PODCAST: Green Bonds, ESG Indexes, Active or Passive ESG Funds?


Where do you find green bonds? New report highly critical of most ESG indexes. Though passive ESG ETFs can be attractive from an annual cost perspective, check what’s in them and see if their holdings agree with your values. There’s a strong argument that active management for ESG investing is best. And much more here

Transcript & Links 29 March 2019

In this edition, I’m going to cover several recent items that I believe are most important for News to Profit By listeners.

Our first story, Why ESG Is Too Nuanced for Index Investing, Frances E. Tuite, ThinkAdvisor.

The writer says, that, “Active management brings deeper analysis and nimbler choices into building socially responsible portfolios.”

Frances makes some good points why active management of funds – rather than just sitting on a group of stocks indefinitely – can be preferable. Among the points are, and I quote,

1) “Active managers combine valuation, fundamental analysis and ESG factors into their stock selection. A passive or index strategy does not encompass individual stock selection; rather, stocks are added based on a positive or negative screen without regard to valuation or fundamental research.”

2) “An active manager may create a select and concentrated portfolio (40 or 50 names) while passive funds may hold a large diversified portfolio (in some cases over 1,000 positions) that due to liquidity needs, out of necessity, can include stocks with low ESG ratings.“

Frances says that the new Vanguard ESG U.S. Stock ETF includes Facebook and Amazon which both now have low ESG scores by some analysts. Amazon for the treatment of their workforce and Facebook for its data issues.

So, though passive ESG ETFs can be attractive from an annual cost perspective, check what’s in them and see if their holdings agree with your values. Go to this podcasts’ blog page at investingforthesoul.com/podcasts to find out where to get reliable sustainable and ethical fund information for where you live.

Americans at https://charts.ussif.org/mfpc/ Canadians can check out funds at https://www.riacanada.ca/ri-marketplace/investment-options/ . UK investors at http://www.yourethicalmoney.org/investments/ . For Australians and New Zealanders https://www.responsiblereturns.com.au/ .

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The second story, What Are Green Bonds and How ‘Green’ Is Green? By Lyubov Pronina, Bloomberg Businessweek

A quick quote reads, “Because investors face the challenge of judging whether a note is truly green, regulators are working on standards to help guard against greenwashing, or misleading claims about just how good a friend to the environment an issuer is.”

Green bonds go to existing or new projects that have beneficial environmental or climate impacts. $580 billion of them were sold in 2018.

There’s been a real problem of creating standards for them. For instance, how can you ascertain exactly what’s green? So, now the standards are coming together.

Issuers in over 50 countries have sold green bonds and include institutions like the World Bank and the EU’s European Investment Bank.

For a long time, ethical investors had difficulty in creating a fixed income or bond portfolio. Now, with the advent of green bonds ethical and sustainable fixed income investing is becoming a lot easier! Look into it if you haven’t already done so and get some quality green bonds in your portfolio. To get started, one good source for green bond investing is The Climate Bonds Initiative which lists most of the green bonds out there.

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Our third item is, The Blind Spot in Corporate Sustainability Rankings: Climate Policy Leadership, by the Environmental Defense Fund.

Here’s a quote that gives the gist of the study, “The authors reviewed eight rankings by evaluating the methodologies that these systems have published online and that are available to the public. They assessed whether companies’ policy engagement activities were considered in the rankings, and how, if considered, they were tabulated as part of the companies’ overall rankings or scores…”

And, “Most corporate sustainability rankings do little to encourage companies to engage in climate policy, as they neither recognize support for nor penalize opposition to climate policy.”

The Environmental Defense Fund has done a brilliant job in analyzing which sustainability screened stock indexes only include companies who are also screened for their environmental advocacy. The reason for such screening allows investors to better determine which companies are truly on board with combating climate change. Of the eight major indexes only two were recommended. They are Corporate Knights’ Global 100 and InfluenceMap. So that’s who to go to if you really want to invest only in the most serious companies about climate change—but who also offer the potential of decent returns.

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My fourth item of news, is, Ethical Funds Have Never Been Cheaper As Vanguard Spurs Fee War, by Bloomberg News

Quoting the article, “The price war has come to socially conscious investing. BlackRock (BLK), Vanguard Group and Deutsche Bank’s (DB) DWS Group have slashed fees for exchange traded funds that track companies performing well on environmental, social and governance criteria.”

Incidentally, an insightful write up on Vanguard’s new Global ESG Select Stock fund by Morningstar’s great Jon Hale, Ph.D. is worthy of a read. Get the link on this podcasts page at investingforthesoul.com/podcasts.

Also, in my podcast of March 15, I mentioned how annual fund fees for ESG ETFs were now often comparable to those of conventional funds. This article goes into some depth about that.

However, I absolutely maintain that if you truly want a portfolio that reflects your deep beliefs and values, the only way to do that is to buy individual stocks. I make that simple with my 1-hour DIY Ethical-Sustainable Investing Pays Tutorial. See the link on my website investingforthesoul.com.

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A fifth news story I want to cover is, How to Evaluate Funds that Invest in Women, by Debbie Carlson, US News

Here’s an interesting quote, “Because data around gender was so thin, Andrew Behar, CEO of As You Sow, a California-based nonprofit shareholder advocacy group focused on ESG, says his group worked with Equileap to compile more information about corporate gender policies, including policies like training, career development, safety at work, human rights and other issues…

His group recently created a gender-equality funds tool that analyzes mutual funds and ETFs, taking into account these different gender attributes and giving each fund a score.”

There are now some good ETFs that are gender focused and I covered them in my March 15 podcast in a commentary concerning an article, Who runs the world? The global status of women in leadership.

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Now my next, sixth story is quite revealing, Large fund firms’ support for combating climate change is all talk, as proxy voting record shows bottom performance, by Eric Rosenbaum, CNBC.

Here’s a great quote! “A data analysis released by Ceres in early March shows that when BlackRock and Vanguard are measured on their up-or-down votes on climate change resolutions at stockholder annual meetings, they have among the worst voting records in the fund industry.”

So, the voting data would appear irrefutable that the largest American fund companies don’t ‘walk their talk. Senior managers of some of these huge fund companies, including Blackrock’s CEO, Larry Fink, have been loudly espousing their love for ESG. I hope it’s just a simple case that views of the funds senior managers on ESG hadn’t yet filtered down to the managers making the proxy decisions who are likely engaged with other concerns. I expect that the 2019 and 2020 proxy seasons will show much-improved results.

I suggest if you’re concerned about how your fund company stacks up on ESG and climate change related stockholder voting, see the Ceres report. Again, the link is on my podcast page for this show.

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And now the seventh and final story I want to cover, is, Investors Lose a Major Justification for Holding Tobacco Stocks, by Lisa Pham, Bloomberg.

Here’s an insightful quote from it, “In recent years, a flurry of European pension funds and insurers have begun divesting their holdings, putting pressure on the share prices. BAT had its worst year on record last year, slumping 50 percent, as the U.S. Food and Drug Administration toughened its stance toward the tobacco industry. Philip Morris slumped 37 percent.”

Some of you might think it unsurprising that tobacco stocks are down. However, until recently most investors would’ve have told you that tobacco stocks are great as they’ve demonstrated terrific returns for decades!

Well, I’ve been arguing for many years now that the days were numbered for big tobacco. In July 2010, I wrote an editorial on my Investing for the Soul site, Sin or Ethical Investing: Which Pays Best? There, I said, “Over the next five to ten years I suspect that ethical stock portfolios could outperform both the sin and conventional variety.” And it looks like I’ll be proven right.

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So, there we have it for this podcast!

Just a reminder, to download the transcript of this podcast and get all the links and additional information mentioned here, please go to investingforthesoul.com/podcasts and look for this edition.

And remember, I’m here to help you grow in your investment success—and investing in opportunities that reflect your personal values!

Please don’t hesitate to contact me if you have any questions about this podcast or anything else investment related.

A big thank you for listening—and please click the share buttons to share this podcast with your friends and family.

Come again! Bye for now!

© 2019 Ron Robins, Investing for the Soul. All rights reserved.

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