ESG-oriented millennials may have
too-high hopes. "Citing the 2016
Schroders Global Investors Survey, Waterman told
attendees at the ALFI European Asset Management
Conference that investors aged 35 and under expected
an average of 10.2% per year in returns, compared to
a global stock market performance of 3.75% at the
time of the survey...
Waterman noted a general trend toward
'short-termism' as investors planned to hold their
investments for an average of just 3.2 years. Among
all respondents, just 18% said they would hold their
investment for more than five years. Zero in on
millennials, and the statistic shrinks to just 8%,
while 41% said they would invest for under a year."
Despite all the good things being said about
millennials interest in ESG-focused investing, their
expectations on investment returns and holding
periods are troubling.
ESG-oriented millennials may have too-high hopes,
by Leo Almazora, March 24, 2017, Wealth
Think tank questions PRI signatories' ESG
capacity. "Dedicated ESG specialists
are rare at institutions signed up to the Principles
for Responsible Investment (PRI), in particular at
asset owners, according to analysis carried out by
climate and energy think tank E3G... E3G said this
meant that over 500 PRI signatories directly
employed one or no ESG staff. There are more than
1,700 signatories to the PRI."
Many people, myself included, wonder how many of the
PRI dignitaries take ESG seriously and how much is
for PR purposes. Now E3G has provided some insight
into that. It's clear that a large number of those
institutions who signed the PRI aren't too serious
about implementing ESG.
Think tank questions PRI signatories' ESG capacity,
by Susanna Rust, March 21, 2017, IPE, UK.
ESG factors can indicate overall stock
risk, says AQR. "In AQR Capital
Management’s new paper – 'Assessing Risk through
Environmental, Social and Governance Exposures' –
the firm said it found a strong positive
relationship between companies’ ESG exposures and
the statistical risk of their equity."
In surveys where investment managers are asked about
why they use ESG criteria, they frequently say to
manage future risk. Now, AQR provides confirmation
of that belief. With research appearing almost daily
supporting the application of ESG in investment
decisions, it seems that investors everywhere should
be applying it. (To read the actual study,
ESG factors can indicate overall stock risk, says
AQR, by Rachel Fixsen, March 20, 2017, IPE, UK.
Webinar--Mission-Aligned Investing: What
New Positive Deviance Research Can Tell Us About
What Moves Institutional Investors to Action.
"Presenter Abigail Abrash Walton, Ph.D, will
share: Research findings related to mission-aligned
investing, leadership, and the decision-making
process to divest from fossil fuels by philanthropic
organizations with assets under management from $5
million to $1 billion; what factors supported
decision makers in moving to mission-aligned
investing while simultaneously exercising their
fiduciary duty to steward institutional assets; how
the divestment decision affected the decision makers
personally and their organizations."
The information presented in this webinar -- now
online to view anytime -- is useful information for
anyone interested in mission-aligned investing.
Webinar: Mission-Aligned Investing: What New
Positive Deviance Research Can Tell Us About What
Moves Institutional Investors to Action, March
2017, Intentional Endowments Network, USA.
Are Sustainable Funds More Expensive?
"Funds with an ESG mandate tend to be a bit more
expensive than other funds, but the differences are
not large. There are reasonable explanations for
this pattern. Most ESG funds are not very large, so
they are not able to benefit from the economies of
scale found in funds with huge asset bases; as ESG
funds gather more assets, more of them should be
able to lower costs for shareholders.
Also, funds with an ESG or impact mandate
usually have extra costs for shareholder advocacy
and similar activities that aim to move companies in
a positive direction... There are plenty of cheap
ESG options for investors who seek them out,
including a growing number of sustainable index
funds and exchange-traded funds."
There's been little in-depth objective analysis
comparing the costs of buying and holding ESG funds
versus those of conventional funds. Morningstar
has done a great service here in delving into them.
This is an important article for all investors to
Are Sustainable Funds More Expensive? By David
Kathman, March 17, 2017, Morningstar, USA.
‘Climate is King’ Says BlackRock;
Companies Must Now Address Risk. "The
world’s largest asset manager is stepping up
pressure on companies to address how climate risk
will affect its portfolios. In a recent post on its
website, BlackRock said it believes climate risk is
a “systemic issue” and that corporations should be
compelled to develop disclosure standards."
Such remarks from the world's largest asset manager
are bound to influence corporate climate change
policies globally. Furthermore, Blackrock is
backing-up its remarks with actions as it seeks to
discuss these issues with the companies it invests
‘Climate is King’ Says BlackRock; Companies Must Now
Address Risk, by Jan Lee, March 16, 2017,
ESG growing in importance, ERM survey
reveals. "Over 95% of investors believe
their company portfolios contain untapped
environmental, social and corporate governance (ESG)
opportunities, according to a recent survey by
London-headquartered global environmental
The article reviews the results of a survey that
show extraordinarily positive views among private
equity managers regarding the importance of
integrating ESG in investment decisions.
ESG growing in importance, ERM survey reveals,
March 15, 2017, Environmental-Analyst, UK.
Ethisphere Announces 124 Companies to
Make the 2017 World’s Most Ethical Companies List.
"Ethisphere’s notion that the financial value
and ethics are inexorably tied together has been
explained through an analysis of how the stock price
of publicly-traded 2017 honorees compare to the S&P
500 over the last two years. The analysis
demonstrates a 6.4% premium Ethisphere refers to as
an ‘ethics premium.’"
I like Ethisphere's work. Their list is always worth
Ethisphere Announces 124 Companies to Make the 2017
World’s Most Ethical Companies List, press
release, March 13, 2017, Ethisphere, USA.
Why and How Investors Use ESG
Information: Evidence from a Global Survey.
"Survey data from more than 400 senior
investment professionals provides insights into why
and how investors use environmental, social, and
governance (ESG) information as well as the
challenges in using this information. This study
also documents what investors believe will be
important ESG styles in the future...
The primary reason survey respondents
consider ESG information in investment decisions is
because they consider it financially material to
investment performance. ESG information is perceived
to provide information primarily about risk rather
than a company’s competitive positioning."
A study concerning ESG co-authored by Harvard's
George Serafeim is always an important read. The
co-author Amir Amel-Zadeh of Oxford University's Saïd
Business School has impressive credentials as well.
Why and How Investors Use ESG Information: Evidence
from a Global Survey, by Amir Amel-Zadeh and
George Serafeim, March 13, 2017, Harvard Business
School Working Knowledge, USA.
The World’s Leading Companies on Human
Rights. "One clear leader, as mentioned
throughout the study, was Marks and Spencer (M&S).
The U.K. retail giant... Ranking slightly
behind M&S were H&M and Adidas."
This article details important research for everyone
particularly interested in the 'S' of ESG in many of
the world's largest companies. The study cited in
the article was compiled by Aviva Investors, the
Human Rights Resource Center (BHRRC), and various
non-profits and European governments.
The World’s Leading Companies on Human Rights,
by Leon Kaye, March 13, 2017, TriplePundit, USA.
How 'Responsible' Are Europe's
Mega-Managers Investing $22.4 Trillion?
"Research conducted by ShareAction, a non-profit
group in the U.K. that campaigns for responsible
investment, ranks the 40 mega-managers who, between
them, invest over €21 trillion ($22.4 trillion) ...
The top five performers (scoring out of a possible
90 points) are: Schroder Investment Management (82),
Robeco Group (81), Aviva Investors (80), Amundi
(77.5), and Standard Life Investments (76.5).
It's informative for all of us in the ethical
investment world to see how managers are ranked
using criteria related to responsible investment.
Now, where are similar rankings for North American
or Asian managers?
How 'Responsible' Are Europe's Mega-Managers
Investing $22.4 Trillion? By Dina Medland, March
12, 2017, Forbes, USA.
Is the finance sector really equipped to
assess climate risks? "10 years after
the sub-prime mortgage crisis that triggered a
global financial crash, analysts are still largely
ignoring long-term financial risks, such as those
from climate change, the energy transition and
disruptive low carbon technologies...
Although most asset owners analyzed in the
report, such as pension funds and insurers, have
long-term liabilities of 20 years or more, those
managing these assets are far more short-term in
their thinking, turning over these portfolios every
21 months on average."
As many of you will agree, a short-term focus
concerning portfolio performance may not be
compatible with long-term liability management.
Although the financial community is starting to
embrace ESG, ESG is mostly about long-term
performance and so requires a different mindset.
Is the finance sector really equipped to assess
climate risks? By Michael Holder, March 9, 2017,
Responsible Investing Growing in
Importance Driven by Ethical Principals,
Institutional Investor Demands, and Business
Opportunities, Says New Survey from CAIA and Adveq.
"More than three quarters (77%) of respondents
to the survey agree Responsible Investing1 is more
important than it was three years ago, while 78
percent anticipate it will be more important three
years from now. Adoption of industry standards
(71%), pressure from institutional investors (67%),
and positive investment return outcomes (64%) will
be the largest drivers of greater adoption of
Responsible Investing and ESG approaches, according
to survey respondents."
Again, we see more good news regarding the adoption
of ESG in the investment industry. However,
mentioned in this survey by 69% of respondents, was
again the need for "standardized comparable
data." When this is finally available ESG will
finally take its place at the helm of investment
Responsible Investing Growing in Importance Driven
by Ethical Principals, Institutional Investor
Demands, and Business Opportunities, Says New Survey
from CAIA and Adveq, press release, March 9,
2017, The CAIA Association and Adveq, USA.
Dalbar: Active Investors Do Better
Long-Term; Passive Investors Do Better Short-Term.
"The study concludes that the choice of active
or passive investing should be based largely on the
needs and preferences of the investor and the cost
of providing asset allocation and capital
preservation strategies that are not available in
The predominant trend in recent years has favored
passive funds. In fact, active management has been
widely ridiculed even by the likes of Warren Buffet.
Now comes Dalbar, a highly distinguished research
authority on these matters, adding fuel to the
debate of active versus passive investing.
Dalbar Announces Active versus Passive Analysis,
press release, February 27, 2017, Dalbar, USA.
Socially Responsible Funds Underperform.
(Is this true?) "In a new paper that
will appear in the April 2017 issue of the Journal
of Banking and Finance, a top scholarly journal, the
authors study over 2,000 funds. They argue that
prior studies on SRI or CSR funds are flawed because
those studies simply categorized funds as being
either socially-responsible or conventional. This
categorization leads to too many other differences
between funds, and it ignores the fact that firms
can have varying degrees of social responsibility.
So, in the new study, they compare low-CSR
funds to high-CSR funds. They find that high-CSR
funds underperform relative to low-CSR funds. Their
evidence is both compelling and robust."
We'll have to wait til the study is out to truly
critique it. Initially, my reaction is how the term
'CSR' is defined. Are the researchers only concerned
with social issues? Even with that, how is it
defined? Do the researchers include environmental
and governance factors? One thing is for sure, it'll
likely be quite controversial!
Socially Responsible Funds Underperform, by
Kenneth A Kim, February 28, 2017, FA Magazine, USA.
The Evolution of Corporate Social
Responsibility Assurance – A Longitudinal South
African Study. "Although the extent to
which companies have provided independent assurance
over their CSR disclosures has steadily grown, the
study also revealed that the majority still did not.
Although the pool of CSR assurance providers has
widened to become more inclusive, contrary to the
expectation that the dominance of the Big 4 audit
firms would gradually be eroded, the study found
that the Big 4 audit firms were actually
consolidating their position in this area."
I've long held that CSR disclosures should be
independently audited -- as per financial statements
-- and the results available to all stakeholders.
Though the above study was South African based, it
provides some insight into the possible state of CSR
auditing today. Hopefully, similar studies will be
done, particularly in the USA, Europe, and Japan.
The Evolution of Corporate Social Responsibility
Assurance – A Longitudinal South African Study,
by Barry Ackers, February 25, 2017, Social and
Environmental Accountability Journal, UK.
The race is on for socially responsible
investing in Japan. "The Japanese
market is finally moving towards an ESG environment,
similar to the mature markets of the US and Europe."
This is good news for ethical investors globally. Historically, Japanese
companies have been reticent to disclose much ESG
information. This is now changing with Japan's new
corporate stewardship code and especially Japanese
institutional investors such as their huge
Government Pension Investment Fund demanding ESG
The race is on for socially responsible investing in
Japan, by Seiji Kawazoe, February 20, 2017, FT
How to solve the imbalance in ESG
investing. "Investors are actively
demanding more information about different
components of environmental, social and governance
investments. As evidence of this, S&P Dow Jones
Indices, one of the world’s largest index providers
and a division of S&P Global, acquired Trucost Plc,
a carbon and environmental data provider, in
During a GreenBiz 17 program Wednesday,
Dmitri Sedov, vice president of innovation and
digital strategy at S&P Global, said the acquisition
of Trucost will help solve a gap between the demand
for sustainable investing and the supply of these
We see many of the pioneer organizations associated
with ethical-ESG investing being acquired by
mainstream investment industry behemoths. In time, we
will see if these hookups truly benefit investors.
Superficially, this deal appears promising for
How to solve the imbalance in ESG investing, by
Keith Larsen, February 16, 2017, GreenBiz, USA.
Global financiers launch green investment
criteria. "Nearly 20 global banks
and investors have launched a set of criteria for
investments to be considered sustainable. The group,
which includes Société Générale and Hermes
Investment Management and totals around $6.6
trillion (£5.28tn) in assets, outlined the
Principles for Positive Impact Finance (PPIF)."
Such developments are welcome news. Developments
like this make sustainable investing -- in this
particularly for institutions -- a
little bit easier.
Global financiers launch green investment criteria,
by Jonny Bairstow, February 16, 2017, Energy Live
Nearly a Third of Non-Profit
Institutional Investors Say They Make
"Mission-Related" Investments, According to
Cambridge Associates Survey. "In a
survey of 159 non-profit institutional investors
around the globe, 31% say they're currently engaged
in mission-related investing -- making investments
designed to align with or advance institutional
goals or values as well as provide financial
returns. Of that group, 44% say they have increased
their mission-related allocation over recent years,
and 62% expect to grow their mission-related
allocation in the coming five years. None of the
institutions that currently make mission-related
investments expect to decrease their allocations."
We see continuing
good news that non-profit institutional investors
are increasingly aligning their investments with
their missions. It always surprised me how a charity
invested in companies that produced products or
services abhorrent to its mission. Often it was
blamed on the fund manager’s fiduciary
responsibility. However, it was often due to the
timidity of the charity in properly instructing
their fund managers in what they expected from them.
See my editorial:
Unethical Investing by Charities.
Nearly a Third of Non-Profit Institutional Investors
Say They Make "Mission-Related" Investments,
According to Cambridge Associates Survey, press
release, February 15, 2017, USA.
Ethical investment demand outstrips
adviser interest. "[UK] Fnancial
advisers may be seriously underestimating demand for
responsible investment, after research showed wide
discrepancies between adviser and consumer attitudes
to investing ethically."
This is a problem everywhere and explains why the
percentage of ethical retail fund assets is only
2-4% of all retail funds. It's an issue I've written
about numerous times over the years. This FT article
should be broadcast by all professional brokerage
and financial planning organizations.
UK Ethical investment demand outstrips adviser
interest. by James Fernyhough, February 6, 2017,
FT Advisor, UK.
Canadian RI Assets Surpass $1.5 Trillion,
up 49% in two years: Canadian RI Trends Report.
"The 2016 Canadian Responsible
Investment Trends Report reveals that Canada’s
responsible investment (RI) market is continuing to
experience rapid growth. Responsible investment
refers to the incorporation of environmental,
social, and corporate governance (ESG) factors into
the selection and management of investments. This
report provides a detailed overview of recent trends
in Canada’s responsible investment marketplace."
These are terrific results! I'm particularly
impressed with the growth of 91% growth of assets
among individual investors.
Canadian RI Assets Surpass $1.5 Trillion, up 49% in
two years: Canadian RI Trends Report, press
release, February 2, 2017, RIA Canada, Canada.
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