February 2013

Swiss Voters Approve Binding Say On Pay! – [COMMENTARY] “The vote gives shareholders of companies listed in Switzerland a binding say on the overall pay packages for executives and directors. Pension funds holding shares in a company would be obligated to take part in votes on compensation packages. In addition, companies would no longer be allowed to give bonuses to executives joining or leaving the business, or to executives when their company was taken over. Violations could result in fines equal to up to six years of salary and a prison sentence of up to three years.”

This is an historic event! It gets around the cozy relationship of directors mutually reinforcing inappropriate pay raises for each other. However, I don’t yet see such a move occurring in too many other countries.
Swiss Voters Approve a Plan to Severely Limit Executive Compensation, by Raphael Minder, March 3, 2013, The New York Times, USA.

New: Dow Jones Sustainability Emerging Markets Index. – [COMMENTARY] “Financial information firm Dow Jones and sustainable investment specialists RobecoSAM have developed a joint index that looks to measure the sustainability performance of companies from emerging economies.” This is good news for ethical investors looking for companies in emerging markets. Seeing what companies are in this index will provide clues as to what companies might be of interest to them.
Dow Jones launches ‘first′ sustainability index for emerging markets, by Ilaria Bertini, February 27, 2013, Blue&Green Tomorrow, UK.

Breakthrough Regarding Legal Liability of Canadian Mining Corporations for Abuses Overseas. – [COMMENTARY] “In an important precedent-setting development for the accountability of Canadian mining companies for alleged overseas human rights abuses, victims of rape and murder at a Guatemalan mine are now able to sue a Canadian mining company in Canadian courts.” This is precedent setting. It could have a powerful effect on encouraging miners to fully engage and cooperate with communities in the developing world.
Breakthrough Regarding Legal Liability of Canadian Mining Corporations for Abuses Overseas, February 25, 2013, SRI Monitor, Canada.

Eurosif & National SIFs Launch New Version Of European SRI Transparency Code. – [COMMENTARY] “Tracing its roots to the European Transparency Guidelines unveiled in 2004, the European SRI Transparency Code (the Code), first launched in May 2008, primarily aims at increasing accountability and clarity of SRI practices for European investors. The principle driving the Code is that asset manager signatories should be open and honest, and disclose accurate, adequate and timely information to enable stakeholders, in particular retail investors, to understand the policies and practices of a given SRI fund.”

This is a worthy project and has my full support! I hope that North American SRI funds adopt this code too.
Eurosif and the national SIFs launch a new version of the European SRI Transparency Code, February 22, 2013, Ethical Investment Association, UK.

Proxy Voting Survey Reveals Growing Support For Shareholder Proposals In Canada. – [COMMENTARY] “A growing number of shareholders are paying more attention to how they vote on key issues, according to SHARE’s annual proxy voting survey. Several votes in 2012 registered 20% or more of shareholders voting against management recommendations.” Active, engaged, shareholders are absolutely necessary if most companies are to be encouraged to optimize their ESG potential. So, this is positive for Canada!
Proxy voting survey reveals growing support for shareholder proposals, by Doug Watt, February 21, 2013, SRI Monitor, Canada.

Finding The Value In ESG Performance, Deloitte. – [COMMENTARY] “The empirical evidence to date most strongly suggests that: 1. The average investor (not only the ESG-focused investor) is paying attention to ESG when things go wrong and the company is in the limelight and usually under duress. 2. It is likely that the investor reaction to negative ESG events will continue to
increase as more investors pay attention and increasingly understand what these events can mean for a company. 3. Disclosure of ESG performance can partially protect against drops in shareholder value when things do go wrong.”

However, I find this statement in their report most interesting, “Claims of sustained outperformance of an index are inherently questionable because, if true, investors will quickly arbitrage away the effect. Two notable recent review papers suggest that past conclusions on a potential long term financial impact of ESG management should be interpreted with caution because many researchers use faulty methods or questionable data.17 Based upon a set of papers using what the researchers deem more credible methods, they find that over longer time periods ESG performance affects financial performance (both accounting measures and stock returns), but that on average the impact is minimal.”

I’m not sure I believe the ’arbitraging away’ point made above. However, Deloitte’s claim that researchers showing ESG corporate outperformance with regard to stock prices without controlling for other factors could be right. Overall, this is a good study for the ethical investors to read and ponder.
Find the Value in ESG Performance, Issue 12 2013, Deloitte.

Bullion Management Group Joins Canada’s Social Investment Organization. – [COMMENTARY] “BMG is Canada’s first, precious metal’s company to join the SIO. BMG seeks to continually pursue the highest global standards for bullion purchase, storage, integrity, transparency and security for its clients and has already been accepted as an Associate Member of The London Bullion Market Association (LBMA).” I’m sure that this new associate corporate member is causing a stir among some SIO members. However, the idea of ’ethical bullion’ to me is sound and should be encouraged. I think SIO has taken a brave position here and I commend them for it.
Bullion Management Group Joins Canada’s Social Investment Organization, press release, February 20, 2013, Bullion Management Group, Canada.

The Deplorable Ethics Of US Regulators & Government Exposed By Elizabeth Warren–New Member Of The Senate Banking Committee. Ms. Warren asks, ’why have too big to fail [financial institutions] become too big to trial?’ It’s obvious from the testimony that US financial regulators and the federal government have put financial interests above ethics and morality. The moral hazard created by this total neglect of ethics and justice will lead to even bigger financial crisis in the years to come.
Elizabeth Warren EMBARRASSES Bank Regulators At First Hearing, February 14, 2013, You Tube, USA.

Why The Fracking Boom May Actually Be An Economic Bubble. – [COMMENTARY] “Fracking proponents like to use an evocative economic metaphor in talking about their industry: boom. The natural gas boom. Drilling is exploding in North Dakota and Texas and Pennsylvania. Only figuratively so far, but who knows what the future holds. The Post Carbon Institute, however, suggests in a new report [PDF] that another metaphor would be more apt: a bubble, like the bubbles of methane that seep into water wells and then burst.”

The Wall Street hype around fracking is totally self-serving. But that’s what you expect from Wall Street. The report cited here offers some alternative facts and opinions. I think that most ethical investors are quite sceptical and concerned about fracking for a whole host of reasons–particularly those associated with the environment.
Why the fracking boom may actually be an economic bubble, by Philip Bump, February 19, 2013, grist, USA.

SRI Performance Still Very Difficult To Measure–Novethic. – [COMMENTARY] “Novethic, a French research centre focused on Socially Responsible Investment (SRI) and Corporate Social Responsibility (CSR), has concluded after analysing SRI funds across Europe that a consistent standard for performance measurement still needs to be agreed and implemented across the sector.” Absolutely right! Furthermore, with the standards for reporting should be independent auditing of how the data is collected, interpreted and reported, similar to how financial reports are prepared, etc.
SRI performance still very difficult to measure – Novethic report, by Caroline Allen, February 19, 2013, Investment Europe, France.

Finding the Value in ESG Performance. – [COMMENTARY] “In its winter edition of the semiannual Deloitte Review, Deloitte LLP released a study of the impact of environmental, social, and governance (ESG) issues on business performance and investor behavior. ’Finding the Value in Environmental, Social, and Governance Performance’ reviews evidence showing that environmental, social, and governance (ESG) issues can result in fundamental shifts in a company′s financial health, management, and culture. Companies that are demonstrably prepared for ESG shocks are better positioned to mitigate the downside risks.”

There is useful information in the above-cited report. It supports the theme that sustainable and responsible companies’ stock prices can outperform.
Finding the Value in ESG Performance, by Tyler Collins, February 14, 2013, First Affirmative Financial Network, LLC, USA.

UN Principles For Responsible Investment (UNPRI) Publishes Two New Important ESG Related Reports.
1) Integrated Analysis, on “how investors are addressing ESG factors in fundamental equity evaluation.”
2) Aligning Expectations, offering “guidance for asset owners on incorporating ESG factors into manager selection, appointment and monitoring.”
February 2013, UNPRI.

Go Figure: Sustainability Execs’ Budgets Down, Headcounts Up. – [COMMENTARY] “There′s a retreat in terms of budgets, and the state of the economy remains the No. 1 determinant of companies′ ability to continue or accelerate work on environmental issues. But there are a few bright spots: Sustainability staffs are growing and are looking for a little more public recognition for recent efforts.” It seems to me this is similar to what’s happening in hiring new labour. Companies are simply holding the line on all spending.
Go figure: Sustainability execs’ budgets down, headcounts up, by John Davies, February 14, 2013, GreenBiz, USA.

Despite Growing Engagement, Corporate Environmental Impacts Continue To Grow, Says Study. – [COMMENTARY] “The most comprehensive assessment of corporate sustainability activity to date shows that while companies around the world engage in a wide range of sustainability initiatives, the costs to the environment continue to grow. The sixth annual “State of Green Business” report (download free at greenbiz.com/stateofgreenbusiness), published by GreenBiz Group in association with Trucost, measures the environmental efforts and impacts of 500 U.S. companies and more than 1,600 of their global counterparts. It tracks more than 30 metrics – some never before reported on a global basis.”

This is a terrific report for all ethical investors. Get actual report and a great write-up.
Despite Growing Engagement, Corporate Environmental Impacts Continue To Grow, Says Study – 2013 “State Of Green Business,” February 12, 2013, mondovisione, UK.

Climate Policy Could Knock Off Half The Value Of Fossil Fuel Companies. – [COMMENTARY] “A recent (subscriber-only) report from HSBC Global Research helps shed some light on what′s at stake in the fight over climate policy. Short answer: a hell of a lot, especially if you′re invested in fossil fuels.”

I support a completely level playing field and the elimination of ALL financial supports and subsidies for energy. That includes everything from governments insuring nuclear facilities (which would be totally uneconomical left to market forces) and everything in between. On that basis, studies I’ve read would make wind and even solar incredibly competitive!
Attention investors: Climate policy could knock off half the value of fossil fuel companies, by David Roberts, February 8, 2013, grist, USA.

Globally, People Tuning Out To Climate Change. – [COMMENTARY] “The trend is certainly stark. GlobeScan tracks public concern on six environmental issues in its annual Radar global poll. Across eighteen countries, public concern about all six issues – water pollution, fresh water shortages, natural resource depletion, air pollution, climate change and biodiversity loss – is way down from its peak in 2009, with double-digit falls in the proportion of the public considering them ’very serious.’”

The author of this article states that our current economic concerns are trumping those of the environment and that a new paradigm needs to be offered to the public without the hyperbole of fear mongering about the environment. Ethical investors might want to factor into their investment analysis what this might mean for their investments.
Why we’re turned off and tuned out to environmental crises, by Sam Mountford, February 7, 2013, GreenBiz, USA.

US Consumers Interest In Buying Green Products Declines. – [COMMENTARY] “NMI′s annual LOHAS Consumer Trends Database® (LCTD) keeps a pulse of how consumer sentiment and behavior change on a yearly basis. One noticeable trend from the 2012 LCTD is that negative perceptions of environmentally-friendly products is keeping an increasing number of consumers out of the market, even while more people know about them, and know where to buy them.” We have here fascinating insights into consumer purchasing behaviour of green products. Anyone investing in companies making green consumer products might want to read this article and related references.
One Step Forward, Two Steps Back, by Gwynne Rogers, February 5, 2013, LOHAS Online, USA.

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