World Bank & Partners + S&P Dow Jones Indices, & Partners — Rolling Out New Sustainable Investing Approaches for Institutions…

Forward Momentum! — Two new approaches that spell out a-d-v-a-n-c-e-m-e-n-t for sustainable investment: World Bank and S&P Dow Jones Indices (separately) roll out new products and approaches with key partners’ participation.

Despite the nay-saying about climate change, global warming, sustainability and related subjects in certain quarters in the United States, major players in global finance enthusiastically rolled out new products / approaches for institutional customers.

First:  The World Bank, as part of its “SDGs Everyone” initiative has partnered with (initially) institutions in France and Italy for issuance of equity-index bonds that link returns to the performance of 50 companies that “advance global development priorities” as determined by the methodology of Vigeo Eiris Equities.  The bonds are being marketed by BNP Paribas. (Proceeds:  163 million Euros.)

The proceeds will be used to finance projects that help to eliminate poverty and boost shared prosperity, advancing Sustainable Development Goals (SDGs) that are being adopted by nations around the world.  This is the World Bank and partners “walking the talk” of sustainability and responding practically to the aspirational 2030 SDG goals.

Second:  S&P Dow Jones Indices (“S&P DJI”) created the S&P Green Bond Select Index (for ‘green label” bonds), to “meet strong market demand,” according to the company.  The first licensee is VanEck, to create an Exchange Traded Fund (ETF).   S&P DJI offers more than 100 financial indices to its global capital market customers. (The S&P 500, for example, represents more than 80% of U.S. value of corporate equities and is the most widely used benchmark.

G&A Institute each year monitors and reports on the S&P 500 universe of companies’ reporting on their sustainability journeys.  Watch for our news coming shortly on the latest survey results.

VanEck notes that the market value of “green bonds” was US$82 billion in 2016 and could reach $150 billion in 2017.  Click here for details . There’s also a good introduction to “green bonds” on the web site.

As Sustainable Brands, in reporting on the developments noted…”this could expand sustainability investment and drive it towards the mainstream…”  The details are here for you in our Top Story:

Dow Jones, World Bank Unveil New Financial Tools to Expand Sustainability Investments
(Wednesday – March 15, 2017)
Source: Sustainable Brands – &P Dow Jones Indices (S&P DJI), the world’s leading provider of index-based concepts, data and research, has announced the launch of the S&P Green Bond Select Index which captures the most liquid and tradeable segment of…

Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Voting?

“Stormy Weather Ahead Warning”:  Climate Change Resolutions / and Investors’ Voting — “Hurricane” Coming in 2017 Shareholder Proxy Voting Season?

Guest Commentary – by Seth DuppstadtProxy Insight Limited

The United Nations‘ consensus reached in the “Paris Agreement” (COP 21), the goal to limit global temperature rise to within 2 degrees Celsius could turn shareholder support for climate change resolutions from a squall into a powerful hurricane at U.S. energy and utility companies this proxy season. says our team at Proxy Insight.

Example cited:  The BlackRock Investment Stewardship Team’s new guidance on climate risk engagement made the possibility of a Category 5 storm conceivable — if companies aren’t responsive.

During the 2016 corporate proxy season, a particularly successful subset of shareholder-sponsored climate change resolutions — known as 2 Degree Scenario (“2DS”) proposals —  averaged 37.73 percent shareholder support:

ISSUER MEETING DATE % FOR
Devon Energy Corporation 8-Jun-16 36.06
Southern Company (The) 25-May-16 34.46
Exxon Mobil Corporation 25-May-16 38.14
Chevron Corporation 25-May-16 40.76
FirstEnergy Corporation 17-May-16 31.9
Anadarko Petroleum Corporation 10-May-16 42
Occidental Petroleum Corporation 29-Apr-16 48.99
Noble Energy Inc. 26-Apr-16 25.1
AES Corporation (The) 21-Apr-16 42.21

 

This was a notably high level of support for a first-round shareholder proposal — especially for climate change related. *

Example:  The proposal at Occidental Petroleum almost gained a majority with 48.99% of votes cast in support (not including abstentions).

Proxy Insight data show Institutional Shareholder Services (ISS) recommended For votes for all nine 2DS resolutions, while proxy advisor Glass Lewis opposed one.

The shareholder resolutions ask companies to stress test their portfolios and report on financial risks that could occur in a low-carbon economy.

Up to 17 2DS resolutions are expected to move to vote at U.S. companies in 2017 proxy voting, according to Ceres.  (Ten will be filed at companies not having these resolutions before).  The next scheduled company voting on 2DS will be at AES Corp on April 20th. A preliminary proxy indicates Duke Energy shareholders will be voting on May 4.

*excluding non-US “Strategic Resilience for 2035” proposals (2015/16)

 TOP-10 INVESTORS (AUM) MOST FREQUENTLY SUPPORTING “2DS” CLIMATE CHANGE RESOLUTIONS

Investor For Against Abstain DNV Split
Deutsche Asset & Wealth Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legal & General Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Legg Mason Partners Fund Advisor, LLC. 100.00% 0.00% 0.00% 0.00% 0.00%
AXA Investment Managers 100.00% 0.00% 0.00% 0.00% 0.00%
APG (Stichting PF ABP) 100.00% 0.00% 0.00% 0.00% 0.00%
Schroders 100.00% 0.00% 0.00% 0.00% 0.00%
M&G Investment Management 100.00% 0.00% 0.00% 0.00% 0.00%
Aviva Investors 100.00% 0.00% 0.00% 0.00% 0.00%
Canada Pension Plan Investment Board (CPPIB) 100.00% 0.00% 0.00% 0.00% 0.00%
California Public Employees’ Retirement System (CalPERS) 100.00% 0.00% 0.00% 0.00% 0.00%

Information is available at:  https://www.linkedin.com/pulse/climate-change-voting-calm-before-storm-seth-duppstadt

Proxy Insight is the leading provider of global shareholder voting analytics.

Visit www.proxyinsight.com for more information, where you can also sign up for a trial or contact Seth Duppstadt, SVP Proxy Insight Limited at: seth.duppstadt@proxyinsight.com  Telephone:  646-513-4141

World’s Largest Asset Manager on Climate Risk Disclosure — the BlackRock Expectations of Public Company Boards and C-Suite

by Hank Boerner – Chairman and Chief Strategist – G&A Institute

Monday, March 13, 2017 — The world’s largest asset management firm has clear expectations that corporate managements will disclose more on climate risk to their shareholder base…BlackRock speaks out.  Corporate boards and C-Suite – Important News for You….

You all know BlackRock — this the New York City-based “world’s largest asset manager guiding individuals, financial professionals, and institutions in building better financial futures…”

“That includes offerings such as mutual fund, closed-end funds, managed accounts, alternative investments, iShares ETFs, defined contribution plans…”

And — “advocating for public policies that we believe are in our investors’ long-term interests…” “…ensuring long-term sustainability for the firm, client investments and the communities where we work…”

For BlackRock, Corporate Sustainability includes: (1) human capital, (2) corporate governance (3) environmental sustainability, (4) ethics and integrity, (5) inclusion and diversity, (6) advocating for public policy, and (7) health and safety.

In terms of Responsible Investing, the BlackRock approach includes (1) investment stewardship and (2) having a sustainable investing platform (targeting social and environmental objectives AND the all-important financial return).

So it should not come as a big surprise to the boards and managements of literally thousands of public issuers that BlackRock has great expectations regarding the individual company’s (in a portfolio or hope to be) climate change disclosure practices.

What We Are Doing/How We Do it – Shared by BlackRock

Right now the BlackRock managers are sharing with other asset owners & managers their approach to sustainable investing. There are important lessons for corporate managements in these explanations:

As part of the investment process, BlackRock continues to assess a range of factors (that could impact the long-term financial sustainability of the public companies or companies).

Over the past two years, a number of projects have helped BlackRock to more fully understand climate change. BlackRock believes that climate risk (climate risk/change issues) have the potential to present definitive risks and opportunities that could or will impact long-term shareholder value.

The BlackRock team members also contributed to external initiatives such as the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosure (TCFD) and the continued development of the voluntary reporting guidelines of the Sustainable Accounting Standards Board (SASB).

Larry Fink – the influential CEO of BlackRock — sent letters directly to the CEO’s of public companies in 2016 and then again recently (2017) that called attention to the need for the companies to help their investors better understand the ESG factors most relevant to the firm to generate value over time.

That especially includes more robust disclosure and reporting on the issues related to climate risk. (We need to keep in mind that “risk” has a companion — “opportunity,” as represented in the Chinese pictograph for a crisis.)

BlackRock’s Investment Stewardship Team meets with portfolio company managements and votes BlackRock shares at proxy voting time; if an issue is in focus and the C-suite will not make progress on the issue, the team will elevate the concern to the company’s board room. And they “may” in time vote against director nominees and for shareholders proposals that are on the right side of BlackRock’s own concerns.

Company Boards and Executives – for 2017

BlackRock engages with 1,500 companies (on average) every year. As (according to BlackRock) climate risk awareness and its engagement with companies on the issues is being advanced, and as the asset management firm’s own thinking on climate risk continues to evolve, that issue is on the table for the Investment Stewardship Team discussions with company managements in 2017.

Companies “most exposed” to climate risk will be encouraged as part of the discussions to consider reporting recommendations coming from the FSB Task Force.

And, the board will be expected to have “demonstrable fluency in how climate risk affects the business and management’s approach to adapting to and mitigating the risk. Corporate disclosure on all of this will be key to the ongoing relationship with the investor – BlackRock (with US$5 trillion and more AUM).

Other Investment Management Peers

Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management (Boston)

Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management (Boston) and long a robust and powerful voice in the sustainable investing movement, applauded BlackRock’s shared information.

“The announcement that climate risk will be a priority in their engagements with public companies is an exceedingly important message being sent by one of your largest shareholders. That they believe climate risk is a priority reinforces the importance of the issues for senior managements of public companies. We’re hopeful that BlackRock’s announcement and engagement on climate risk will result in active support for shareholder resolutions on climate change.”

Walden and others filed their own shareholder resolution with BlackRock asking for a review of the asset manager’s corporate proxy voting process and record on climate change.

BlackRock has been accused by investment peers for its proxy voting practices. For example, Climate Wire reported in 2016 that IF BlackRock and its large institutional investment peers had supported a climate resolution filed with Exxon Mobil (this was part of the not-for-profit Asset Owners Disclosure Project) the resolution would have passed in the final vote by shareholders.

We’ll see what the 2017 BlackRock moves mean in the corporate proxy season getting underway now with continued investor focus on climate change / climate risk / global warming disclosure and reporting demands.

As corporate sustainability consultants and advisors, we at G&A Institute (and as part of our pro bono research work as the exclusive Data Partners for the Global Reporting Initiative (GRI) in the United States) analyzed more than 1,500 report sustainability reports in 2016 — and we are seeing an increase now in 2017 early survey results that corporate disclosure on climate risk issues is definitely on the increase.

We will soon release the results of our team’s analysis of S&P 500(r) on sustainability reporting and related issues. Recall that our analysis last year found that 81 percent of the 500 companies were doing structured sustainability reporting.

There’s more information for you here:

https://www.blackrock.com/corporate/en-us/about-us/investment-stewardship/engagement-priorities

https://www.blackrock.com/corporate/en-us/literature/market-commentary/how-blackrock-investment-stewardship-engages-on-climate-risk-march2017.pdf

Asset Owners Disclosure Project:  http://aodproject.net/

Tim Smith / Walden Asset Management:

http://www.waldenassetmgmt.com/team/smith-timothy

 

 

“The Authoritative Voice for Wall Streeters,” Says It … Barron’s Tells Mainstream Investors It’s a “New Era of Sustainable Investing” … And that is, in the Trumpian Era, No Less…

The Barron’s weekly newspaper is the “hot read” for Wall Streeters – both institutional and retail investors alike eagerly absorb the news and opinions of the editors, writers, and columnists.  “Did you see Barron’s….?” is a familiar question in the investment community.

And so we ask — did you see Barron’s story this week (Feb 11th issue)?  “A New Era of Sustainability Emerges,” tells readers that the flurry of policy directives at the Trump White House has “fueled activism across the country;” it may also light a fire under some investors focused on sustainable business practices.

Columnist Reshma Kapadia says President Trump’s and allies proposals to roll back environmental and financial regulations…and reject climate-change science…the priorities of a growing number of investors who put a premium on environmental stewardship, corporate governance, transparency, and diversity are at odds with the Trumpian-era directions.

“But here’s the thing,” Reshma Kapadia writes, “the political backdrop could actually be good for ‘so-called’ ESG funds…”  And then she cites the authority of US SIF and the most recent survey of asset managers using ESG criteria — $US9 trillion, or $1-in-$5 in the US capital markets.

Important:  EPFR Global reports that since the November elections, investors have put almost $400 million into ESG stock funds.  And quoting Morningstar’s Jon Hale (head of sustainability research), “the political back drop could have a galvanizing effect, as investors look for ways to more explicitly support sustainable ideas.”

This is a report that you’ll want to read and share.  ESG investing is just common-sense investing, observes the columnist.  It’s one of the most important perspectives in sustainable, responsible and impact investing to appear in the new political era.

Reshma has been with The Wall Street Journal, Smart Money magazine, Reuters, and appears regularly in Barron’s pages.

(Note that you’ll have to register to read or be a subscriber to Barron’s. There are more than 300,000 weekly readers, subscription and newsstand.)

Top Story

A New Era of Sustainable Investing Emerges
(Monday – February 13, 2017)
Source: Barron’s – The political backdrop could actually be good for so-called ESG funds, which include environmental, social, and governance criteria in their stock-picking.

Doing the Right Things in Business — Making the Business Case – Making the Financial Case — Also Incorporating the Moral Case?

It’s an age-old topic of discussion:  Where in American business do the issues of morality, ethical behaviors, and “fair and equitable” fit in?  Andrew Winston, author of the best-selling “Green to Gold,” explores the topic (“morality”) in an essay on Sustainable Brands’ “New Metrics” web platform.

Morality:  moralizing; degree of conforming to moral principles.  So — in exploring the subject of morality in business, Andrew Winston thinks managers should crank the “moral” arguments into making-the-business case-for-corporate-sustainability discussions.  Making-the-financial-case (“investors want to know…”) is occurring more frequently now with many more mainstream investors focused on the firm’s ESG performance and the sustainability journey of especially large-cap enterprises.

“This is the right thing to do…” may be the persuasive argument in making the business case to decision-makers.  The moral positions of companies and their leaders are facing greater scrutiny now, says Winston.  Will companies defend LGBT rights — or protect immigrant employees?  Will they publicly argue for greater attention and action on climate change issues?  (It’s the right thing to do, many of you, dear readers, will agree.)

In our Top Story, author Andrew Winston sets out four “buckets” of arguments as to how the initiatives companies pursue create value — and three “mainstream” arguments (have some element of making-the-business-case, such as “short-term financial wins”).  The fourth argument — improve the shared commons —  and is it time to broaden how we talk about sustainability and bring in a moral dimension.

The traditional business case is still critical – but broadening the arguments in making the sustainability business case has Winston wondering if a combined logic or “good for business” and “good for the soul” will work.  He welcomes your thoughts after reading the essay.

Governance & Accountability Institute, Inc. is now in the 10th year of operations.  When we founded G&A back in 2007, we adopted the tagline:  Helping our clients do the right things for the right reasons.  That’s guided us to 2017 and benefited many of our corporate clients and our partners-in-progress.

Is it Time to Add Morality to the Business Case for Sustainability?
(Monday – February 06, 2017)
Source: Sustainable Brands – Every manager (or consultant) who has pitched an initiative under the banner of “sustainability” has faced the same question nearly every time: What’s the business case?

State Street CEO to Boards of Companies in Portfolio: Disclose More About the Impact of Climate Change on Your Business — Be More Transparent…and More

State Street Corp is one of the world’s leading asset managers, with US$2.47 trillion in AUM.  State Street Global Advisors CEO Ron O’Hanley in late-January sent a message to the boards of directors of public companies whose stock is in State Street portfolios:  SSGA is increasing focus on climate change, safety, workplace diversity and various other ESG issues.  Especially climate change.  Tell us more about what you are doing.

How?  The State Street Global Advisors CEO is asking, how is the board [of the company] preparing the enterprise for the impacts of climate change?  He is communicating to these directors that it is necessary for boards to disclose more about those plans.  The CEO’s letter was accompanied by a description of the framework that SSGA uses to evaluate public companies’ sustainability efforts.

In this week’s first Top Story, the highlights of the approach are described for you. Three criteria are used to evaluate and rank companies — as Tier One, Two and Three.  Tier One companies satisfy the three criteria.  The results are reflected in the proxy voting of SSGA, the #3 asset manager of ETF’s in the USA (Exchange Traded Funds).

There were 177 companies in the portfolio that SSGA evaluated in 2016; a mere 7% qualified as Tier One.  Tier Two totals 72%, which meant that companies had a sustainability program but had not integrated it into its overall business strategy, articulated how ESG factors affected long-term strategies, or established long-term goals aligned with ESG strategy. (Tier Three companies were described as not doing anything ESG-wise, 21% of companies in the portfolio, according to the Think Advisor story.)

Company boards and C-suite should consider that State Street is an active player in the coming proxy voting season.  SSGA supported 46% of climate-related proposals in 2016.  That’s important when you consider the competition:  the vote count was zero (voting) at Vanguard, American Funds, Black Rock and Fidelity — a source of concern and a growing level of activism on the issue among sustainable & responsible investing advocates.

In an interview with Bloomberg’s top environmental reporter, Emily Chasan in January (our second Top Story below), SSGA CEO O’Hanley said:  “We’re asking companies to make sure they are identifying and communicating both their risks and opportunities.  Climate change may be the poster child for risk out there.”

The Bloomberg Business Week story has a neat chart for you, with the voting records of “shares of proxy votes in favor of climate-related proposals.”  The Top 20 of the world’s asset managers’ voting records are presented.  State Street is the fifth-ranked (at the top).

Stay Tuned, as we often say, to the coming 2017 Proxy Voting Season at public companies.  ESG issues are front and center at some large corporate issuers and the action will be in the maneuvering around the shareholder-offered resolutions on climate change and other ESG issues by the entire voting body.

Story links below:

State Street Wants Companies to Focus on Sustainability
(Wednesday – February 01, 2017)
Source: Think Advisor – State Street Global Advisors, the third-largest provider of ETFs, wants more companies to incorporate sustainability practices into their long-term business strategies and will consider such corporate efforts in its upcoming

State Street Asks Boards to Disclose More on Climate Preparation
(January 26, 2017)
Source: BloombergBusinessweek – Climate change is no longer listed as a top issue on the White House website, but it’s very much at the forefront for $2.47 trillion asset manager State Street Corp.

The 100 Most Sustainable Global Companies According to Corporate Knight Analysis

Every year the Canadian-headquartered firm Corporate Knights (publishing, research) ranks “the world’s most sustainable companies,” from a universe of 4,000 global enterprises with market cap of at least US$2 billion each. The research team applies 14 metrics in its analysis of “corporate sustainability” to evaluate the management and governance of the sustainability journey.

This year’s list was unveiled at the annual meeting of the World Economic Forum in Davos.  Among the top 100 “most sustainable companies” are firms headquartered in the USA, the Netherlands, Germany, Switzerland, Norway, Denmark, France, the United Kingdom, Finland, Brazil, and other nations.  The firm ranked #1 by Corporate Knights is Siemens (Germany’s giant industrial manufacturer); #2 is Storebrand ASA (Sweden-insurance); and #3, Cisco – IT leader — USA.  In the Top 10 rankings, there are two US firms (Cisco and Johnson & Johnson); in the next 10 rankings, there is one (McCormick & Co); and in the next 10 (#20 to #30) there is one – Allergan (healthcare).  Overall, the USA had the most companies in the rankings: 19.

Among the key metrics for this important Global 100 ranking by Corporate Knights:  the level of executive compensation.  The ratio of CEO pay to average worker is considered.  This is interesting to note going forward; in 2017 under Dodd-Frank rules (unless the rule is rescinded in some way) American companies will have to start publishing the ratio of CEO pay comparisons to the median worker. The Glassdoor web site in August 2015 stated that this ratio is 204 times (CEO to median pay).  That ratio will be reported by US public companies beginning this year.

The Global 100 Most Sustainable Companies list and background information is in our Top Story this week by Forbes staffer Jeff Kauflin, who writes on management and leadership.  He’s written for Fast Company and Business Insider in the past.

There is more information at Corporate Knights (“the Magazine for Clean Capitalism”).

Read the Januray 17, 2017 Forbes article: The World’s Most Sustainable Companies 2017

An Attendee’s Experience and Review of G&A Institute’s / Global Change Associates’ Sustainable Finance Certificate Program at Baruch College/CUNY

Guest Post by Ling Qin – G&A Institute Data Partner Reports Analyst

LingQinG&A Institute’s Sustainable Finance Certificate Program, developed in partnership with Global Change Associates, was hosted on 14 December, 2016 at Baruch College, City University of New York, in New York City.

This was a very rewarding learning and networking experience for me. Although I have the primary professional foundation for the necessary sustainable skills and knowledge, this one-day intensive seminar provided me with a broader background and more concrete view of different sustainability frameworks, ESG ratings and sustainable trends.

Leading experts in the sustainable finance gathered together at the Baruch College Vertical Campus to offer their first-hand sustainability industrial insights. Experts participating as lecturers came from Governance and Accountability Institute (which is GRI’s Exclusive Data Partner in UK and US), the Baruch Business School, MSCI, SASB, Bloomberg, Global Change Associates, and other organizations.

Mr. Samuel Block from MSCI introduced his company’s ESG products, their ESG rating methodology and ESG rating process. Not only does he introduce how MSCI’s ESG research carries out, but also informed us [the course participants] of lots of resources of ESG data.

Those important ESG datasets from company public reporting, media searches, regulatory, academic and NGO’s (third parties) enables MSCI and other interested parties to do solid analysis focusing on the most material aspects of companies’ ESG performance.

The lively discussion in the Q&A session cast light on the reactions from MSCI when facing push backs from companies with low ESG scores. After this all-day series of lectures, I understood (for example) that MSCI would include the controversies in their final reports presented to the institutional investors, which is a very good signal of the importance of ESG scores and reputation and the independence of the MSCI’s evaluation.

Another impressive section was around the topic of “ESG Equity Fundamentals Data Analytics” provided by Mr. Hideki Suzuki from Bloomberg’s ESG Group.

He showed participants how to explore and conduct cross-analysis of the ESG performance by using Bloomberg Terminal step-by-step. Bloomberg Terminal covers ESG score summary for companies’ historical trends and their comparable peers’ performance.

For the environmental performance, the GHG intensity indicator in the Bloomberg Terminal is introduced as a good example.

The indicators for social performance in the Bloomberg Terminal include company’s productivity through human capital management, total recordable incident rate, employee turnover rate and etc.

Independence of the board, diversity of executives and executive compensation are outstanding indicators for the corporate governance performance.

Mr. Hideki also highlighted that “ratios” are the key to allow researchers to do apple-to-apple comparable studies, which is an important tip that all sustainable professionals need to pay attention to.

By the end of the day, I not only benefitted from all vibrant sustainable knowledge- sharing, but also feel grateful to connect with experienced sustainable professionals.

All the guest speakers are very willing to share their opinions, slides and contacts. I very much enjoyed an intellectually-challenging learning experience and an intimate learning atmosphere for the whole day.  I recommend this course to my professional colleagues who are seeking greater knowledge in the expanding sustainable investing field.

Linq Qin has served as a G&A Institute GRI data partner corporate reporting analyst.

# # #

Save-the-Date031517_squaread

SAVE THE DATE
The next session for the G&A Institute / Global Change Associates “Corporate ESG for Investment & Finance Professionals Certification” will be hosted at Baruch College/CUNY on March 15, 2017.  Click here for more information and to register at Eventbrite.

The NYT Brings Us Encouraging News in the Swelter of Negative Reports as Sustainability Advocates Consider Possible Changes of Course in the New Year for U.S. Federal Government Policies

Leading Business readership publication focuses attention on the dramatic rise of ESG factors in investing over the past five years in wrap up story…

If you have not yet seen the story by Randall J. Smith that appeared in The New York Times Business Section on December 14th, we urge you to read it now, and to share it with your colleagues. Especially those occupants of the C-suite, board room, investor relations office — this will help to make the important case for ESG / sustainable investing. It’s our Top Story this week and the headline puts things in focus: investors are sharpening their focus on “S” and “E” risks to stocks.

This is a front page, Business Section [Deal Book] wrap-up feature that shares news, commentary and important developments at such organizations as MSCI, Vanguard, TIAA-CREF, Goldman Sachs, Perella Weinberg Partners, Rockefeller Brothers Fund, US SIF, Heron Foundation, Parnassus and other leaders in sustainable investing.

“Investing based on ESG factors has mushroomed in recent years,” author Randall Smith explains, “driven in part by big pension funds and European money managers, trying new ways to evaluate potential investments.”  The article helps those not yet familiar with sustainable investing to understand the increasing momentum in “sustainable” or “ESG” or “sustainable, responsible & impact” investing.

The organization MSCI is in sharp focus in the piece, with Linda-Eling Lee (the firm’s able head of global research) interviewed on the company’s approach to ESG research, ratings, equities indexes, and related work.  At MSCI, the assets managed using ESG approaches is now at $8 billion-plus — that’s triple the 2010 level.  ESG-related risks and opportunities are being closely evaluated as MSCI looks at publicly-traded companies, and as explained by the MSCI head of global research, 6,500 companies are followed by 150 analysts working in 14 global offices.

The recent US SIF survey results are heralded — $8.1 trillion in professionally-managed AUM assets in the U.S.A. are determined using ESG factors in analysis and portfolio management (the big driver is client demand).  The TIAA-CREF Social Choice Equity Fund is at $2.3 billion in assets under management — doubling in the past five years.  MSCI’s ESG indexes are at $3 billion — tripling over the past three years.  Vanguard’s social index fund is at $2.4 billion — quadrupling since 2011.  There’s a new CalSTRS low-carbon portfolio (using an MSCI index) set at $2.5 billion.

This article in the Business Section of a leading American daily newspaper provides an encouraging — and very timely! — look at the momentum that’s been building the capital markets signaling mainstream capital markets uptake and dramatic growth in adoption of ESG strategies and approaches for asset owners and asset managers.

As we suggest, it is a wonderful wrap-up of top-line developments in sustainable investing that also underscores the importance of corporate sustainability to individual institutional investors — and should help to make the investing and business cases for top management.

This news article is of course timely as corporate sustainability and sustainable investing professionals consider the potential changes on the horizon with a new administration and the new congress coming to town with a very different agenda – at least what has been publicly proclaimed to date.  There is clearly momentum in the capital markets for consideration of corporate ESG factors as investment dollars are being allocated.  This is good news heading into 2017 and the probable headwinds sustainability professionals will encounter.

Investors Sharpen Focus on Social and Environmental Risks to Stocks
(December 14, 2016)
Source: New York Times – Investing based on so-called E.S.G. factors has mushroomed in recent years, driven in part by big pension funds and European money managers that are trying new ways to evaluate potential investments. The idea has changed over the last three decades from managers’ simple exclusion from their portfolios of “sin stocks” such as tobacco, alcohol and firearms makers to incorporation of E.S.G. analysis into their stock and bond picks.

Barclays Researchers on “Green Bonds”: Small-but-steady Performance Benefits Possible, With Little Evidence of Negative Impact

The investment community — especially fiduciaries — continues to have a flow of more “green” products being made available from a growing number of issuers and their intermediaries; these include “green bonds.”  Charting this trend, a team of Barclays managers and researchers issued a report as part of the “Barclays Impact Series.”  Their findings: ESG investing can have a positive effect on portfolios for institutional and individual investors.  There are small-but-steady performance benefits and no evidence of a negative impact for such investing.

Noted the report authors:  “In a world where concerns over climate change, pollution and issues of sustainability are ever more pressing, socially responsible investing has become an important consideration for a growing number of individuals and institutions.”

The researchers concluded that with this growth of “socially responsible” investing the idea that enjoying a financial return on investment while having a positive impact on society is attractive to a growing number of investors.  And investment in “green bonds” is one approach to attempt to accomplish that.  Different investors, of course, have different appetites for the embrace of ESG factors for their portfolio management.

Introducing ESG factors into the investment process can result in some measure of benefit for portfolios as investors consider the impacts of climate change, limits or constraints on natural resources, shifts in societal norms (such as expecting responsible supply chain management) — and the positive and negative effects on their portfolios.

One of the challenges for investors in assessing ESG investable products is that the typical accounting statements of the issuer (as an example) is not always sufficient for navigating in the new frontier of green bond investing.  The bonds being issued (say, for infrastructure) might typically might address E and S issues that are “non-financial” in the traditional management-speak or investor-speak.  Think of the impacts of climate change / global warming, pollution, energy conservation (the “E’s”) and numerous workplace issues (the “S”).

The Barclays’ Quantitative Portfolio Strategy team researchers determined that an Issuer’s “G” scoring may be more definable and measurable for potential investment outcomes; corporate governance has been an issue for issuer-investor discussion for decades longer than the typical societal (S) issue of more recent times.

In the study effort, taking the individual elements of ESG, the report authors found that “G” (corporate governance) issues can have the greatest impact on portfolio performance.  Green bonds with a higher “G” score apparently have the lowest credit downgrades than those with low G scoring.

The researchers examined bonds in the Bloomberg Barclays US Corporate Investment Grade Index and organized these in Low, Medium and High ESG scoring for their analysis.

The Barclays researchers were Albert Desclee, Lev Dynkin, Jay Hyman, and Simon Polbennikov — they are key players in the firm’s management corps.
There are more details available in the highlights presented in our Top Story. Click here for the presentation of the research results by Barclays.

Sustainable Investing Boosts Bond Portfolio Performance: Barclays Study
(Tuesday – November 29, 2016)
Source: Just Means – The study found that introducing ESG factors into the investment process resulted in a small but steady performance benefit.