February 2014

New EU rules require companies to report social impact. “Member states today approved a compromise deal with MEPs that would require large listed companies to file annual reports on their corporate social responsibility, detailing their policies and activities on issues such as human rights, corruption and protecting the environment.”

[COMMENTARY] This is great news and demonstrates leadership by the EU in CSR concerns. Though companies grumble about all the new reporting requirements, the fact is stakeholders, especially investors, have a right to this information. Such information might be vital in assessing the ethics of a company–and hence its long-term financial performance as well.
New EU rules require companies to report social impact, by Nicholas Hirst, February 26, 2014, European Voice, Belgium.

Pricking The ’Bubble’ Of Banking By Calling The Sector To Account. “Last month the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) signed a memorandum of understanding to more closely collaborate to ’advance the evolution of corporate disclosure and communicate value to investors.’ It was a very important statement of intent, cutting across the factionalism that sometimes dogs a sector intent on sustainability and corporate social responsibility (CSR). It also lifted CSR, sustainability and Environmental, Social and Governance (ESG) risk out of their individual niches and brought them together into a very ‘real′ world of accounting for better, more strategic corporate disclosure.”

[COMMENTARY] Will banks adopt these recommendations? I believe they will–in time. It’ll only take a few top banks to do it and all the others will follow. And it’ll be ethical investors that’ll lead the fight forward. Banks and financial institutions will want to incorporate these reporting standards so as to benefit their reputations which will assist in enhancing all aspects of their business activities. The ones who do it first might also reap benefits in their stock prices. Studies show the pioneers in CSR activities have better financial and stockholder returns than those that come later.
Pricking The ’Bubble’ Of Banking By Calling The Sector To Account, by Dina Medland, February 24, 2014, Forbes, USA.

Example for all university finance students–University of Pittsburgh students score with SRI portfolio. “After managing a theoretical portfolio of socially responsible stocks for a few years, the students invested $100,000 in real money Feb. 4, 2013, from a grant they received from business school dean John T. Delaney. Over the next year, their 30-stock portfolio earned 23.6 percent, outperforming the S&P 500, which returned 19.8 percent over the same period.”

[COMMENTARY] Many finance students at colleges and universities get to ’play’ with hypothetical investment portfolios–but few are able to use an SRI orientation. The results of the University of Pittsburgh students are great and I wish them continued success as they set a wonderful example to others.
Heard Off the Street: Pitt student investing club teaches the value of ethical conduct, by Len Boselovic/Pittsburgh Post-Gazette, February 22, 2014, Pittsburgh Post-Gazette, USA.

Environmental profit and loss: The new corporate balancing act. “Current corporate accounting has a significant omission that creates a blind spot for corporate risks in terms of understanding impacts (and dependencies) on natural systems. The consequence of this omission starkly was highlighted by the recent TEEB for Business Coalition’s commissioned Trucost report, which identified $7.3 trillion in environmental externalities for certain businesses globally.”

[COMMENTARY] It’s about time that companies began financially accounting for possible externalities related to ESG factors. One excuse has always been that such externalities are difficult to financially measure. Well, that’s fine–just simply provide a range and show how financial accounts could be impacted. That’s a lot better than shareholders getting hit-over-the-head with surprising costs! (Actually, there could even be instances of surprising upsides to revenues too.)

The main point is to be ethical and honest in financial accounting. Everyone familiar with financial accounting knows how subjective it all is and that companies keep different sets of books for tax purposes, for operations management, etc. I’m just suggesting one more set. I know it’s the set that I’d take most seriously too.
Environmental profit and loss: The new corporate balancing act, by David Meyers and Sissel Waage, February 18, 2014, GreenBiz, USA.

GlobeScan and SustainAbility publish survey, Rate the Raters. “As with the 2012 survey, NGOs are again most trusted by experts to judge corporate sustainability performance, but ratings are catching up. Governments and journalists remain least trusted. The five most credible ratings remained the same as in 2012, although the order shuffled. The top five in 2013 are CDP, the Dow Jones Sustainability Index, Access to Medicines Index, the FTSE4Good Index Series and oekom Corporate Ratings.”

[COMMENTARY] Those who perform sustainability ratings are a mixed group. It’s great that GlobeScan and the firm Sustainability surveyed the experts who really know and study the output of the sustainable/ESG rating groups. You can download the study at the following link.
The 2013 Ratings Survey: Polling the Experts, GlobeScan, Canada.

Church of England vows to fight ’great demon’ of climate change. “The Church of England has said that it will, as a last resort, pull its investments from companies that fail to do enough to fight the “great demon” of climate change and ignore the church’s theological, moral and social priorities.”

[COMMENTARY] If followed through, the Church of England will be setting a great example to all institutions whose values marry with social and environmental causes. For many such organizations there’s still an enormous gulf between what they attempt to do and how they invest their funds. Ethical investors might want to contact the various charities and philanthropic organizations they know and point-out what the Church of England is doing, so encourage them to similarly invest ethically.
Church of England vows to fight ’great demon’ of climate change, by Sam Jones, February 12, 2014, The Guardian, UK.

Fracking is depleting water supplies in America’s driest areas, report shows. “America’s oil and gas rush is depleting water supplies in the driest and most drought-prone areas of the country, from Texas to California, new research has found. Of the nearly 40,000 oil and gas wells drilled since 2011, three-quarters were located in areas where water is scarce, and 55% were in areas experiencing drought, the report by the Ceres investor network found.”

[COMMENTARY] It’ll be interesting to see if the US droughts begin impinging on the fracking boom. Then there are the mounting environmental problems too. Add to that future concerns about restricting carbon-based fuels’ use and the subsequent possibility of large write-downs of such assets. You see where I stand. I think that’s where most ethical investors stand as well.
Fracking is depleting water supplies in America’s driest areas, report shows, by Suzanne Goldenberg, February 5, 2014, The Guardian, UK.

Majority of non-Muslim UK consumers believe that Islamic finance is relevant to all faiths. “The survey was conducted by independent research company, 2Europe, on behalf of Islamic Bank of Britain, in August 2013 through telephone interviews. 300 British Muslim and non-Muslim consumers across the UK were questioned: a third of all respondents (i.e. 100) were non-Muslim and a third of all respondents were a combination of Muslim and non-Muslim customers of IBB.”

[COMMENTARY] Perhaps many UK consumers equate Islamic finance with ethical finance. The two do have many similarities. Nonetheless, it’s an interesting finding. The findings would probably be quite different had the the same survey been done in the US!
Majority of non-Muslim UK consumers believe that Islamic finance is relevant to all faiths, by Matthew Amlôt, February 6, 2014, CPI Financial, UK.

Royal London: sustainable investors should consider health and safety. “Royal London Asset Management (RLAM) has pointed out the benefits of taking health and safety issues into consideration when selecting investments. The firm′s Review of Sustainable Investing looks at the steps the firm has taken to ensure sustainability over the last year and trends in the area.”

[COMMENTARY] Royal London’s report cites how BP’s stock lost 54% and suspended dividends after its Gulf oil spill. Also, their report cites the lack of standardization in reporting health and safety issues. Unfortunately, this is a problem everywhere. So, though one would like to take health and safety issues into account when investing–the lack of reliable and standardized data makes this challenging. Where data is reported though, it’s still worth reviewing to see if it might affect your holdings.
Royal London: sustainable investors should consider health and safety, by Charlotte Malone, Blue & Green Tomorrow, February 5, 2014, UK.

Consider this article from an ethics standpoint. It’s titled: “Dumb Investment Of The Week: Socially Responsible Investing.”

[COMMENTARY] The principle concern of this article is that many ’ethical’ funds have ideals that their investments don’t mirror. I’ve been long concerned about this. I can understand it if in the mission statement of the fund it is purposely investing in companies so that they might have a real say in improving a company’s CSR/ESG performance.

However, if that isn’t there and they invest in firms contravening the funds principles–it’s something investors in that fund should worry about. I still believe that if an investor has the ability to invest in a diversified portfolio of 10-15 companies which truly mirror their values, then they’ll be ethically better served to do that. Also, depending on how often they trade, substantial sums might be saved in trading and management fees. Over the long-term those fees can reduce the value of your holdings by over 50%!
Dumb Investment Of The Week: Socially Responsible Investing, by Ben Strubel, February 3, 2014, Seeking Alpha, USA.

Exciting new index: The Natural Capital Leaders Index. “The Natural Capital Leaders index is designed to recognize companies demonstrating natural capital leadership – and in addition, break new ground by identifying those companies that are truly ‘moving the needle′ by decoupling growth from natural capital impact. The Natural Capital Leaders Index features two categories of leaders: Natural Capital Efficiency Leaders used natural capital most efficiently to generate revenue over the past year; Natural Capital Decoupling Leaders increased revenue while decreasing natural capital impacts over the most recent five year period.”

[COMMENTARY] It’ll be fascinating to see how these indices perform. I would be interesting to know if they ’back-tested’ these indices and to know those results. Looking through the constituents of these indices one sees many recognizable names.
The Natural Capital Leaders Index, Trucost, UK.

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