January 2016

The SEC Isn′t Enforcing Climate Risk Disclosures By Fossil Fuel Companies. “Peabody Energy is not the only fossil fuel company to fail to disclose climate change risks. ExxonMobil, the largest oil and gas company in the U.S., is being investigated by both California and New York for not disclosing climate risks to investors and the public. So, what does it say about the SEC?”

[COMMENTARY] Probably certain economic elites who are hugely invested in fossil fuels are restraining the SEC. However, their power is waning! I expect the SEC to be much more forceful on corporate disclosure of climate change impacts in the years to come.
The SEC Isn′t Enforcing Climate Risk Disclosures By Fossil Fuel Companies, by Gina-Marie Cheeseman, January 28, 2016, TriplePundit, USA.

RepRisk Special Report: Most Controversial Companies (MCC) 2015. “How a company manages environmental, social, and governance (ESG) issues is now seen as directly linked to its operational excellence and social license to operate. ESG risks – such as environmental degradation, human rights abuses, and corruption – can also translate into compliance, reputational, and financial risks.”

[COMMENTARY] Among their top companies for ESG risk are: Uber Technologies Inc., Takata Corp., HSBC Private Bank (Suisse), Sony Corp., Volkswagen AG., and GM. It’s interesting to read their analysis of how they view the issues related to these, and many other, companies.
RepRisk Special Report: Most Controversial Companies (MCC) 2015, January 2016, RepRisk, Switzerland.

Investors still sceptical about ESG. “Almost two-thirds, some 64%, of institutional investors polled by Natixis Global Asset Management in its annual survey said environmental, social and corporate governance measures offered by fund managers were ’primarily a PR tool’.”

[COMMENTARY] The findings in this Nataxis survey run almost counter to other surveys of investors. Actually, when I read this article I wondered how thoroughly those institutional investors were aware of the research that predominantly finds utilizing ESG criteria generally improves returns? The survey — and the tone of the article — left me believing that most of those surveyed were still a somewhat about ESG.
Investors still sceptical about ESG, by Andrew Pearce, January 26, 2016, Financial News, UK.

Socially Responsible Firms Tend to Pay Less Taxes. “If you cynics figured the do-gooders pay less in taxes, you′re right, according to a study published in the January/February issue of the American Accounting Association journal, The Accounting Review.

The study finds that a higher CSR corresponds to lower taxes paid. In a sample of US companies with an effective tax rate averaging 26 percent, the do-gooders ranking in the top fifth of CSR paid an average of 1.7 percentage points below other companies – and, ultimately, about 6 percent less when factoring in other differences in tax rates.”

[COMMENTARY] This is a puzzling finding. Even the authors of the study were at a loss as to the reasons why this is happening. If anyone has some good theory or insight into this, please let me know.
Socially Responsible Firms Tend to Pay Less Taxes, by Terry Sheridan, January 25, 2016, Accountingweb, USA.

Warming up to ESG funds in 401(k)s. “According to The Vanguard Group, only 9% of all [US] defined-contribution retirement plans offered a socially responsible domestic equity fund in 2014.”

[COMMENTARY] I have another interpretation — other than that mentioned in the article — as to why US DC plans offer few SR-ethical offerings. Since they have plan participants ’over a barrel’ — in that plan participants have to put their annual contributions and possibly those of their employers into what’s presently being offered — so maybe many DC plans figure why bother creating extra expenses for new fund offerings? Am I too cynical?
Warming up to ESG funds in 401(k)s, editorial, January 24, 2016, Investment News, USA.

2016 Global 100 Most Sustainable Corporations in the World Ranking. “European companies continued to dominate the ranking, comprising 53 per cent of the total. North American companies made up 27 per cent of the remainder, followed by a combined 20 per cent from Asia, Africa and Australia.”

[COMMENTARY] This annual ranking by Corporate Knights is worthwhile reading for all SR-ethical investors.
2016 Global 100 Most Sustainable Corporations in the World Ranking, January 21, 2016, Corporate Knights, Canada.

Corporate Risk Disclosures Dominated by Non-Specific “Boilerplate” and Fail to Provide Investors with a Clear Risk Picture, New Study Finds. “The findings are contained in a new study, The Corporate Risk Factor Disclosure Landscape, published today by the Investor Responsibility Research Center Institute (IRRCi). Ernst & Young LLP (EY) was the primary research entity and contributor to this report. The study examines the risk disclosures of 50 large companies, including the five largest publicly traded companies in ten different industries with an aggregate market capitalization of approximately $8 trillion.”

[COMMENTARY] This study comes at an opportune time as ESG factors are increasingly integrated into mainstream investment analysis. Analysts and funds will demand greater corporate disclosure of risks and companies that don’t respond appropriately will likely be punished with lower stock prices. So we’re going to have much more transparency of risk by companies in the future.
Corporate Risk Disclosures Dominated by Non-Specific “Boilerplate” and Fail to Provide Investors with a Clear Risk Picture, New Study Finds, press release, January 21, 2016, Investor Responsibility Research Center Institute (IRRCi)/Ernst & Young LLP (EY), USA.

Morningstar ethical rating could cost funds billions. “High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article.

Asset managers fear losing billions of dollars as a result of a Morningstar initiative that will enable investors to compare the ethical ratings of thousands of funds tracked by the data provider. Morningstar will release the environmental, social and governance scores of a large proportion of the 200,000 funds it tracks for the first time before the end of March.”

[COMMENTARY] Sustainalytics has the contract to supply Morningstar with ESG ratings on some 4,500 companies, who will in turn apply those ratings to fund holdings. Since most investors are now interested in sustainability, a funds ESG rating could become a big deal for all fund managers — forcing them to improve their ESG scores! This is wonderful news for ethical investors and for those of us desiring the greatest use possible of ESG criteria in funds’ management.
Morningstar ethical rating could cost funds billions, by Attracta Mooney, January 17, 2016, Financial Times, UK.

2015 seeing $41.8bn green bonds issued – that′s the biggest ever!
“Achieving scale hasn′t been the only reason to celebrate the green bond market at the year-end; the real success is the geographical spread of green bonds across the world. Green bond markets are popping up all across the world, in Brazil, China, Estonia, Mexico and India… just to name a few!”

[COMMENTARY] Probably most SR-ethical investors want to have green bonds in their portfolio — some might even have some now. Opportunities for investing in green bonds will likely increase markedly in the years ahead. It’s great to see the Climate Bonds Initiative playing such an active role in assisting and promoting their development.
2015 seeing $41.8bn green bonds issued – that′s the biggest ever! January 2016, Climate Bonds Initiative, UK.

Tiny materials, big questions: How green is nanotechnology? “Working at the nanoscale — which can mean the near-atomic scale, with substances a million times shorter than the length of an ant, a thousand times thinner than human hair — brings the ability to create new materials that can perform tasks in ways that otherwise might not be possible.

But it also brings new concerns and challenges related to understanding environmental and human health impacts, because at the nanoscale, substances often take on chemical, biological and physical properties they otherwise might not have and behave in ways they might not at conventional sizes.”

[COMMENTARY] Many blame short-termism for most of the problems in the markets today. However, short-termism may also cause potentially large-scale human health and environment difficulties with new technologies — such as GMOs, nanoparticles, etc. It seems few people want to apply the ’precautionary principle’ when it comes to the potential for profit. SR-ethical investors should especially read this article.
Tiny materials, big questions: How green is nanotechnology? By Elizabeth Grossman, January 14, 2016, GreenBiz, USA.

Ethical investing: making money, making a difference. “’We surveyed about 1,100 investors last year from coast to coast [in Canada], and 92% said that it was important for them to invest in products that are consistent with their own personal values,’ says Chris Nickerson, senior vice president, sales and distribution, NEI Investments. ’And 71% of Canadians want their investments to help change or make companies better.’”

[COMMENTARY] Non SR-ethical investment advisors should understand they can do even better for themselves and their clients when they know the personal values of each client.
Ethical investing: making money, making a difference, by Donald Horne, January 12, 2016, Wealth Professional, Canada.

Corruption interruption. “According to TRACE′s 2014 Global Enforcement Report, there were 211 investigations involving foreign bribery being conducted in 27 countries by the end of that year. These cases are being investigated by countries that even five years ago were considered to be anemic enforcers, including China, Slovakia and Argentina. And while the U.S. leads the world in total enforcement actions overall, in 2014 more enforcement actions were brought outside than within the United States.”

[COMMENTARY] It’s interesting that the increasing interest of countries everywhere to rid themselves of corruption parallels the rise of ESG and ethical investing. They go together. This is a further promising sign for SR-ethical investors that the world is moving towards their ideals and can only help their financial returns too.
Corruption interruption, by Alexandra Wrage, January 8, 2016, Corporate Knights magazine, Canada.

Europe Leads Sustainable Investing. “San Lie, director of manager research, Benelux with Morningstar′s EMEA fund research team said in the firm′s latest bi-monthly magazine that $13.6 trillion was invested in sustainable assets in Europe compared to $6.6 trillion in the US. Lie said that a total of $21.4 trillion was invested globally in ESG (environmental, social and governance) assets in 2014, 60% more than in 2012.”

[COMMENTARY] This article further discusses how institutional investors a far ahead of individuals in using ESG criteria in selecting investments. However, in all surveys of individual investors a significant proportion of them want to invest with ESG/ethical criteria in mind. Thus, again, I suggest it’s the advisors not doing their job of ’knowing their client’ is where the real bottleneck lies for individual investors.
Europe Leads Sustainable Investing, January 5, 2016, Markets Media, USA.

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