May 2010

70% Of Executives Say Climate Change Initiative Spending In Their Companies To Increase in 2010-2012. – [COMMENTARY] “Executives are acting on climate change initiatives because their customers expect it and because they believe they can make money, save money and manage risk. They understand that transforming their key processes makes good business sense.” This the new perspective on companies reaction to climate change. The bottom line is that it makes money for them to engage in climate change initiatives. It is win win for everyone.
Action amid uncertainty,the business response to climate change, May 2010, Ernst & Young.

Ethical Funds In UK Defined Contribution Plans Struggle. – [COMMENTARY] “When even charities are ignoring their ethical principles when it comes to DC investment, what chance has SRI with the broader workforce, asks Paul Farrow.” In most developed countries SRI/ethical funds are only about 2 to 3% of total mutual funds assts–though in recent years their asset growth has outpaced that of conventional funds in general. But total assets are still relatively tiny.

However, if you include all equity portfolios including that of private investors, it might jump to over 11% as the Social Investment Forum says in their most recent reports. Clearly, as the financial crises rolls on, ethics are likely to play an ever larger role and we should see the uptake of SRI/ethical funds continue to increase relative to conventional funds.
The value of virtue, by Paul Farrow, June 1, 2010, Fund Advisor, UK

How Addressing Climate Change Can Improve The Bottom Line. – [COMMENTARY] “WWF′s Climate Savers program, though, is a great example of what can be achieved when businesses and non-profit organizations decide to work together to achieve common goals.”–Andrew Crane, George R. Gardiner Professor of Business Ethics, Schulich School of Business, York University, Ontario, Canada. Though this report is focused on Canada, all businesses can profit from applying the lessons learned and revealed in this new publication.
Rethink Business: How Addressing Climate Change Can Improve The Bottom Line, by WWF Climate Savers Program, Canada.

Shale Gas Promise–And Risks. – [COMMENTARY] “Shale gas extraction presents significant risks, however, and concern is growing that the methods that make it viable are polluting drinking water sources with toxics. As companies prepare to intensify shale gas extraction in Canada and the U.S., investors need to look into the risks that the extraction process presents, and the steps they can take to mitigate those risks.” This is a detailed report for investors interested in shale gas.
Hydraulic fracturing and water pollution: Investor risks from North America′s shale gas boom, by Paula Barrios, May 2010, SHARE, Canada.

Green Bond Sales Increasing. – [COMMENTARY] “Skandinaviska Enskilda Banken is on the hunt for partners to help increase distribution of the World Bank′s ’green’ bonds. The first World Bank green bond was issued more than two years ago, but demand has picked up rapidly this spring. Since February, the total sum invested has risen by 60 per cent from $1bn to $1.6bn (£1.1bn, €1.3bn).” Given the increasing interest in climate change and the rush to ’safe’ bonds, it is not surprising to see green bond sales increasing. With broader distribution, such bond sales could become much bigger.
Swedish bank seeks partners to market green bonds, by Caroline Liinanki, May 23, 2010, Financial Times, UK.

Unitarian Universalist Association Drops Fidelity Due To Sudan Holdings. – [COMMENTARY] “The Unitarian Universalist Association said it will replace Fidelity Investments as recordkeeper on its retirement plan, citing “disappointment” with the Boston mutual fund company’s record on human rights, including its holdings in companies that do business in Sudan. Discussions are still happening, but the group likely will offer funds from Wells Fargo & Co and some lifecycle funds from T Rowe Price Group Inc, said Tim Brennan, the Unitarians’ chief financial officer.” Religious and mission based groups should take a stand with regard to their principles. Such actions can have significant effects on the investment industry and corporate activities.
Unitarian group drops Fidelity over Sudan, by Ross Kerber, May 21, 2010, Reuters, USA.

Risk Management Main Reason For German Institutional Investors When Choosing Sustainable Investments. – [COMMENTARY] “The need to optimise risk management, rather than to boost investment returns, is the main reason German institutional investors consider sustainable investments, according to a study by Union Investments. Almost three quarters (74%) of institutional investors surveyed cited this as the main driver, a year-on-year increase of 4 percentage points. It was particularly important for insurers, of whom 92% stated this as the main factor, compared to 87% of foundations, 84% of banks, 73% of pension funds and 30% of large companies.” Everywhere in portfolio management the concept of sustainability is coming into play. This in turn encourages public companies to more comprehensively embrace sustainability practices. It is win win for everyone.
Risk, not returns, drives German sustainable investments, by Nina Röhrbein, May 21, 2010, Investment & Pensions Europe, Germany. (Subscription, which is free, required to access article.)

Call For Papers: The 2010 Moskowitz Prize for Socially Responsible Investing. – [COMMENTARY] “The Center for Responsible Business at UC Berkeley’s Haas School of Business has announced a call for papers for the 2010 Moskowitz Prize for Socially Responsible Investing. To be considered for the $5,000 prize, studies must be submitted by June 30, 2010.” This is the pre-eminent SRI prize today. Anyone publishing anything related to SRI should submit their paper to the Haas School of Business.
Call for papers for the 2010 Moskowitz Prize for Socially Responsible Investing. May 20, 2010, Haas School of Business, University of California Berkeley, USA.

French SRI Assets Jump 70% In One Year. – [COMMENTARY] “SRI assets in France rose by 70% during 2009 to pass the €50bn mark, a rise of €20.8bn from the end of 2008 to the end of 2009, despite the fallout of the market crisis, according to the latest market survey by Novethic, the French sustainable investment research group.” In SRI sales, France had been a laggard compared to other developed countries. Apparently big banks and labour are getting behind them now.
French SRI assets jump by 70% in one year, by Hugh Wheelan, May 19, 2010, Responsible Investor, UK.

Canadian Forestry Firms Agree To Curb Boreal Forest Logging. – [COMMENTARY] “Forestry companies announced Tuesday a pact with environmentalists to stop logging huge swathes of Canada’s boreal forest and protect caribou herds in exchange for suspending protests.” The companies were clearly concerned of a consumer backlash against boreal forest logging. But it is a win for everybody anyhow.
Canadian forestry firms agree to curb boreal forest logging, May 18, 2010, Grist, USA.

UK Charity Workers Back Ethical Investing. – [COMMENTARY] “Research from multi-employer occupational pension fund The Pensions Trust, in association with Queen Mary, University of London, 72 per cent of charity workers think investing ethically is critically important.” With this kind of result it is amazing that many of the charities these people work for do not have ethically screened portfolios. It seems that day will not be too far off.
Charity workers back ethical pensions, by Simoney Girard, May 20, 2010, FT Advisor, UK.

European Financial Analysts Call For More Formalized ESG Reporting. – [COMMENTARY] “European financial analysts′ group EFFAS and its German counterpart DVFA have called for companies to ’formally orient’ their environmental, social and governance (ESG) reporting towards International Financial Reporting Standards.” This is a very strong call for full corporate ESG/CSR reporting. I feel sure we will eventually have government mandated ESG/CSR reporting for companies.
European analysts call for ESG reporting link to IFRS, by Daniel Brooksbank, May 14, 2010, Responsible Investor, UK.

Ceres Says Canadian Oil Sands Have Significant Financial & Environmental Risks. – [COMMENTARY] “While public attention is focused on widespread environmental and financial damage from the Gulf of Mexico oil spill, a new Ceres report released today shows that the environmental and financial risks of producing oil in Canada’s vast oil sands region may be even greater.” This is an important study of oil sands risks. The risks cited in this report add fuel to much higher oil in future years, which in turn will help focus our attention on alternative fuel and energy.
Canada’s Oil Sands Face Significant Financial and Environmental Risks as Great as Those in BP Spill, May 17, 2010, Ceres/RiskMetrics, USA.

A New First: Mining Company Sponsors & Supports An Independent Human Rights Assessment Of Major Mine. – [COMMENTARY] “Ethical Funds is announcing its support for the findings and recommendations of the Human Rights Assessment of Goldcorp’s Marlin Mine in Guatemala. The Marlin Mine… is operated by Montana Exploradora de Guatemala S.A., a wholly-owned subsidiary of Goldcorp Inc., based in Vancouver, Canada… Bob Walker, Vice President, Sustainability for Ethical Funds [said], ’We believe this report sets the bar. Not only does Goldcorp deserve full credit for taking this on but also for agreeing to release the full content of the report – the first time this has ever been done.’”

Well done Goldcorp. Wherever human rights and/or the environment are of a concern, such assessments need to be done. Finally, one of the world’s largest gold mining companies is taking a very responsible stand. It sets a great precedent for all other natural resource companies.
Ethical Funds Announces Support for Human Rights Assessment of Goldcorp’s Marlin Mine, press release, May 17, 2010, Canada News Wire, Canada.

Invest In Retail? Interested In Their Green Activities? Read This Report. – [COMMENTARY] “A new report from Five Winds International — the third in a series published by — examines the activities of 25 of the world’s largest and most high-profile retailers to determine if they are taking significant steps to increase the number of greener products on their shelves.”
How the World’s Largest Retailers are Stocking Shelves with Green Goods, May 17, 2010, GreenBiz, USA.

New Trend: Large Pension Funds Engaging Companies Directly On ESG Issues. – [COMMENTARY] “Stichting Shell Pensioenfonds, the €15bn scheme for the oil giant′s Dutch employees, engaged with 117 companies on corporate governance and responsible investment issues in the first three months of this year.” It is a hopeful sign that large pension funds are themselves asking companies directly about ESG issues. Not only will pension funds likely find better investments through such a process, but they will greatly encourage companies to take ESG/CSR issues very seriously.
Shell′s Dutch pension fund engages with 117 companies, by Daniel Brooksbank, May 13, 2010, Responsible Investor, UK.

Unethical Conduct By Eight Big US Banks? Did They Dupe Rating Agencies? – [COMMENTARY] “The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation… [The banks] are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America.”

I believe the investigation of unethical conduct in the US financial system is pathetic. Despite the odd probe into illegality, the US administration and regulatory authorities are still trying to protect the financial system from serious harm. The ’tradition’ in these investigations is that even if a party is deemed guilty, the guilty party gets-off with a relatively small fine–in relation to their revenues–and a statement of ’no admission of guilt,’ so further civil lawsuits against them are limited. It is really no justice at all.
Prosecutors Ask if 8 Banks Duped Rating Agencies, by Louise Story, May 12, 2010, The New York Times, USA.

Defined Contribution, Faith-Based Investment Funds Being Offered To Employees Of US Non-Profits. – [COMMENTARY] “Defined contribution retirement plans are becoming increasingly popular with nonprofit organizations such as churches and charities, and represent a rapidly growing segment of the retirement savings market for The Hartford Financial Services Group, Inc. Now, The Hartford… is introducing investment options from three faith-based investment fund families.”

I do not know if this is the first time such an option has been offered, but I hope it represents a trend. Employees at churches and other mission based-based groups should have the option in their DC plans to invest according to their personal values.
The Hartford Adds Faith-based Investment Options to Spur More Growth in Sales of Retirement Plans to Charities, Religious Organizations, press release, May 12, 2010, Business Wire, USA.

New Study Claims Integrating ESG Into Investment Selection Criteria Improves Portfolio Diversification & Reduces Risk. – [COMMENTARY] “We develop a simple theoretical model based on the three main drivers of portfolio diversification ((1) number of stocks, (2) correlation of stocks, (3) average specific risk of stocks) and recent robust evidence on the significantly negative relationship between a firm′s ESG rating and its specific risk.

… Our theory argues that while the inclusion of ESG criteria into investment processes likely worsens portfolio diversification via the first and second driver, it similarly likely improves portfolio diversification through a reduction of the average stock′s specific risk. This positive effect of ESG criteria probably leads best-in-class ESG screened funds to be better diversified than otherwise identical conventional funds.”

This type of study will do much to get mainstream investment firms to integrate ESG into their securities analysis.
Portfolio Diversification and Environmental, Social or Governance Criteria: Must Responsible Investments Really Be Poorly Diversified? By Andreas G. F. Hoepner, University of St. Andrews – School of Management, Principles for Responsible Investment, United Nations.

CSR Gains Ground in Middle East. – [COMMENTARY] “The winners of Emirates, Abu Dhabi and Arab world for corporate social responsibility awards were honoured. The Arab Corporate Social Responsibility Award was issued to Emirates World Mobile Humanitarian Hospital, Shell Company and World Topcon Company, while Emirates Corporate Social Responsibility Award was issued to the Ministry of Interior, Du Company and Emirates Transport Corporation. Abu Dhabi Corporate Social Responsibility Award was issued to Abu Dhabi Media Company and Economic Development Department.”

Corporate social responsibility (CSR) appears to be gaining acceptance in the Middle East. I believe the primary values behind CSR are almost universal so it is not surprising to see it making gains in non-western cultures.
Hamdan bin Zayed honours philanthropists, launches world charity campaign to treat needy children, May 9, 2010, WAM Emirates News Agency, UAE. Also, Participate in the Middle East′s Biggest Corporate Responsibility Survey.

Mainstream Investors Vote Compensation Restrictions For Goldman Sachs Employees. – [COMMENTARY] “The resolution received the support of 25% of shareholders at today’s May 7th annual shareholder meeting, even though management urged a ’no’ vote. RiskMetrics Group supported the HII resolution… ’Given that over 11% of Goldman’s stock is owned by insiders, 72% is owned by institutional investors and most individual investors don’t vote their stock by proxy, the large number of votes for the proposal indicates a vote of no confidence by ’main street’ shareholders incensed by compensation practices at the firm,’ said John Harrington, CEO of Harrington Investments.”

I wonder how many institutional fund managers did not support the proposal because they are afraid of their own salaries being cut! It is an old ’boy’s club’ in the financial fraternity. The policy of ’too big to fail’ must, must, change–or nothing will change.
Socially Responsible Investment Firm Wins Big Vote, May 7, 2010, NewsBlaze, USA.

Twelve Members of The Interfaith Center On Corporate Responsibility Will File Five Proxy Resolutions At Goldman Sachs May 7 AGM. – [COMMENTARY] “When the management of Goldman Sachs meets Friday (May 7th) with its shareholders, it will face five major proxy resolutions filed by a delegation of over 12 members of the Interfaith Center for Corporate Responsibility (ICCR). The broad range of concerns reflected in these resolutions from religious and other socially responsible institutional shareholders will send a stark message to Wall Street regarding abuses that are very far removed from ’Main Street values.’”

Ethical investing is receiving a big lift from the antics of Goldman Sachs and Wall Street. It concurs with my belief that over time, those who hold ethics high and apply their values to their investments, may well enjoy superior returns as markets invariably recognize the value of ethics in the marketplace.
C O R R E C T I O N — Interfaith Center on Corporate Responsibility, NYC, May 5, 2010, press release, The Interfaith Center On Corporate Responsibility, USA.

UAE Among States Instituting Corporate Governance Codes That Require Chairman Not Have Managerial Role. – [COMMENTARY] “The United Arab Emirates′ new corporate governance code has come into force, stipulating that chairmen of listed firms are not allowed to have managerial roles. Another requirement is that a third of listed firms′ administrative boards should be independent. The new code has been brought in by the Emirates Securities and Commodities Authority (Esca). Shareholders will also be able to veto board bonuses.”

Separating the chair’s role from active management and stipulating some independence of and for board members are issues that are front and centre in ethical corporate management practices today. The Unite Arab Emirates needs to be congratulated for taking such a stand.
The United Arab Emirates′ new corporate governance code, weekly round-up, May 6, Responsible Investor, UK.

Green Investments Could Benefit From Gulf Oil Spill. – [COMMENTARY] “While the oil rig disaster in the Gulf of Mexico is pounding BP PLC’s (BP, BP.LN) stock and reputation and hammering local industries and real estate values, the long-term impact could be more choice for individuals who want green investments. Demand for these funds and stocks have soared in recent years, especially from foundations, pensions and socially-minded investors.”

Nuclear reactor building came to a halt in the US after the Three Mile Island nuclear accident in the 1970s. We may well see the same for deep water drilling for oil after BP’s Gulf accident. It can only mean enhanced prospects for green energy.
WEALTH ADVISER: BP Crisis Could Help Green Investments, May 5, 2010, The Wall Street Journal, USA.

Canadian Study Says Green Investments Good For Climate But Yield Less. – [COMMENTARY] “A new study says Canadian governments can expect an economic return on seed money spent on green technology, just not as much as would be expected from more traditional investments. The study by the Conference Board suggests investments under government programs will total $11.8 billion in the next four years.”

An age old problem is revealed in this study. How do you value environmental benefits from an investment? I suspect if some determination of lower environmental impact compared to ’traditional’ investments were included in the Canadian study, their conclusion of lower yield for green investments might be altered.
Green investments good for climate, but get less bang for buck economically, May 5, 2010, The Canadian Free Press, Canada.

Pension Funds Join Growing List Of Suits Against Goldman Sachs. – [COMMENTARY] “MPERS said the hair-trigger response of top Goldman Sachs officers in responding to the SEC complaint was particularly troubling: ’The SEC charges were scarcely an hour old, when they caused company to issue a press release baldly stating, ’The SEC′s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.’ These officers issued this release without conducting an investigation, without appointing a special committee, and without taking any steps to form a good-faith analysis of the claims.’”

What Goldman has been doing is probably not much different from the industry as a whole. Double standards and conflicts of interest are the norm for much of the industry. I like what the UK is planning to do. They plan on making investment/financial advisors fee-based, barring them from receiving trading commissions and trailer fees. That will be a good start.

But much more will need to be done before this greed obsessed, anything goes, casino industry, is brought to some semblance of rationality. Unfortunately, barring another financial panic and due to the industry’s power over lawmakers in Washington, not much is really likely to change for sometime.
Pension funds file Goldman suits, by Shanny Basar, May 4, 2010, Financial News, UK.

NASDAQ Promoting CSR Reporting Initiative. – [COMMENTARY] “The Global Reporting Initiative (GRI) will ring the closing bell at NASDAQ, as part of headline participation in sustainable investment roundtable, New York, May 14. The Global Reporting Initiative (GRI) – pioneering developer of the world′s most widely used sustainability reporting framework – will be the featured guest at a prestigious event at New York′s NASDAQ OMX Exchange on 14 May 2010, titled: ‘Sustainable Investing: What′s at Stake for Investors & Public Companies?′”

This is the kind of support required to get mandated corporate social responsibility/sustainability reporting in front of investors. I am confident such mandated reporting will become reality in the years ahead as the desire for higher ethics, greater corporate transparency and environmental concerns merge.
GRI to Headline NASDAQ Sustainable Reporting Event, press release, May 3, 2010, Global Reporting Initiative, Netherlands.

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