December 2012

Asia Sustainable Investment Review 2012. – [COMMENTARY] “The Association for Sustainable & Responsible Investment in Asia (ASrIA), the region′s professional membership association for the sustainable and responsible investment industry, today released the Asia Sustainable Investment Review 2012, a baseline study of sustainable investment strategies and practices by investors based in Asia. ASrIA reports that over 130 investment managers use sustainable investment approaches, with US$74 billion of identified sustainable investment assets under management (AUM) in the region.” For ethical investors interested in investing in Asia, this is a useful read.
Asia Sustainable Investment Review 2012, December 21, 2012, ASrIA, Hong Kong.

Engaging Companies On Their ESG Issues Generates Company Benefits & Profits, Say Researchers. – [COMMENTARY] “We analyze an extensive proprietary database of corporate social responsibility engagements with US public companies over 1999–2009. Engagements address environmental, social, and governance concerns. They are followed by a one-year abnormal return that averages 1.8%, comprising 4.4% for successful and zero for unsuccessful engagements. We document outperformance following environmental/social, as well as governance, engagements. Firms are more likely to be engaged, and engagements are more likely to be successful, if the target firm is concerned about its reputation and if it has higher capacity to implement corporate social responsibility changes. After successful engagements, companies experience improvements in operating performance, profitability, efficiency, and governance.”

What a great study! Now we know that when companies are engaged by SRI funds and others on ESG issues, there is a pay-off for both the companies and shareholders. This could encourage much more stockholder activism! The study authors were awarded the prestigious Moskowitz Prize.
Active Ownership, by Elroy Dimson (London Business School and University of Cambridge – Judge Business School); Oguzhan Karakas (Boston College – Department of Finance); and Xi Li (Temple University – Fox School of Business and Management), UK/USA.

Study Finds Dramatic Rise In Sustainability Reporting. – [COMMENTARY] “Sustainability reporting is becoming more popular among publicly-traded companies, according to an analysis from New York-based Governance & Accountability Institute. In 2011, 53% of S&P 500 companies reported on their environmental, social and governance (ESG) impacts, up from just 19% the previous year, the study found. Similarly, 57% of Fortune 500 companies reported on their sustainability effort in the latest analysis, compared with 20% in the prior year. The majority of companies that report in the S&P 500 and the Fortune 500 use the GRI framework.”

The significantly increased reporting on corporate sustainability efforts is good news. I just wish I could be as happy concerning independent auditing of their efforts.
Study finds dramatic rise in sustainability reporting, by Doug Watt, December 18, 2012, SRI Monitor, Canada.

SRI AS Emergent Risk Prevention In Post 2008/9, Study. – [COMMENTARY] “Globalization and socio-economic changes heralded attention to Financial Social Responsibility. Ever since socio-economic crises have steered social conscientiousness; yet in the aftermath of the 2008/09 World Financial downturn, the interest in understanding social responsibility in the interplay of financial markets and the real economy has reached unprecedented momentum.” Research of this kind needs to be expanded. It just might help the wider world of investors to incorporate ESG factors in their investment selections.
Socially Responsible Investment (SRI) as Emergent Risk Prevention and Means to Imbue Trust in the Post 2008/09 World Financial Crisis Economy, by Julia M. Puaschunder, Harvard University, USA.

Banking Scandals Have Increased Investments’ Ethical Component, Ecclesiastical Finds. – [COMMENTARY] “Recent banking scandals have made investors conscious of the ethical impact of their investments, and 53% of them wants to ensure that their investments go to companies which make a positive difference, according to a [poll] run by Ecclesiastical Investment Management.” Here is another welcome poll supporting interest in ethical investing in the UK.
Banking scandals have increased investments’ ethical component, Ecclesiastical finds, by Chiara Albanese, December 12, 2012, Investment Europe, UK.

Asset Owners Using ESG For Long-Term Risk Management – Survey. – [COMMENTARY] “Nearly one-third of investors in the annual survey by environmental, social and corporate governance (ESG) research centre Novethic cite long-term risk management to justify their integration of ESG criteria.” The case for incorporating ESG into long-term risk assessment seems so obvious! How could any analyst not consider the long-term impacts that the environment, social milieu, and quality of corporate governance might have on corporate profits?
Asset owners using ESG for long-term risk management – survey, by Nina Röhrbein, Investment & Pensions Europe, December 11, 2012, UK.

Fund Managers Focus On ESG Factors. – [COMMENTARY] “Ninety per cent of equity and fixed-income fund managers polled, with about £4tn of combined assets under management, recognised the importance of ESG to end owners and consultants although a smaller percentage, 79 per cent, said they were likely to embed the strategy in all mainstream funds in the future.” There’s little doubt now that ESG is going mainstream. The real question is how well it’ll be done!
Fund managers focus on ESG factors, by Ruth Sullivan, December 9, 2012, The Financial Times, UK.

Angry Investors Give Ethical Funds The Boot. – [COMMENTARY] “This year Henderson axed six out of seven of its staff working on its ethical funds and Aviva closed its ethical business altogether. And this week F&C, an investment house highly regarded for its ethical approach to investing, has given the chop to its head of governance and sustainable investment, Karina Litvack. The move will bring the team down from 16 to 15 as the company will not be replacing her. Seb Belowe, partner at WHEB Asset Management, an ethical fund provider, says the deterioration in funds’ ethics is to be expected if providers are scrimping on staff. ’Major providers don’t see ethical investment as a long-term money maker but they continue to run them cheaply because working with such large funds, it is still lucrative.’”

The headline is a little graphic. Nonetheless, the gist of the article is that UK ethical funds pay lip service to really being ethical. But the argument can also be made as Seb Belowe says that ethical fund managers don’t spend enough money on staff so that they can run their funds with a broad ethical mandate. Again, I refer to what I stated elsewhere–see Is Ethical Investing Failing To Keep Up? Ethical investors do really the choice to create their own ethical portfolios!
Angry investors give ethical funds the boot, by Katie Morley, December 8, 2012, Investors Chronicle, UK.

Mercer Investigates Loyalty Program For Long-Term Shareholders. – [COMMENTARY] “Mercer is exploring the concept of loyalty rewards for long-term shareholders over concerns that short-term decision making in the market could be damaging the way corporations are managed. Such rewards could include loyalty dividends, warrants or additional voting rights, Mercer said in a news release.” Terrific news from Mercer! I really hope this idea becomes reality. The short-term focus, particularly of fund managers, creates irresponsible financial management and potentially lowers long-term results significantly.
Mercer investigates loyalty program for long-term shareholders, December 9, 2012, SRI Monitor, Canada.

Is Ethical Investment Failing To Keep Up? – [COMMENTARY] “If you are saving for your retirement in an ethical pension fund you might well expect to have a say in where your money goes. Our research shows that almost two thirds of funds do not actually ask their customers about their ethical preferences. This may go some way towards explaining why traditional ’sin’ stocks like porn, gambling and alcohol continue to be regularly screened out of ethical funds while issues like human rights and environmental protection are less likely to be addressed.”

Yes, ethical funds should regularly survey their investors about their ethical preferences. However, I’m surprised that more ethical-SRI investors don’t just simply analyse their personal values and then with the help of a broker, find stocks that more closely mirror those values. And you can get reasonably good diversification with a portfolio of 10-15 stocks. Also, they’ll find their transaction costs a pittance compared to the MERs of funds and thus their long-term returns potentially higher. (Note: ethical ETFs usually have similar holdings to ethical funds, and have lower costs too.)

I believe what stops investors from doing this is that they are afraid of their advisors–who often can sell them only funds, not stocks–and they don’t know where to begin. I can help them with that.
Is ethical investment failing to keep up? By Matthew Butcher, December 8, 2012, FairPensions, UK.

Poll Maps Growth Of Ethical Investment Understanding And Demand. – [COMMENTARY] “The poll, conducted by Atomik on behalf of sustainable investment consultancy firm Emerald Knight, shows that nearly two-thirds of people (65%) would like to know more about what their bank or building society is doing with their finances. This comes after an overwhelming 86% claimed they were unaware of how their money is invested. But, in results that will provide the industry with a welcome boost, nearly half of respondents (47%) said that they were likely to opt for ethical investments rather than conventional ones in the future.”

Polls throughout Europe, the US, and Canada, continue to show high interest in ethical investing. Someday, those saying they want to invest ethically might actually do so!
Poll maps growth of ethical investment understanding and demand, by Alex Blackburne, December 6, 2012, Blue&Green Tomorrow, UK.

Companies To Duck Stock Exchange ESG Guidance, Study Says. – [COMMENTARY] “During 2012 many stock exchanges globally announced new rules for the disclosure of non-financial information on environmental and social issues, but weak enforcement mechanisms mean that most CFOs and investor relations directors will opt out of following the guidance, according to a report from independent analyst firm Verdantix… Stock exchanges covered in the report are the Australian Securities Exchange, BM&FBOVESPA, Bombay Stock Exchange, Bursa Malaysia, NYSE Euronext Paris, Hong Kong Stock Exchange, Johannesburg Stock Exchange, London Stock Exchange, Shanghai Stock Exchange and Taiwan Stock Exchange.”

Everyone in the ethical investment community was extremely pleased with the actions of these stock exchanges on ESG disclosure of their listed companies. Could it be that the exchanges are afraid companies might delist and move to other exchanges should they enforce their rules?
Companies to Duck Stock Exchange ESG Guidance, Study Says, December 5, 2012, Environmental Leader, USA.

Unilever, UPS, Nike Lead Efforts To Address Climate Change. – [COMMENTARY] “Five of the six highest-ranked companies — Unilever, UPS, Nike, Levi Strauss and L’Oreal — showed year-over-year revenue growth from 2010 to 2011 while reducing their total emissions across some or all of their business units, according to the Climate Counts 2012-2013 Annual Company Scorecard report, released Wednesday. It ranks major consumer brands on their efforts to address climate change.” This is a good article to read about companies addressing climate change.
Unilever, UPS, Nike lead efforts to address climate change, by Kristine A. Wong, December 5, 2012, GreenBiz, USA.

Leave a Reply

Your email address will not be published. Required fields are marked *