Monday, August 31, 2009

Green Stocks Still Waiting for Stimulus Money

“The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place and wield technology's wonders to raise health care's quality and lower its costs. We will harness the sun and the winds and the soil to fuel our cars and run our factories.”

These words from President Obama’s inauguration speech were followed by a string of appointments applauded by environmentalists, including Stephen Chu as Energy Secretary and Lisa Jackson as head of the EPA. And then we had the American Recovery and Reinvestment Act, the stimulus package, signed into law last February. Socially responsible investors were excited – finally, our time to shine. We were ready to make money investing in what we believed in. Blog entries with titles like ‘These stocks will soar on Obama’s infrastructure plan’ were popping up everywhere. Now, six months later, we are still waiting.

“The idea behind the government's economic stimulus package was to get money flowing through the system, boost economic activity and create jobs. But an review of the latest federal spending data shows that the money is flowing at a trickle. According to our calculations, roughly $53 billion or one-third of the $150 billion in fiscal stimulus money available for this year has been spent as of June 19. As a percentage of the $479 billion in total stimulus funds, that represents only 11.1 percent.”

New Flyer Industries (NFI.un)is a manufacturer of hybrid transit buses based in Winnipeg, with a couple of facilities, and a whole load of contracts, in the US. It’s a good example of a company whose share price should be on the move in this environment but isn’t. In a press release last month, New Flyer said that production of 140 diesel-electric hybrid articulated buses ordered by a major U.S. customer has been deferred indefinitely as a result of delays in the customer receiving funding. The share price, which had been just above the $10 mark, has tumbled 20% in recent weeks over concerns that more contracts may be deferred.

Ray Steele, the manager of the Mavrix Sierra Equity Fund, owns New Flyer and continues to like it. On a fundamental basis it has a low P/E even after reducing future earnings forecasts. However he cautioned that more order delays will be negative for the stock and may lead to a significant cut in yield. He listed some of New Flyer’s positive investment attributes, “The order book is huge and is stable compared to most manufacturers, the buses are mostly hybrid or extended buses which are in greater demand and are better for the environment than a traditional bus, mass transit spending can be delayed, but not eliminated and stimulus spending will benefit mass transit spending when it does eventually flow.” He reiterated that so far there has been little to no flow of any stimulus spending.

We’ll keep investing in green companies, but for green stocks to take off, we may be waiting till 2010.

Wednesday, August 26, 2009

Here today, gone tomorrow – Jov Winslow Global Green Growth Fund

Launched with much fanfare in January 2008, the Jov Winslow Global Green Growth Fund was closed to new purchases as of August 14th, and will be terminated as of close of business on Tuesday October 13th, 2009. Investors may redeem their holdings in advance of the termination date. Any investor holdings that remain as of the termination date will be redeemed for cash and paid out to the investor. JovFunds has indicated that any deferred sales charges will be waived.

“We are very disappointed in our inability to make this fund a viable entity” said Steve Hawkins, Managing Partner, JovFunds. “A perfect storm of things worked against us”.

Primarily due to market conditions, but possibly also affected by a lack of marketing effort, the Jov Winslow Global Green Growth Fund had a difficult time attracting assets. As of last month, the Fund’s AUM was less than 3 million dollars. At that level, the Fund did not generate enough revenue to cover it’s administrative and operational costs, and was being subsidized by JovFunds. “Feedback was that the prospects weren’t good to attract enough assets in the near term to make it viable”, Mr. Hawkins stated.

This is a blow to existing investors in the Fund, many of whom have hung in through the tough times, and were looking forward to finally seeing the value of their holdings go up. The latest commentary from Winslow echoes this optimistic view. “Our outlook for the next several quarters is very positive. We believe the recession is ending or has ended, and we feel that our focus on a diversified portfolio of companies in expanding green technology industries, with promising fundamentals, strong management, compelling growth strategies and distinct competitive advantages puts us in an ideal position for strong returns coming out of a recession.”

Another factor involved in the decision was the reorganization going on at JovFunds, which looked at which products they had available shelf space for. JovFunds current direction seems to be towards exchange traded funds, through the Beta Pro and Alpha Pro ETFs, and the Fiera funds of ETFs. When asked if they were planning to exit the green space altogether, Mr. Hawkins did not rule out the possibility of a green ETF at some point in the future.

Friday, August 21, 2009

Global survey taps water as top environmental concern

A new study indicates that water issues are the planet’s major environmental problem, ahead of air pollution, depletion of natural resources, loss of habitat and even climate change.

The independent survey, which involved 15,000 people in 15 countries, was commissioned by Circle of Blue, a Michigan-based network of journalists, scientists and communicators focused on global water issues, and conducted by GlobeScan.

Ninety-three per cent of those surveyed agreed that water pollution is a serious problem while 91% believe that a shortage of fresh water is a serious problem.

More than half of those surveyed agreed that governments are now primarily responsible for ensuring clean water but 78% said that solving drinking water problems will require significant help from companies, "indicating that partnerships are an important component to resolving the world's fresh water sustainability challenges."

When asked about eight environmental issues, Canadians consider water pollution and fresh water shortages to be among the most serious, the study found, although there were also concerns expressed about the depletion of natural resources and air pollution.

Nearly all Canadians surveyed (97%) agree that it is important for all people to have adequate, affordable drinking water and 94% worry that fresh water shortages will become an increasingly severe problem worldwide.

"This research confirms the general public's awareness and understanding of water as a critical resource, as well as the importance of conserving and protecting fresh water supplies through stewardship," says Chris Coulter, vice-president of GlobeScan. "From locale to locale, the angles of concern may vary, but the concern about water issues is pressing, virtually everywhere."

World Water Week also saw the establishment of the Global Water Roundtable, a multi-million dollar project intended to evaluate and establish a set of standards for water stewardship, with the goal of adressing the global threat of water stress, the increasing pollution of rivers and a decline in fresh water wildlife species.

Thursday, August 20, 2009

Rock Steady

Externalities are the bane of socially responsible investors. We remain most concerned with things that traditional economics tells us don’t matter because they don’t have a price. Or perhaps, they don’t have a price because they don’t matter. Like water. Either way, steady state economics, which maintains that the price for unlimited growth is one that we cannot afford to pay, presents a framework in which social responsibility thrives.

“Growth advocates, steady staters maintain, are operating under a number of wrongheaded assumptions, the first of which holds that the earth’s ecosphere functions only to serve the human economy. The economy, steady staters argue, is an open system inside the earth’s closed system. It cannot expand indefinitely without using up the earth’s finite resources.

Those who fail to factor 'natural capital' risks and costs into their valuation models are likely to join the endangered species of the capital markets in a steady-state world. On the flip side, those in the investment and financial community who buy into the inevitability of the steady state say it is opening up a whole new approach to value. “

Click here to read Rock Steady by Susan Arterian Chang in the current issue of Investment Professional, complete with a quote from your favourite blogger (No, not Julie Powell!). It’s an excellent overview of steady state economics, oriented towards investment policy and practice.

Tuesday, August 18, 2009

Oil sector facing unprecedented changes, says Greenpeace

Few industries have been immune to the ongoing economic recession and oil companies are no exception. A report from Greenpeace (U.K.), however, says that when the economy picks up oil demand may not follow, leaving the return of high oil prices in question.

Alberta's tar sands, along with the Arctic and ultra-deepwater, are resources where oil is difficult to access. It is also very expensive to produce, requires long lead-in times to bring on stream and in many cases has controversial, and extremely costly, environmental and/or social impacts. The expense of bringing much of this oil to market means that oil prices must be high – dangerously close to a “break point” price. Beyond this break point, oil demand is constrained through changes in consumer behaviour and reduced economic growth. But as expensive technologies are needed to access the oil, below the break point could mean a loss of profitability.

In 2006, Cambridge Energy Research Associates suggested the break point for oil prices was somewhere between $100-$120/barrel. However, in June 2009, Tony Hayward, BP’s chief executive, said that as oil prices went over $90, consumers begin to change their behaviour. He suggested that the right range for oil prices is between $60-90/barrel – a price range Marc Brammer, head of business development for Europe at RiskMetrics Group, calls the break-even range, where room for long-term profits is slender.

In the past, the industry could always depend on expansions in cheap reserves, the report says. Today, conventional oil resources are being depleted, leaving international oil companies to fight over difficult-to-access oil. These significant challenges should be cause for concern for investors, as oil companies must readjust their business plans and make “unprecedented” structural changes, Greenpeace says.

Other threats also loom for oil companies, including future carbon regulation, and increasingly competitive alternative energy sources. “Carbon caps are going to be a reality and, at the moment, carbon capture and storage does not look cost effective or even technologically feasible at the scale necessary,” Marc Brammer told Greenpeace in an interview. The ability to pass these costs on to the customer will be limited by the same dynamics that keep general prices in check, he added.

An oil company aiming to reduce its exposure to oil price volatility should move into clean tech and renewables, said Brammer. “In general, oil companies need to start seeing themselves as energy service companies as opposed to driller and refiners.”

Investors wishing to engage oil companies should aim to get them to be open and transparent about their strategies to cope with future oil price volatility and their efforts to become energy service companies, Brammer concluded.

Download the report.

Jennifer Holloway is a writer based in Ajax, Ontario. jenholloway(at)

Thursday, August 13, 2009

Climate change study finds mixed results

A new report concludes that just over half of the world's largest corporations have short-term policy targets related to climate change. However, one-third are failing to address the risks they face from climate change.

London-based EIRIS analyzed the 300 largest companies by market capitalization listed on the FTSE All World Index. More than 35% of the global 300 have a high climate change impact (such as those in the energy sector) and of those, 33% are failing to mitigate their climate change risk.

However, 99% of companies with a high climate change impact have a corporate-wide climate change commitment, up from 84% when EIRIS conducted the same study last year. "This improvement can be explained by a number of drivers coming into play including increasing pressure from investors," EIRIS says.

The study also found that nearly three-quarters of companies have policies referring to international greenhouse gas emission targets or regulations.

"Climate change has the potential to seriously impact shareholder value, especially in the medium- to long-term," EIRIS says. "As the significant physical and economic impacts of climate change increase, investors need to develop a greater understanding of the extent and impact of corporate response to the issue."

In December, Copenhagen will host an international meeting aimed at negotiating a post-Kyoto deal on climate change. If successful, the deal will lock the world into emissions reductions of around 80%, EIRIS notes.

Download the full EIRIS report.

Tuesday, August 11, 2009

Declaration on Climate Change and Clean Energy

Amidst the discussion of H1N1 flu and drug cartels, some interesting news for socially responsible investors came out of the North American Leaders Summit in Guadalajara. In addition to a general joint statement, a North American Leaders’ Declaration on Climate Change and Clean Energy issued yesterday laid out some specific ideas and goals.

A key paragraph stated, “We underscore the importance of developing and strengthening financial instruments to support mitigation and adaptation actions and welcome in this regard the proposal by Mexico of a Green Fund. We will conduct further work on the proposal and will consider other views presented for scaling-up financing from both public and private sources.” Mexico has been proposing a Green Fund for over a year now, saying at the UN last September “Climate change is not a problem to be faced by nations according to their degree of development. It is a task that requires the translation of words into deeds that are to be substantiated by concrete proposals that are based on the principles of common but differentiated responsibilities.”

Contributions to the fund would be agreed upon by all and could be determined by criteria such as greenhouse gas emissions, population and GDP. If the Green Fund becomes a reality, it will be a significant source of public funding for projects that help combat the effects of climate change. It will also be a mechanism that helps address the rift between the developed countries and developing countries on this issue.

As is to be expected in a political document, there was no shortage of motherhood statements, beginning with the clich├ęd opening sentence, “We, the leaders of North America, reaffirm the urgency and necessity of taking aggressive action on climate change.” In addition there were 8 instances of ‘working together’ and ‘co-operating’, as well as one ‘we will work co-operatively’,

But one area where all this cooperation is necessary is in our infrastructure, and that was noted. “We will collaborate on climate friendly and low-carbon technologies, including building a smart grid in North America for more efficient and reliable electricity inter-connections, as well as regional cooperation on carbon capture and storage.” Mention is also made of reducing the use of HFCs, protecting and enhancing forests, wetlands, croplands and other carbon sinks, and reducing transportation emissions.

The leaders claim ‘We share a vision for a low-carbon North America’. Overall, enough particulars were included in the Declaration to turn this vision into reality.

Monday, August 10, 2009

The Fair Way

We SRI types are an earnest bunch. We worry about things like ‘is it ok to play golf?’ Those of you who read the entertainment section as well as the business section will know that Justin Timberlake recently opened an eco friendly golf course. The Mirimichi Golf Course just outside of Memphis, Tennessee features irrigation systems that maximize the use of rainwater, native landscaping and electric golf carts powered by solar panels. The buildings have been constructed with a goal of attaining Platinum LEED Certification, the first golf course to do so.

The Mirimichi is also the first golf course in the US to be designated as an Audubon International Classic Sanctuary. Audubon International works with developers to integrate wildlife conservation, habitat restoration and enhancement, water conservation and water quality protection, with the other objectives for the development. Their long-term goal is to “foster a stewardship ethic that leads landowners and managers, consultants, and the community to internalize environmental, rather than just economic, costs and benefits in their decision making and to apply those environmental values routinely in land management.”

Many people feel that eco friendly and golf are inherently contradictory. However, given the impact that golf courses have on their immediate environment, any initiatives, particularly in reducing water use and restricting pesticides by naturalizing the courses, must be welcomed. In the spirit of SRI, we recognize that if golf courses, like corporations, aren’t going to go away, we might as well get involved in improving them.

An article in the New York Times last week, ‘Thirsty Golf Courses as Model for Water Thrift’, has this to say “Since he took charge of the two courses in 2005, Mr. Williams has cut water consumption by 45%, he said, and witnessed the return of some wildlife species like the red tailed hawk. The changes have come with a price, like the occasional large brown spot on the fairway. But Mr. Williams says the golfers do not mind. ‘I just stand out there on the greens and explain, we are doing this so your grandchildren can come out here and play, ‘he said ‘People understand that.’.”

Friday, August 7, 2009

GRI Reporters: Growing but still a minority

The latest numbers from the Global Reporting Initiative show that while GRI Reporters are increasing at a rapid pace, the total numbers are still extremely small. “If sustainability data was just something that was ‘nice to know’ about a company - providing niche investors with data for short-term investment decisions or helping employees feel good about their company - then this wouldn’t be so much of a problem. However this information is more important than that. As we face a sustainability crisis that could ultimately even threaten our very existence as a species, we need to know how our companies are positioned to rise to the challenges, provide solutions and adapt to coming changes,” said GRI Chief Executive Ernst Ligteringen.

The GRI G3 Guidelines set out the principles and indicators that organizations can use to measure and report their economic, environmental, and social performance. The Board of Directors of the Global Reporting Initiative this year issued the Amsterdam Declaration on Transparency and Reporting in which they called on governments to introduce policy requiring companies to either report on their sustainability performance or explain why they won’t.

Canadian companies may need that kind of encouragement, given that there are 1503 companies listed on the TSX, a scant 36 of which are GRI reporters. However, compared to other countries, our GRI performance is not too bad, with Canada ranking tenth in terms of number of companies filing GRI reports.

The introduction of LEAD Canada as a provider of GRI training may also speed the process. Since being selected as a provider of GRI training in mid 2008, LEAD Canada has delivered 10 courses across Canada, with a full schedule ahead. In July the GRI announced that 1000 people had now attended a GRI Certified Training Program, a further portent of growth.

Wednesday, August 5, 2009


Avner Mandelman’s column in last Saturday’s Globe and Mail, ‘Investing by math alone doesn’t add up’, is worth reading. In it, he excoriates Modern Portfolio Theory, and it’s latest iteration, PostModern Portfolio Theory. MPT has long been a thorn in the side of socially responsible investors due to it’s view that placing constraints on the investable universe of stocks will result in less efficient, and therefore underperforming, portfolios. We respond to that criticism by saying that all managers reduce their universe by some means, and that human rights violations or GRI reporting are no more or less valid than P/E multiples or market capitalization.

Mr. Mandelman’s concern is that “…Modern Portfolio Theorists and other pure math investors continue to insist that math is sufficient to describe the greed and striving and courage that is business.” He feels, as do socially responsible investors, that much of what is important is not always reflected in the financial statements. “How, then, to invest? Research your investments thoroughly, and if at all possible, physically: Step over the Internet’s Turing wall and talk to humans in the company directly.” Hmm, sounds like something most SRI managers do.