April 2019

ETF vs. SMA: Which Is Better for Sustainable Investing? “SMAs are ideal for values-based investing as they allow investors to actively screen for certain product areas (e.g. oil, tobacco), or ‘bad actors’ that they deem antithetical to their values. They also allow for more specificity, e.g. designating a certain percentage of revenue from carbon emissions to be included in one’s portfolio.

Furthermore, because SMA investors directly own the underlying securities, they can opt to play an active shareholder role, working to impact corporate behavior through voting proxies or shareholder resolutions.”

[COMMENTARY] An SMA is a separately managed account available at many financial institutions. The author of the article suggests that — from a US perspective — they can be better for ethical and sustainable investors than ETFs. This is a worthwhile read for all investors.
ETF vs. SMA: Which Is Better for Sustainable Investing? By Johny Mair, April 30, 2019, ThinkAdvisor, USA.


Fund managers worth $10.2tr urge oil firms to align with Paris Agreement goals. “Oil companies will cease to be attractive investments unless they quickly adopt low carbon business models that support the Paris Agreement’s climate targets, new findings from a major survey of 39 fund managers responsible for $10.2tr of assets worldwide suggest…

Only 18 per cent said they believed oil companies would remain good investments if their businesses are still focused on fossil fuels in five years’ time… “

[COMMENTARY] President Trump can play the oil card but it’s the fund managers that have the aces. And they’re getting fearful of oil.
Fund managers worth $10.2tr urge oil firms to align with Paris Agreement goals, by Michael Holder, April 29, 2019, BusinessGreen, UK.


Fund buyers to increase ESG exposure. “Two thirds of fund buyers plan to increase their allocation to environmental, social and governance (ESG) funds in 2019, according to data compiled by Natixis.”

[COMMENTARY] Over 200 fund managers, insurers and wealth managers were surveyed. Again, the wisdom of ESG-based investing is being acknowledged.
Fund buyers to increase ESG exposure, by David Thorpe, April 29, 2019, FT Advisor, UK.


Opinion: Here’s how to check the animal-friendliness of your investments. “It’s easy to check which individual stocks are ‘cruelty-free,’ but you can’t yet invest in a vegan investment index.”

[COMMENTARY] This article provides a good overview for not only animal-friendly investing but also for vegetarian and vegan investing styles.
Opinion: Here’s how to check the animal-friendliness of your investments, by Meredith Jones, April 25, 2019, MarketWatch, USA.


Largest 10 Socially Responsible Fixed Income ETFs. “Fixed income ETFs are increasingly tapping into socially responsible investing themes. A good example of that trend is the iShares Global Green Bond ETF (NasdaqGM: BGRN), which debuted last November.”

[COMMENTARY] This article has a good review of some green bond ETFs. However, a cursory look at the ten funds tagged as being SRI might make it difficult for the avid ethical investor to invest in them.
Largest 10 Socially Responsible Fixed Income ETFs, by Todd Shriber, April 24, 2019, ETF Trends, USA.


How Wellington Is Reshaping Its ESG Investing. “Call it spatial finance, says Chris Goolgasian, Wellington’s director of climate research. Spatial finance is essentially building a three-dimensional map that layers climate-science data on top of stock fundamentals and macroeconomic indicators, he explains. The mapping initiative, in turn, helped garner a dozen research initiatives at Wellington, and the shop is now paying very close attention to a factor that most asset managers might not have considered—geographic location.”

[COMMENTARY] Incorporating climate science data into stock analysis is a new twist that just might catch on in the years ahead. We’ll have to see what the results are like.
How Wellington Is Reshaping Its ESG Investing, by Crystal Kim, April 19, 2019, Barron’s, USA.


3 Ways to Make Your Portfolio More Climate-Aware. “Grantham and his colleagues at GMO looked at what happens when you remove a single sector from an S&P 500-based portfolio. They created S&P 500 portfolios ex energy, ex healthcare, and ex the other eight sectors in the index, going back to 1989, 1957, and 1925.

They found that the range of returns for the ex portfolios was only 50-60 basis points annualized, distributed above and below the S&P 500’s return. In the case of the ex energy portfolio, it underperformed the S&P 500 by just 5 basis points annualized from 1925 to 2017, underperformed by 7 basis points annualized from 1957 to 2017, and outperformed by 3 basis points annualized from 1989 to 2017.

Grantham’s conclusion: ‘You can divest from oil–or about anything else–without much consequence for performance.'”

[COMMENTARY] For decades I’ve heard — and you too I’m sure — that if you narrow your investment universe you will get lower returns. Well, look at the evidence here that refutes that argument. Nonetheless, I would be happier if this research was written-up and published in an appropriate peer-reviewed journal and critiqued. Also, Grantham says that the fossil fuel sector is way overpriced considering its risks.
3 Ways to Make Your Portfolio More Climate-Aware, by Jon Hale, April 18, 2019, Morningstar, USA.


How to Reduce Investment Risk From Climate Change and Other ESG Woes. “If no counter action is taken, such as reducing fossil fuel use, close to 60% of U.S. metro areas will lose 1% of more of gross domestic product, which will not be offset by comparable growth in other metro areas.”

[COMMENTARY] In the article, it’s noted that municipal bonds could lose badly if municipalities don’t adapt to climate change.
How to Reduce Investment Risk From Climate Change and Other ESG Woes, by Bernice Napach, April 18, 2019, ThinkAdvisor, USA.


Official ESG Evaluations from S&P Coming to Insurance Sector in Near Future. “‘The ratings giant on April 11 announced the roll out of its ESG Evaluation, describing it as ‘a new benchmark that provides a cross-sector, relative analysis of an entity’s capacity to operate successfully in the future.'”

[COMMENTARY] S&P’s new ESG product sounds great. However, I see a big snag with it: companies probably have to request they be rated! So, this means companies will have to pay to be rated. Is this yet another conflict of interest similar to the one that got these credit rating agencies into hot water back in 2008/9? Can you trust such ratings then?
Official ESG Evaluations from S&P Coming to Insurance Sector in Near Future, by Don Jergler, April 18, 2019, Insurance Journal, USA.


New Survey Finds Most Americans Unaware of ESG Investing. “In a survey of 1,000 American investors in late 2018, about 55% of people don’t know what social investing is… The findings suggest that people who learn about social investing are highly interested in it.”

[COMMENTARY] I don’t think this is surprising since most advisors still don’t talk about nor, at the retail level, do most banks and financial institutions. On the positive side, this survey does show 45% of investors do know about it.
New Survey Finds Most Americans Unaware of ESG Investing, by Brendan Coffey, April 15, 2019, Forbes, USA.


Climate-risk disclosure takes investors by storm. “in the short time since July 2017, following the release of the TCFD guidelines, more than 500 large businesses, investors and industry groups have signed on to provide this type of forward-looking financial disclosure. Companies in the financial services industry are leading the way in their support of the TCFD recommendations, including BlackRock, State Street and S&P Global, along with the Association of Chartered Certified Accountants.”

[COMMENTARY] Ethical and sustainable investors will benefit from increased and improved climate-related disclosure. It’ll enable them to better asses related corporate and investment risks. I just wonder how President Trump will view this since he’s trying to do whatever he can to restrain ESG-based investment growth in the US.
Climate-risk disclosure takes investors by storm, by Libby Bernick, April 15, 2019, GreenBiz, USA.


ESG in Investment Management: New Age or Just Noise? “Our recent ESG survey results show some interesting shifts. This survey was conducted with Principles for Responsible Investment (PRI) with 1,100 financial professionals and 23 workshops in 17 investment centers around the world.”

[COMMENTARY] The survey by the CFA Institute and Principles for Responsible Investment (PRI), shows the real state of ESG in investment analysis. Governance is important but Environment and Social factors much less so. This confirms other surveys that have tried to determine the relative importance of each of the three variables that make-up ESG. In part, information concerning the materiality of environmental and social factors to profits is often unclear and not easy to ascertain.
ESG in Investment Management: New Age or Just Noise? By Kurt Schacht, April 12, 2019, Nasdaq, USA.


The S&P 500 Gets an ESG Makeover — but It May Not Go Far Enough. “Some longtime ESG investors are less than impressed with the news. ’The biggest thing about this is it shows how far the concept of sustainable investing has penetrated into the mainstream market,’ says Jon Hale, global head of sustainability research at Morningstar. ’The trouble is that even as investors become more concerned about the social and environmental impact of their investments, they’re forced to invest in everything, including companies that make weapons or treat the environment poorly.’”

[COMMENTARY] As Jon Hale says, though the new S&P 500 ESG index offers great diversification — it’s that very diversification that in itself is a huige issue for many ethical and sustainable investors. Again, that’s why I encourage investors to take my DIY Ethical-Sustainable Pays Tutorial to learn how to get diversification that also reflects your personal values. This article provides a good explanation of the pros and cons of the new index.
The S&P 500 Gets an ESG Makeover — but It May Not Go Far Enough, by Leslie P. Norton, April 11, 2019, Barron’s, USA.


[US] Workers want those hard-to-find socially responsible investments in their 401(k) plans: Survey. “A new survey finds that 61% of workers would increase their retirement savings if they could put their money in socially conscious investments. The same survey also found that just 13% of workers have access to those kinds of impact investments.”

[COMMENTARY] There appear to be several reasons why employers are reluctant to offer SRI/ESG investments in US 401(k) plans. Chief among them, according to the Nataxis survey, is that employers don’t feel it’s right for them to “impose their morals on their employees′ investment choices.” Personally, I think that answer is absurd since they’re also offering many other options too, which when considered, are also ’moral choices!’

The second principal reason is due to the US Department of Labor making it clear that ESG couldn’t be used as the main criteria for selecting investments. This, of course, reflects President’s Trump’s campaign to promote old and dirty industries — which usually score low on ESG measures.
[US] Workers want those hard-to-find socially responsible investments in their 401(k) plans: Survey, by Lorie Konish, April 9, 2019, CNBC, USA.


A regulatory lens when assessing ESG risks. “internally we look at sustainability through an ESG-R lens, which includes regulation alongside environmental, social and governance factors. Many of our investment companies have held leading industry positions and, as a result, regulation is one of the greatest risks they face.”

[COMMENTARY] A regulatory lens makes sense. Most ESG portfolios are top heavy with tech and social media companies. These groups face extraordinary regulatory pressures and the effects on their stock prices are undetermined.
A regulatory lens when assessing ESG risks, by Sudhir Roc-Sennet, April 8, 2019, Investment Europe, UK.


S&P unveils ESG version of ’iconic’ 500 index. “S&P Dow Jones Indices has launched an ESG-centric version of its long-running S&P 500 index as part of plans to launch a wider family of responsibility-focused indices… The index has been developed to serve not only as a performance tracking tool but also as a building block for creating new ESG index-based investment products such as ETFs.”

[COMMENTARY] This is exciting news for ethical and sustainable investing. The S&P 500 index and financial products based on it, are among the most popular financial products to have ever been conceived. RobecoSAM will be creating the index. They also are responsible for the FTSE4Good index.
S&P unveils ESG version of ’iconic’ 500 index, Chris Sloley, April 8, 2019, CityWire Selector, UK.


More Funds Are Formally Considering ESG in Their Investment Processes. “The number of actively managed funds that are adding environmental, social, and governance criteria to their prospectuses is exploding. I first noticed this phenomenon two years ago when several funds run by J.P. Morgan, Morgan Stanley, and RBC did so. Then last year, another 51 funds added ESG criteria to their prospectuses, including all 21 funds run by Aberdeen.

But in this year’s first quarter alone, an astounding 73 funds added ESG criteria, including funds run by AllianzGI, Calamos, ClearBridge, MainStay, Neuberger Berman, Schroders, TCW, and Transamerica.”

[COMMENTARY] If this doesn’t prove ESG has arrived — what will? However, we’ll have to see if advisors are inspired to recommend them! They have always been the hurdle for ESG product adoption.
More Funds Are Formally Considering ESG in Their Investment Processes, by Jon Hale, April 4, 2019, Morningstar, USA.


Ethics & Trust in Finance Prize. “Promotes greater awareness among young people throughout the world concerning the benefits of ethics in finance. It aims to encourage high-quality management of banking, insurance and financial services based on trust and integrity. Launched in 2006…”

[COMMENTARY] I’ve been helping to promote this terrific prize since 2006. Now, it has the support of institutions such as the CFA Institute, Euroclear, and the OECD. They’re looking for more entries for the prize. If you know of anyone who might like to submit for the prize, they have until May 31 to do so!
Ethics & Trust in Finance Prize, press release, April 4, 2019.


Investing with equal pay in mind may be more difficult than you think. “Investors who are concerned about equal pay may want to consider certain gender and diversity funds that are making this issue a priority.”

[COMMENTARY] Research by Morningstar shows — among other things — that stockholder voting by funds focused on gender issues is not always what you’d expect.
Investing with equal pay in mind may be more difficult than you think, by Lorie Konish, April 2, 2019, CNBC, USA.


Winners of Environmental Finance Bond Awards 2019 honoured by market. “The hotly contested awards, which cover the 2018 calendar year, aim to recognise best practice, or issues that were significant for the development of the market. The awards are particularly prestigious because the winners were decided by an independent panel of juInvesting with equal pay in mind may be more difficult than you think,dges made up of some of the biggest investors in the green, social and sustainability bond market.”

[COMMENTARY] These awards aren’t about which green bonds made investors the most money, but, rather, included characteristics such as quality, innovativeness, best practices, etc. Nonetheless, if you’re wanting to invest in, or add to your present green bond holdings, you might find some ideas among the winning green bonds here.
Winners of Environmental Finance Bond Awards 2019 honoured by market, April 2, 2019, Environmental Finance, UK.


Global Sustainable Investments Rise 34 Percent to $30.7 Trillion, by Emily Chasan, April 1, 2019, Bloomberg, USA.
Greenwashing purge sees sustainable funds lose share in Europe, by Siobhan Riding, April 1, 2019, FT, UK.

[COMMENTARY] Both the above stories reveal data from the same Global Sustainable Investment Alliance study released April 1. However, they each have rather different messages. It might be that institutional sustainable investing in Europe is maturing while still growing in other geographic regions. Even at the retail level though, Europe — as in most regions — still has a lot of room to grow.

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