Ontario requiring pension funds to report their ESG policies and practices. “The statement of investment policies and procedures shall include information as to whether environmental, social and governance factors are incorporated into the plan′s investment policies and procedures and, if so, how those factors are incorporated.”
[COMMENTARY] This is an important new step for ethical investing in Canada. It’s likely that all the other Canadian provinces and territories will follow Ontario’s lead.
Pension’s Benefits Act changes, November 26, 2014, Ontario, Canada.
Deep Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation. “New research details an over-reliance on accounting metrics that do not measure capital efficiency, and how total shareholder return obscures a line of sight to the underlying drivers of economic performance… Only 12% of CEO Pay Determined by Economic Performance; More than 75% of S&P 1500 Companies Not Equipped to Measure, Manage Key Factors Driving Sustained Corporate Value.”
[COMMENTARY] Echoing other researchers and commentators, these findings again demonstrate that reliance on total shareholder return (i.e. stock price increases and dividends) over durations of mostly one to three years — the most common way of basing executive compensation — is absurd. Such measures only focus management on short-term stock market public relations and stock buybacks! Thus, medium and long term corporate prospects and profitability are frequently sacrificed for short term stock gains.
Ethical investors might want to scrutinize executive compensation when selecting investments.
Deep Misalignment Between Corporate Economic Performance, Shareholder Return And Executive Compensation, press release, November 24, 2014, USA.
Analysis Shows Growing Support from U.S. Mutual Funds for Action on Climate Change Risks. “One-third of votes cast across 42 fund families supporting climate-related shareholder resolutions on average in 2014, according to an analysis by the sustainability advocacy group, Ceres… the 2014 proxy season saw one of the sharpest increases ever in support for climate-related resolutions in the past decade, with 11 fund groups – including GMO, John Hancock, Delaware and Oppenheimer – increasing their support for climate… Morgan Stanley, for example, supported climate resolutions 70 percent of the time in 2014 – a shift from supporting only 13 percent in 2013… however, eight fund families failed to cast a single vote in support of a climate-related resolution in 2014, the most noteworthy being Vanguard.”
[COMMENTARY] Mutual fund managers — increasingly applying ESG criteria to their investments — are beginning to see the financial significance to companies incorporating climate change risks/mitigation and sustainability in their operations. It’s strange that Vanguard is a hold out since it’s a signatory to the UN’s Principles for Responsible Investment (PRI) which demands adherence to ESG principles.
Analysis Shows Growing Support from U.S. Mutual Funds for Action on Climate Change Risks, press release, Ceres, USA.
US Sustainable, Responsible and Impact Investing Assets Grow 76 Percent in Two Years. “Sustainable, responsible and impact investing (SRI) assets have expanded 76 percent in two years: from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, according to the US SIF Foundation′s latest biennial survey, the Report on US Sustainable, Responsible and Impact Investing Trends 2014. As a result, assets managed with SRI strategies now account for more than one out of every six dollars under professional management in the United States…
The assets managed at the start of 2014 by investment firms considering ESG issues grew more than three-fold—from $1.4 trillion at the start of 2012 to $4.8 trillion.”
[COMMENTARY] The numbers are great, though note the growth in assets of “firms considering ESG issues” accounts for more than the entire growth in the headline number. Obviously, the proven relatively higher financial returns by integrating ESG factors into portfolio screening are drawing ever more asset managers into ESG believers.
US Sustainable, Responsible and Impact Investing Assets Grow 76 Percent in Two Years, press release, November 20, 2014, US SIF Foundation, USA.
Green investment ‘nosediving.′ “Global investment in low carbon technologies fell for the second consecutive year in 2013 to $331bn from $359bn in 2012, according to a report by Climate Policy Initiative… The declining cost of solar PV accounted for a large part of the fall in private investment. Solar deployment cost $40bn less in 2013 than would have been the case with 2012′s solar investment costs, CPI said.”
[COMMENTARY] The headline is a somewhat misleading. True, investment in low carbon technologies is not growing as fast as many would hope, but with declining costs for such energy systems, actual energy output continues to rise significantly.
Green investment ‘nosediving,′ November 20, 2014, RENews, UK.
Banking culture breeds dishonesty, scientific study finds. “A banking culture that implicitly puts financial gain above all else fuels greed and dishonesty and makes bankers more likely to cheat, according to the findings of a scientific study. Researchers in Switzerland studied bank workers and other professionals in experiments in which they won more money if they cheated, and found that bankers were more dishonest when they were made particularly aware of their professional role.”
[COMMENTARY] I have seen similar research and findings before concerning financial industry employees. However, despite such observations, investors follow almost without question the financial recommendations from the financial/investment advisors at these institutions. Rarely do investors ask how independent and impartial (for instance, preferential fees for selling particular products) is the advice they’re given.
Similarly, why do the media almost always go to the large (biased) financial institutions for comments on the economy and financial markets? I’ve investigated this before. The media say that economists in academia (who I argue are less likely to be biased) are difficult to reach, whereas economists at financial institutions respond on the first ring of the phone!
Banking culture breeds dishonesty, scientific study finds, by Kate Kelland, November 19, 2014, Reuters, UK.
New study: Are Ethical Investments Good? “We find that there are positive and statistically significant long-run abnormal returns for firms being included in the MSCI KLD400. These abnormal returns are associated with higher shareholdings by institutional investors (who are subject to higher public scrutiny), higher analyst coverage and higher growth opportunities.”
[COMMENTARY] The benefits of ethical investing are again seen in this study, which analyzed the returns on companies both included and dropped from the MSCI KLD400.
Are Ethical Investments Good? By Gariet Chow (University of Western Australia), Robert B. Durand (Curtin University of Technology), and SzeKee Koh (Singapore Institute of Technology), November 13, 2014, Australian Journal of Management, Vol. 39, No. 4, 2014, Australia.
Barclays and MSCI announce launch of Green Bond Index family. “Barclays, a publisher of leading broad market bond benchmarks, and MSCI Inc., a leading provider of investment decision support tools worldwide, announced today the launch of a new green bond index family measuring the global market of fixed income securities issued to fund projects and initiatives with direct environmental benefits. The Barclays MSCI Green Bond Index family complements the existing Barclays MSCI ESG (Environmental, Social, and Governance) Fixed Income Index family, and is now available to clients.
Eligibility for the Barclays MSCI Green Bond Index family is based on an independent and objective assessment of securities by MSCI ESG Research along four dimensions closely tracked by green bond investors: use of proceeds, project evaluation, management of proceeds, and reporting. Additional fixed income index criteria are then applied to this screened universe to identify index membership on a monthly basis. These assessment criteria and thresholds for eligibility were finalized following a market consultation.”
[COMMENTARY] This illustrates the fast growing interest and development of green bonds. It’s a welcome sign. For too long ethical investors haven′t had the opportunities to invest in properly developed green bonds.
Barclays and MSCI announce launch of Green Bond Index, press release, Barclay’s/MSCI, November 13, 2014.
Study Links SRI With Enhanced Portfolio Performance. “Harvard University professor Allen Ferrell and two colleagues at Tilburg University in the Netherlands won the 2014 Moskowitz Prize for Socially Responsible Investing, awarded yesterday at the 25th annual SRI Conference–The Conference on Sustainable, Responsible, Impact Investing–in Colorado Springs, Colo. Almost 600 financial professionals are attending the three-day event.”
[COMMENTARY] Congratulations to Allen Ferrell, Hao Liang and Luc Renneboog for their insightful and valuable study that has won them the 2014 Moskowitz Prize! What’s truly useful about their study is that they reviewed ESG activities of companies in 59 countries. Most studies of a similar nature were usually more regional. Also, their findings — with such a huge dataset to use — are really exciting, finding that “certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value.”
Study Links SRI With Enhanced Portfolio Performance, by Leila Boulton, November 11, 2014, FA Magazine, USA.
Why companies should shelter in Sustainability Accounting Standards Board’s (SASB) safe harbor. “People often ask me if SASB will replace the Global Reporting Initiative, compete with the International Integrated Reporting Committee or eliminate the need for research by socially responsible investment firms and other sources of sustainability information. Based on these questions, I have concluded that very few people actually understand what SASB is or how it fits into the world of sustainability metrics.
I personally believe that SASB is creating a ’safe harbor’ for nonfinancial, sustainability-related reporting, meaning legal and regulatory protection for companies regulated by the U.S. Security and Exchange Commission.”
[COMMENTARY] Most of you are aware of ’generally accepted accounting principles,’ or GAAP, which underpins the structure for financial reporting. So SASB is trying to do the same for non-financial reporting, such as what to, and how to, report on environmental and social issues that might materially affect corporate performance and financial affairs. All ethical investors should read this article.
Why companies should shelter in SASB′s safe harbor, by Bahar Gidwani, November 11, 2014, GreenBiz, USA.
Charities prefer active investments says Newton survey. “Respondents from 74 UK charities with just under £6bn of combined investment assets took part. Broadly, the survey found that 65% choose a purely active management approach to investing; 67% are either exclusively or predominantly invested in pooled funds; Just over a quarter (25.7%) are invested in alternative assets; 60% apply a socially responsible policy, but appetite for social-impact investment remains low; and finally portfolio returns and income are the biggest concerns for respondents.”
[COMMENTARY] The data speaks for itself. What I find both surprising and happy about is that 60% of the charities are now investing with an SRI orientation. However, it’s uncertain if these findings are applicable to any other country.
Charities prefer active investments says Newton survey, press release, November 5, 2014, FTSE Global Markets, UK.
Conservation impact investing is about to boom. “The conservation impact investing market totalled $23 billion from 2009 to 2013 and is expected to increase to $37.1 billion over the next five years, according to a report released Thursday by The Nature Conservancy′s NatureVest division and EKO Asset Management. Conservation impact investments are intended to return principal or generate profit while driving a positive impact on natural resources and ecosystems.
In April, with support from JPMorgan Chase & Co., the Conservancy launched NatureVest, a dedicated division focused on deploying $1 billion in impact capital for conservation over the next three years by convening investors, developing and executing innovative financial transactions and building an investment pipeline across multiple sectors.”
[COMMENTARY] It seems a whole new area of investing is opening up for ethical investors–that of conservation impact investing. Investing for profit in projects benefiting the environment. This could be a truly win win situation both for investors and the environment.
Conservation impact investing is about to boom, by Mike Hower, November 5, 2014, GreenBiz, USA.
UN calls on pension funds to cut investments in fossil fuels. “The United Nations is calling on pension funds to cut investments in oil companies and other fossil fuel businesses in a bid to tackle climate change.
Speaking at a climate change summit in Copenhagen yesterday, UN secretary-general Ban Ki-moon said big investors such as insurers and pension funds should cut their investments in fossil fuels and focus on renewable energy sources instead.”
[COMMENTARY] Ban Ki-moon’s advocacy for fossil fuel divestment is in some ways significant–but also’ ceremonial.’ It’s significant in that the head of the UN is advocating for fossil fuel divestment but ceremonial in that it largely falls on deaf ears until governments enact carbon caps and limits. However, carbon caps and limits will (must) happen eventually, so ethical investors taking his advice could be rewarded over the long-term.
UN calls on pension funds to cut investments in fossil fuels, by Samuel Dale, November 4, 2014, Money Marketing, UK.