, 2008, The New York Times, USA.

Biofuels Increase Greenhouse Gas Emissions More Than Regular Fuels. – [COMMENTARY] I reported some months ago on research showing that the burning of biofuels creates 7-15% more greenhouse gases than with regular fuels. These new studies published in the magazine Science demonstrate biofuels will add considerably to the production of greenhouse gases when compared to conventional fuels. This is because of the added greenhouse gas production related to the clearing of new land to grow biofuels, or for food production as a result of lands being used for biofuel crops. I have always said that the whole promotion of biofuels was to win farmers votes. I stand by that. From a climate change standpoint, study after study is now showing it was a terribly wrong headed idea to subsidize biofuel production. If you have invested in the biofuel area as a result of all the media hype, these studies make sober reading!
Studies Deem Biofuels a Greenhouse Threat, by Elisabeth Rosenthal, February 8, 2008, The New York Times, USA.

2007 UK Ethical Fund Net Sales Rise To £473m From £136m In 2006! – [COMMENTARY] This is a massive rise. British ethical funds have benefited from the massive interest in green stocks that are good to invest in.
IMA reveals fund of fund rise in fourth quarter, by Chris Salih, February 6, 2008, MoneyMarketing, UK.

New US Study Reviews Validity Of Corporate Social Responsibility Findings By Socially Responsible Investing Research (SRI) Organizations. – [COMMENTARY] The study has two major findings… “[1] We found major social ratings [by SRI rating organizations] to have a fairly low correlation with each other, supporting theories of differentiation… [2] firms with high and low social ratings are equally likely to be embroiled in a major scandal a few years later – although this test of predictive validity has low statistical power.” This study demonstrates the many different perspectives in CSR/SRI research and that these assessment organizations have no special insight into which companies will be embroiled in scandals. I believe this diversity is wholly beneficial to SRI. However, I also think there should be specific uniform standards applied to all CSR/SRI organizations in reviewing a company’s CSR activities. You can think of these standards being much like accounting rules. Without them, we have a hodge-podge of reporting. Fortunately, efforts are being made in this direction, such as with the Global Reporting Initiative.
Imitate or Differentiate? Evaluating the validity of corporate social responsibility ratings, by Aaron K. Chatterji, Fuqua School of Business, Duke University and David I. I. Levine, Haas School of Business, University of California, Berkeley, February 2008, USA.

South African University Reports On Corporate Social Responsibility Activities Of Companies Listed On Johannesburg Security Exchange JSE). – [COMMENTARY] “Majority of companies listed on the Johannesburg Security Exchange are ethically conscious and also report on the ethical climate within their organizations….It focused on 55 Socially Responsible Investment (SRI) companies listed on the JSE.” We see companies in Africa also demonstrating the advantage of using corporate social responsibility.
South African companies not bad in ethical compliance, February 6, 2008, University of Pretoria in MoneyWeb, South Africa.

UK Ethical Funds Not Investing Much In Green Tech Companies. – [COMMENTARY] A survey by Holden & Partners found that most UK ethical funds were heavily invested in banks and telecom companies and not climate change or environmental companies that most of their investors were interested in. Furthermore, the portfolios of ethical or socially responsible investing funds were not very different from regular funds. Personally, I am not surprised by this finding, especially when tobacco, defence, nuclear and such industries are excluded from a portfolio, it narrows the universe of stocks available to invest in. Most mutual funds (unit trusts in the UK) have up to one hundred or more companies in their portfolio. Contrast this with arguably the most successful investor of all time, Warren Buffett, who invests in relatively few companies. It could be that most ethical funds try to be all things to all people. It may also be that financial planners demand a highly diversified portfolio for their clients! Ethical or socially responsible investors, not only in the UK but elsewhere too, may want to discuss these points with their investment advisor.
Ethical funds’ exposure not so green, by Tom Stevenson, February 6, 2008, The Daily Telegraph, UK.

Another Major Canadian Bank Launches A Climate Change Fund. – [COMMENTARY] It took awhile for Scotia Securities, a subsidiary of The Bank of Nova Scotia, to finally get into an increasingly important, yet crowded investing sector — that of climate change.
Scotia Securities launches climate change fund, by Regan Ray, February 4, 2008, Investment Executive, Canada.

France’s VIGEO & Kuala Lumpur’s OWW Consulting — Both Specializing In Socially Responsible Investing (SRI) Research — Form Partnership To Expand SRI In Asia-Pacific. – [COMMENTARY] This will further promote expanded SRI activities in the region.
Leading SRI firms expand presence in Asia-Pacific, by Lorna Thornber, February 4, 2008, MoneyManagement.com.au, Australia.

UK Social Investment Forum (UKSIF) Launches New National Ethical Investment Week 2008 Website. – [COMMENTARY] The UKSIF is launching the National Ethical Investment Week campaign for May 18-24, 2008, and has created a special website for that purpose.

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