Ethical Investing News/Commentaries:
Commentaries by Ron
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Nearly 45% Of
Canadian Bank Shareholders Approve ’Say-On-Pay’
Shareholders of one of Canada’s largest banks, the
Canadian Imperial Bank of Commerce (CIBC), have set
a major Canadian precedent. The motion calls on the
CIBC to hold a non-binding shareholder resolution
each year on executive compensation. "It’s the
first time Canadian shareholders have seen this kind
of a proposal, and normally first-time proposals get
in the area of 7 percent." So a delighted Gary
Hawton told Reuters following the bank meeting. The
motion indicates that investors large and small are
concerned with what many believe is excessive
compensation being paid to bank executives. Ethical
investors looking for socially conscious banks to
invest in might want to see how similar forthcoming
motions fare at other Canadian banks.
Nearly 45 pct of CIBC shareholders want say-on-pay,
by Lynne Olver, February 28, 2008, Reuters,
Under Pressure As Governance Issues Come To The
This is a good article on the coming proxy fights
that US banks will face in their annual general
meetings, which occur for many of them after April.
Governance deserves to come under great scrutiny
with losses by the banks that will be in the
hundreds of billions of dollars within the not too
distant future. Meanwhile the losses for the banks
shareholders are even greater!
US governance activists put pressure on banks,
by Shanny Basar, February 26, 2008, Financial News
Social & Environmental Changes Not Moving Fast
Enough To Avoid A Climate Catastrophe. -
The Lifeworth Review of 2007 surveyed 4,000
corporate responsibility professionals about their
views concerning corporate progress in the areas of
social and environmental change. Its sponsors
include two elite business schools -- the Cranfield
School of Management in the UK and Griffith
University in Australia. The report is well worth
reading to get an appreciation of what global
business is doing in relation to corporate social
responsibility (CSR) and sustainability.
The Lifeworth Review of 2007, February, 2008,
The Global Step Change, UK.
Some BIG US
Businesses Are ’Two-Faced’ Concerning Climate
It seems that General Electric, Caterpillar (CAT),
and Alcoa are not only members of the U.S. Climate
Action Partnership (USCAP) which advocates enormous
cuts to green-house gas emissions, but are also
members of an organization advocating against such
cuts! These and many other companies still need to
figure out the advantage of using corporate social
Green—Up to a Point, by Ben Elgin, February 20,
2008, Business Week, USA.
Is UK University Students Day Of Action For Ethical
Students across the UK are lobbying their
universities to disinvest in companies engaged in
arms trading. It is wonderful to see students
getting involved in an ethical investing debate.
Universities face new pressure to cut arms trade
links, February 27, 2008, Ekklesia, UK.
Shareholders May Force Giant Mutual Fund Firm To
Invest In Genocide Free Investments. -
Fidelity appealed to the US Securities Exchange
Commission -- without success -- to get this proxy
vote quashed. The vote takes place on March 19. This
action sets an enormous precedent for similar
motions by US mutual fund shareholders, not only in
the US, but potentially around the world. It also
may spur other proxy actions by fund shareholders in
all manner of governance issues. Mutual fund
shareholders are now realizing that it is in their
hands to bring a higher level of ethics into the
management of their funds.
Fidelity Confirms Vote on Genocide-free Investing,
press release, February 25, 2008, Investors Against
Banks’ Shareholders Urged To Support ’Say On Pay’
Proxy Resolutions. -
This is the beginning of a new era in Canada where
shareholders of not only the major banks, but of
many other companies as well, will be asked to have
a say on managers compensation. These resolutions
will not generally be binding on the management but
hopefully will begin to introduce some restraint on
fast growing executive compensation that often bears
no relationship to longer term corporate
performance. I am of the firm belief that when a
management team’s compensation is tied to
performance, that the compensation has to be tied
mostly to medium - longer term measures!
Too many executive compensation schemes are tied to
their company’s short term stock performance. This has resulted in
companies buying back their shares to reduce the
number outstanding in order to raise the stock price
to benefit executives’ compensation. General
Motors and Ford have for years ploughed huge sums
into stock buybacks rather than investing
such monies in new product development. Now we see
the dire results! Buybacks by companies in the
S&P 500 last year amounted to around $400 billion
and represented around 30% of their collective
Well done RiskMetrics Group, (formerly Institutional
Shareholder Services), Meritas Mutual Funds and
others for getting this going in Canada.
Shareholders urged to support say-on-pay proposals,
by Janet McFarland, February 21, 2008, The Globe
and Mail, Canada.
Who Are Well-Connected Make Significantly Higher
Fund Returns Than Poorly Connected Managers.
"This paper... focus[es] on connections between
mutual fund managers and corporate board members via
shared education networks. We find that portfolio
managers place larger bets on firms they are
connected to through their network, and perform
significantly better on these holdings relative to
their non-connected holdings. A replicating
portfolio of connected stocks outperforms a
replicating portfolio of non-connected stocks by up
to 8.4% per year. .. Our results suggest that social
networks may be an important mechanism for
information flow into asset prices." This is
important research. It suggests to me that such
networks might be conveying insider information!
Board connections and mutual fund returns, by
Lauren Cohen, Andrea Frazzini, and Christopher
Malloy, National Bureau of Economic research,
February 2008, USA.
Knights Lists Canada’s Top 50 Greenhouse Gas
This list on page 21 of the PDF document linked to
below, is worth reviewing, particularly if you are a
green investor looking for environmentally conscious
major corporations. Most of the big emitters are, of
course, energy companies.
The Carbon 50, (PDF-9.31 MB), Corporate
Knights, February, 2008, Canada.
55% Of UK Independent Financial Advisors (IFAs)
Would Invest Their Own Money In Green Funds.
Virgin Money in the UK, who recently launched a
green fund, got this response in a survey of 100
IFAs. For years, investment advisors were adverse to
the idea of green funds. It is amazing what a little
bit of publicity can do.
Half of IFAs would invest own money in green funds,
by Hysni Kaso, February 14, 2008, IFAonline.co.uk,
With Rising Stock Prices Are Much More Green Than
Those With Falling Stock Prices. -
Reporting on The Economist Intelligence Unit
study, this article makes the following point. That
"It [Economist Intelligence Unit] found that
those ’share price climbers’ which boast growth in
excess over 50 per cent over the past three years,
put emphasis on environmental initiatives at board
level and in nearly 40 per cent had sought to reduce
green house gases.... In contrast, ’share price
losers’ that have seen their share price decline by
more than 10 per cent in the past three years, where
two and half more times likely to have nobody in
charge of sustainability than those firms’ with
climbing share prices." Again we see for
companies the advantage of using corporate social
responsibility, especially when it comes to green
issues. It also likely indicates that companies with
good green credentials are frequently stocks that
are good to invest in.
Execs won over by business case for sustainable
investment, by Sarah Griffiths, February 14,
2008, BusinessGreen, USA.
Demonstrates That Corporate Social Responsibility
(CSR) Has Become Mainstream. -
Investors can gleam some insights into how CSR is
being adopted by companies by reading this survey.
Doing Well by Doing Good: IBM Study Says Businesses
Seeking Growth Through Social Responsibility,
February 12, 2008, CNNMoney.com, USA.
Showing Corporate Social Responsibility (CSR)
Improves Corporate Financial Performance.
For companies, the advantage of using corporate
social responsibility is clear: it improves
financial performance, so concludes a study that led
to the awarding of a Ph.D. to Lammertjan Dam at
Netherland’s University of Groningen. Ethical investors
continue to find support for their investing stance
with studies like this one.
Corporate social responsibility increases company
value, February 11, 2008, Innovations Report,
Wealth Funds (SWFs) Resist Calls For Ethics Codes.
Probably much larger on the world scene then even
hedge funds, SWFs, owned by state governments such
as China and Russia, are resisting western
government attempts to have a code of conduct and
which explicitly disavow political interference. I
have seen estimates, as in this article that suggest
they have about $2.5 trillion in investments now but
could grow to $15 trillion by 2015. Might I say that
the west is in a particularly poor bargaining
position to impose ethical codes on the SWFs, since
the west is relying on them to bail out its
financial system! It is bad, but popular, western
economic policies and the spend now pay latter
attitude that has gotten us to this point. Higher
consciousness is not only called for by government
owners of the SWFs, but of western societies too.
Overseas Funds Resist Calls for a Code of Conduct,
by Steven R. Weisman, February 9, 2008, The New
York Times, USA.
Increase Greenhouse Gas Emissions More Than Regular
I reported some months ago on research showing that
the burning of biofuels creates 7-15% more
greenhouse gases than with regular fuels. These new
studies published in the magazine Science
demonstrate biofuels will add considerably to the
production of greenhouse gases when compared to
conventional fuels. This is because of the added
greenhouse gas production related to the clearing of
new land to grow biofuels, or for food production as
a result of lands being used for biofuel crops.
I have always said that the whole promotion of
biofuels was to win farmers votes. I stand by that.
From a climate change standpoint, study after study
is now showing it was a terribly wrong headed idea
to subsidize biofuel production. If you have
invested in the biofuel area as a result of all the
media hype, these studies make sober reading!
Studies Deem Biofuels a Greenhouse Threat, by
Elisabeth Rosenthal, February 8, 2008, The New
York Times, USA.
Ethical Fund Net Sales Rise To £473m From £136m In
This is a massive rise. British ethical funds have
benefited from the massive interest in green stocks
that are good to invest in.
IMA reveals fund of fund rise in fourth quarter,
by Chris Salih, February 6, 2008, MoneyMarketing,
New US Study
Reviews Validity Of Corporate Social Responsibility
Findings By Socially Responsible Investing Research
(SRI) Organizations. -
The study has two major findings... " We found
major social ratings [by SRI rating organizations]
to have a fairly low correlation with each other,
supporting theories of differentiation...  firms
with high and low social ratings are equally likely
to be embroiled in a major scandal a few years later
– although this test of predictive validity has low
statistical power." This study demonstrates the
many different perspectives in CSR/SRI research and
that these assessment organizations have no special
insight into which companies will be embroiled in
scandals. I believe this diversity is wholly
beneficial to SRI. However, I also think there
should be specific uniform standards applied to all
CSR/SRI organizations in reviewing a company’s CSR
activities. You can think of these standards being
much like accounting rules. Without them, we have a
hodge-podge of reporting. Fortunately, efforts are
being made in this direction, such as with the
Imitate or Differentiate? Evaluating the validity of
corporate social responsibility ratings, by
Aaron K. Chatterji, Fuqua School of Business, Duke
University and David I. I. Levine, Haas School of
Business, University of California, Berkeley,
February 2008, USA.
University Reports On Corporate Social
Responsibility Activities Of Companies Listed On
Johannesburg Security Exchange JSE). -
"Majority of companies listed on the Johannesburg
Security Exchange are ethically conscious and also
report on the ethical climate within their
organizations....It focused on 55 Socially
Responsible Investment (SRI) companies listed on the
JSE." We see companies in Africa also
demonstrating the advantage of using corporate
South African companies not bad in ethical
compliance, February 6, 2008, University of
Pretoria in MoneyWeb, South Africa.
Funds Not Investing Much In Green Tech Companies.
A survey by Holden & Partners found that most UK
ethical funds were heavily invested in banks and
telecom companies and not climate change or
environmental companies that most of their investors
were interested in. Furthermore, the portfolios of
ethical or socially responsible investing funds
were not very different from regular funds.
Personally, I am not surprised by this finding,
especially when tobacco, defence, nuclear and such
industries are excluded from a portfolio, it narrows
the universe of stocks available to invest in. Most
mutual funds (unit trusts in the UK) have up to one
hundred or more companies in their portfolio.
Contrast this with arguably the most successful
investor of all time, Warren Buffett, who invests in
relatively few companies. It could be that most
ethical funds try to be all things to all people. It
may also be that financial planners demand a highly
diversified portfolio for their clients! Ethical or
socially responsible investors, not only in the UK
but elsewhere too, may want to discuss these points
with their investment advisor.
Ethical funds’ exposure not so green, by Tom
Stevenson, February 6, 2008, The Daily Telegraph,
Canadian Bank Launches A Climate Change Fund.
It took awhile for Scotia Securities, a subsidiary
of The Bank of Nova Scotia, to finally get into an
increasingly important, yet crowded investing sector
-- that of climate change.
Scotia Securities launches climate change fund,
by Regan Ray, February 4, 2008, Investment
VIGEO & Kuala Lumpur’s OWW Consulting -- Both
Specializing In Socially Responsible Investing (SRI)
Research -- Form Partnership To Expand SRI In
This will further promote expanded SRI activities in
Leading SRI firms expand presence in Asia-Pacific,
by Lorna Thornber, February 4, 2008,
Investment Forum (UKSIF) Launches New National
Ethical Investment Week 2008 Website. -
The UKSIF is launching the National Ethical
Investment Week campaign for May 18-24, 2008, and
has created a special
website for that purpose.
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