Monday, November 30, 2009

Thomson Reuters announces ESG acquisition

News giant Thomson Reuters has acquired Swiss-based ESG information provider ASSET4 AG for an undisclosed sum.

In a news release, Thomson Reuters said the deal represents a step forward in the integration of ESG data into mainstream financial analysis and underscores the company’s commitment to meet the evolving needs of the global financial community.

The global credit crisis, climate change, new regulation and other issues have highlighted the need for financial firms to assess the environmental, social responsibility, governance and reputational risks attached to the firms in which they invest, the release stated.

“Through the acquisition of ASSET4’s leading ESG information and tools, Thomson Reuters clients worldwide will benefit from having direct access to this increasingly important information as part of their investment process,” the company said. “This information allows investors to engage companies, improve investment performance, reduce risk and lower research costs, while corporate executives can reduce risk, enhance corporate governance and increase accountability, transparency and trust.”

“Thomson Reuters’ acquisition of ASSET4’s business is timely as our clients are looking for deeper insight into the combination of financial and extra-financial factors that drive the performance and risk of their investments”, said Abel Clark, global head of strategy and marketing, investment and advisory at Thomson Reuters. “The ESG content and tools will bring our clients increased transparency into areas of corporate performance that will grow in relevance as voluntary and mandatory ESG disclosure and performance standards become more prevalent.”

“Thomson Reuters is the natural choice to take the extra-financial information and tools that ASSET4 has built over the last five years to a truly global and mainstream client base,” added ASSET4 president Peter Ohnemus. “Thomson Reuters clients will now have the information and tools to make this type of analysis a reality.”

ASSET4 is a signatory to the United Nations Principles for Responsible Investment (UNPRI) and it is likely that, in the wake of this acquisition, Thomson Reuters will also consider signing.

Saturday, November 28, 2009

CBERN Workshop in Vancouver

By Christie Stephenson

On November 20th, the Canadian Business Ethics Research Network (CBERN) held a day-long workshop in Vancouver focused on its Ethical Issues Mapping Project. The meeting was convened by Dr. Simon Handelsman, CBERN's Pacific Region Hub coordinator, and attended by academics, as well as representatives of the First Nations, investor and business communities.

CBERN’s Project Director Professor Wesley Cragg overviewed CBERN's aim to develop research links between academics and practitioners of business ethics, corporate social responsibility, sustainable development, triple bottom line and corporate governance. Dr. Handelsman then discussed the mapping project, a pilot project to identify key ethical issues faced by the resources industry in BC and the Yukon, and identify, characterize and link researchers focused on business ethics and corporate social responsibility in the region.

UBC graduate student Mohit Bhatnagar presented the results of mapping project survey. These results revealed research priorities that were classified as extractive industry companies overseas and human rights, government policies vs self governance, fundamental goals of business, effects of economic crisis, indigenous and aboriginal peoples, ecological sustainability, culture of understanding, impact of capital markets, and emerging markets.

The workshop included a discussion of priorities for research and networking, as well as the role of ethics in academic programmes by Professor David Silver, Chair in Business Ethics at the W.M.Young Centre for Applied Ethics. In addition, a panel session was held on ethical and human rights in China by Edward Wang, of Raydwell Consulting, and William Roberts, of The Whistler Forum. A second panel session was held on public policy implications by Dr. Jane Lister, of the Liu Institute for Global Issues, and Pierre Gratton, President & CEO of the Mining Association of BC, and CBERN's James Cooney. A final session on First Nations Issues by moderated by UBC's Dr. Dawn Mills, and featured consultant Bruce McKnight and Joe Ringwald, of VP Brett Resources Inc., as well as Dave Porter of the Leadership Council (AFN, UBCIC, FNS).

Dr. Handelsman called the meeting "a great success in bringing people together, representing a step forward for establishing in BC a relevant focal point for collaboration in the field of business ethics in the 21st Century."

Friday, November 27, 2009

Stock exchanges performing poorly on ESG issues

The world’s stock markets play an important role in fostering confidence and promoting good governance and disclosure. However, most exchanges scored below 50% in an EIRIS study based on environment, social and governance (ESG) factors.

“Good quality ESG disclosure is crucial for holistic investment decision-making, however is currently lacking across the market,” the European research house notes in a report issued this week.

The Toronto Stock Exchange scored 49% on the EIRIS scale, compared with 52% for the NASDAQ, 54% for London’s FTSE and 70% for Australia’s ASX, the top performer in the study.

On the plus side, stock exchanges have already started playing a role in promoting better ESG disclosure through IPO and listing requirements in some countries, EIRIS says, but much more needs to be done.

“While regulation and company law play an important role in establishing and improving standards, it is increasingly apparent that stock exchanges are well placed to play a key role in the responsible investment debate and in particular in improving ESG disclosure through a principles-based market mechanism.”

The report recommends that stock exchanges:
-- Incorporate ESG disclosure requirements into listing rules and corporate governance standards;
-- Implement disclosure requirements on a “comply or explain” basis;
-- Support the requirement for a resolution on a CSR or sustainability report;
-- Explore measures to encourage best practices amongst companies, e.g., through sustainable indexes.

The Sustainable Stock Exchanges conference this month, hosted by the UN Principles of Responsible Investment, among others, provides an “excellent opportunity to achieve meaningful and lasting improvements to ESG disclosure throughout the market,” EIRIS says.

Download the report.

Wednesday, November 25, 2009

SIO AGM: Building Understanding Fostering Growth

The Annual General Meeting of the Social Investment Organization took place this morning at the Hyatt Regency in Toronto. Gary Hawton ably facilitated the meeting, in place of Board Chair Cheryl Crowe, who was unable to attend due to illness.

Congratulations go out to Sarah Thomson, Membership and Communications co-ordinator for an outstanding revamp of the Annual Report.

Eugene Ellmen, Executive Director, outlined the SIO’s activities. Foundational programs are intended to build membership capacity and increase the social capital of the organization. These include the communications strategy, and the biannual SRI Review. In Progress activities are highly important to the organization, but are not, or perhaps not yet, core. Initiatives in this category are the new advisor training program, building relationships with the academic sector and bolstering the SIO’s French language services. Finally, Aspirational programming is what is on the SIO wish list. Primary activities here include an increase in capacity that would allow the SIO to better address public policy issues, and building relationships with the foundations community and the pension sector.

In recognition of Eugene’s 10 years with the SIO, the Board presented him with a gift (fair trade, of course) and warm wishes.

The SIO has changed it’s year end from June 30th to December 31st to align it’s planning year with the budgeting time frame of many members. It will also allow the SIO to hold future AGMs along with the conference in June.

Changes presented by the Board Development Committee were passed, as part of a process of governance review, resulting in an opening up of nominations and elections. Work will continue in this area in the next Board year.

The new Board of the SIO is as follows:
Renee Arnold, Aberdeen Asset Management, Chicago
Jordan Berger, Mercer, Toronto
Cheryl Crowe, Assiniboine Credit Union, Winnipeg
Jennifer Coulson, Northwest and Ethical Investments, Vancouver
Dermot Foley, Inhance Investment Management/VanCity, Vancouver
Helene Gagne, Federation des Caisses Desjardins, Montreal
Gary Hawton, Meritas Mutual Funds, Kitchener
Doug McGee, Alterna Savings, Toronto
Christina McLeod, Genus Capital Management, Vancouver
Debra Sisti, RiskMetrics Group, Toronto
Stephen Whipp, Manulife Securities, Victoria
Don Wilson, Freedom 55 Financial, Toronto

“One of the reasons that SRI has prevailed through the economic and financial crisis of 2008 is the belief by SRI clients that socially responsible investment is good for both investment portfolios and for the planet....SIO is committed to working on behalf of the socially responsible investment industry in Canada to expand its reach to new stakeholders and new clients in the years to come.”

Check back soon for links to the 2009 Annual Report and new board

Monday, November 23, 2009

Positive contribution from ESG, Mercer says

The majority of academic studies released in the last few years show a positive relationship between ESG factors and financial performance, according to a report from Mercer.

The research firm looked at 16 studies released since 2007. Ten supported the hypothesis that specific ESG factors can make a positive contribution to investment performance, four were neutral and two were negative-neutral.

“The belief that responsible investment will automatically limit the investment universe and thereby limit returns is narrow in its focus and conclusion,” Mercer says. “Responsible investment is a broader practice, and a number of tools are available for integrating ESG into the investment process, including voting, engagement, collaboration, negative and positive screening and ESG integration into valuation metrics.”

Mercer notes that a variety of factors, such as manager skill, investment style and time period, is integral to how ESG factors translate into investment performance. “Therefore, it is not a given that taking ESG factors into account will have a uniform impact on portfolio performance, and we expect significant variation across industries.”

Depending on the sector studied, the results of the tests related to ESG materiality also varied significantly, Mercer found, noting that there is evidence to suggest that globally, corporations are not uniformly disclosing comprehensive information about ESG factors, creating a need for dependency on specialist ESG research firms.

Most of the studies to date have focused on the link between ESG and listed equity investment, the report points out, however this is beginning to change. Future studies will focus on the link between ESG and fixed income and the link between sustainability and property values.

Download the report from Mercer’s website.

Wednesday, November 18, 2009

U.K. survey points to strong interest in SRI

A new survey suggests that most U.K. investors will take ethical considerations into account when next buying a financial product, however awareness of responsible investing (known as ethical investing in Britain) remains low.

The national online consumer study, conducted by Ipsos MORI for research group EIRIS, finds that 44% of the British public are interested in finding out about the ethical credentials of the next financial product they buy.

Respondents surveyed said that banks and financial institutions should prioritize current ethical concerns such as protecting human rights, tackling climate change, protecting the environment and investing in fair trade in their lending and investing activities, more so than avoiding “sin” issues relating to the manufacturing of alcohol, tobacco and gambling.

More than 60% of those surveyed could not name or describe in detail any ethical financial products or services. “Awareness is low even among those that stated they were interested and likely to consider ethical credentials when next choosing a product or service; almost half (48%) of those in this sample could not name or describe in detail any ethical financial products or services,” EIRIS said in a news release.

“The survey highlights a lack of knowledge as well as a lack of trust as key barriers to people purchasing ethical financial products and services.”

Thirty-five per cent agreed that they would not buy ethical financial products and services because they “do not trust the claims of financial providers” and 46% of respondents agreed that “there is not enough information available on how they make a visible difference in the world.”

“Our survey provides firm evidence of growing interest in ethical finance, suggesting that the message that it is possible to both make money and make a difference when investing ethically is starting to get through to consumers,” says Mark Robertson, Communications and Development Manager at EIRIS. “But levels of awareness, trust and confidence in ethical finance are low. The industry must respond with greater transparency and provide more information on how saving and investing can make a positive difference.”

The survey sample included more than 1,000 British adult investors.

Tuesday, November 17, 2009

SIO launches advisor education course

The Social Investment Organization has teamed up with advisor group Advocis to offer a new course on socially responsible investing, worth 2.0 Advocis technical credits.

The course is a two-hour face-to-face Powerpoint course, explains SIO executive director Eugene Ellmen, with plans to deliver in an online format.

The first hour outlines the basics of SRI as well as reasons to consider SRI for clients. The second hour explains how to implement SRI in an advisor's practice using the Advocis core competencies model.

“The aim is to combat the lack of awareness and knowledge of SRI so prevalent among advisors,” says Ellmen. “Research by GlobeScan suggests that the vast majority of advisors fail to mention socially responsible investment options to their clients. We believe they're missing out on a huge opportunity to reach out to their clients on a deeper level.”

Ellmen says the SIO believes that SRI represents an important aspect of the “know your client” and “know your product” parts of an advisor’s practice. “The Canadian Securities Administrators and IIROC have recently issued new guidance on KYC and KYP<’ he says. “We believe that a fundamental part of advisor practice is knowing what investments a client is comfortable with from a social and environmental point of view. That's an important part of this course.”

The SIO is talking to the educational chairs of Advocis chapters about delivering the course to local members. Dates have been lined up in London and Owen Sound, Ont. and Victoria, B.C.. “Our aim is to offer the course to all 43 Advocis chapters across Canada,” Ellmen says.

This week, the SIO will be issuing a new directory, called Your Guide to Socially Responsible Mutual Fund Companies in Canada, primarily for advisors, but also for the investing public who want information on SRI fundcos.

The guide lists SIO-member fund companies and describes their various screens and approaches, says Ellmen. It was created after a number of advisors asked for a document providing information on the various fund companies and will also be a supplementary resource for the SIO's advisor education course.

Monday, November 16, 2009

GRI Materiality Workshop in Vancouver

On November 5th, Vancity hosted a workshop by Bastian Buck from the Global Reporting Initiative (GRI). Bastian overviewed GRI’s current work on report content and materiality. He then led a discussion on what questions a GRI protocol on report content and materiality should answer and what a report should reveal about an organization's process of defining report content and materiality. Participants included representatives from reporting companies including HSBC Canada and Teck Resources, auditors Deloitte & Touche and Ernst & Young, consultants Interpraxis and Solstice Works, and SIO members Inhance, Northwest & Ethical Investments (NEI), Shareholder Association for Research & Education (SHARE). Bastian noted he was impressed by the number and variety of attendees interested in exploring the topic.

The following day he met with the members of the NEI sustainability team to discuss the GRI's work on materiality in the context of its sustainable investing activities.

Bastian's trip to Vancouver was part of GRI's international outreach effort to promote materiality as a key consideration in sustainability reporting.

Christie Stephenson is SRI Monitor's Vancouver correspondent.

Thursday, November 12, 2009

Pension plans urged to adopt SRI practices

A new Mercer report outlines the “impressive” growth in pension fund activity and assets invested using responsible investing guidelines.

The report, Best Practices in Responsible Investment for Canadian Pension Funds, commissioned by the Social Investment Organization and funded by Environment Canada, notes that there is a “growing consensus that responsible investment insights should be integrated into mainstream investing strategies if fiduciary duties to current and future beneficiaries are to be respected.”

Pension fund assets invested using SRI guidelines have jumped to more than $544 billion in 2008 from $25 billion in 2004, largely due to the adoption of responsible investment policies by major public and private funds, including the BC Investment Management Corporation, the Caisse and the CPP Investment Board.

Still, the report notes that many Canadian institutional investors continue to lag behind in incorporating ESG factors in the decision-making process.

“There is a growing body of evidence that ESG issues can have a material impact on financial returns,” the report states.

“Arguably, institutional investors that completely ignore ESG issues may be breaching their fiduciary obligations. Some environmental and human rights issues are becoming so pervasive and serious it is difficult to see how investors can continue to be indifferent to their impact. This seems especially true of climate change scenarios.”

"The release of a best practices roadmap for Canadian pension funds is timely," said Jane Ambachtsheer, Mercer's Global Head of Responsible Investment. "With the recent financial crisis, expectations for financial reform – and a longer-term approach to investment risks and opportunities – have never been stronger. Institutions around the world, from smaller corporate plans to mega funds, are embracing responsible investment strategies; this can only serve as further encouragement for Canadian asset owners to roll up their sleeves and engage as well."

"Canadian pension funds, endowments and foundations are increasingly recognizing the benefits of responsible investment policies," adds Eugene Ellmen, executive director of the Social Investment Organization. "Responsible investment is legally prudent and a means to identify and manage risk. RI can also help generate long-term value for stakeholders.”

The report makes a number of recommendations for pension plan trustees and administrators, including increased disclosure related to ESG issues and corporate governance, regulations to clarify the fiduciary obligations of trustees and incorporating long-term liabilities within current pension plan structures.

More specifically, the report calls on the federal government to “lead by example” and actively integrate ESG factors into federal funding of grants and projects related to capital markets and that the Social Investment Organization work with the Pension Investment Association of Canada to survey the quality of ESG-related educational materials offered to pension trustees.

The report also includes a section on responsible investment strategies for individual pension plans and a comprehensive list of key collaborative initiatives in which institutional investors can participate, such as the Canadian Coalition for Good Governance, the Carbon Disclosure Project and the UN’s Principles for Responsible Investment.

Wednesday, November 11, 2009

Putting your money where your mouth is

“Reason #10: Finally, people simply don’t know what they don’t know.
Many staff and board members of foundations are preoccupied by their charitable giving work. They are not aware that there are other possibilities for the application of all of the assets of an endowed foundation. They don’t ask questions. And if you don’t know, how will you be encouraged to alter your behaviour? This conference is an excellent opportunity to learn about SRI. But I ask you, how many members of foundation investment committees are present?”

That was Hilary Pearson, President of the Philanthropic Foundations of Canada, speaking at the SIO conference in June 2007. Taking this need for information to heart, tomorrow sees the release of a seminal report commissioned by the Social Investment Organization and funded by Environment Canada, Education and Training on Responsible Investing for Canadian Foundations and Endowments: An Inventory and Needs Analysis.

The report outlines key considerations and themes in Responsible Investing, identifies educational and training resources and includes a resource and training needs assessment with eight recommendations for capacity building within the foundation and endowment sector.

“While much groundwork has been done by some of the early adopters and membership organizations, training opportunities are insufficient and not comprehensive, limiting RI take-up in Canada.

“Those with an interest in advancing RI – the SRI industry, federal and provincial governments, and leading members of the sector – will need to invest in building RI knowledge and training capacity in the foundation and endowment sector until we reach a tipping point.” the report states.

One such initiative comes from Community Foundations of Canada (CFC). CFC represents 171 members from coast to coast, who collectively hold more than $2.4 billion in assets. A new website is up and running, devoted to sharing its growing collection of Responsible Investment resources with foundations and other funders.

“The market turmoil of the past year has underscored the importance of finding the most effective ways to use foundation assets. Many long-term investors – including foundations – are also re-examining their investment beliefs and philosophies to take into account environmental, social and governance factors,” said Monica Patten, President and CEO of Community Foundations of Canada .

"It's important for foundations to invest their assets in a way that respects their work in social responsibility and sustainability," said Eugene Ellmen, Executive Director of the Social Investment Organization. "Donors count on it, and local communities expect it. The SIO looks forward to working collaboratively with the foundation and endowment sector, governments and RI consultants to help further the application of Responsible Investment.”

Friday, November 6, 2009

Thinking about SRI

Yesterday, Legg Mason Canada held a symposium at the National Club in Toronto showcasing their investment management subsidiaries. The Think symposium was aimed at highlighting the latest thinking on fixed income and equity markets. In addition to the usual sessions on US equity, emerging markets and fixed income, there was a presentation on Responsible Investing, entitled ‘The Time is Now’.

The Responsible Investing panel featured Mike Dieschbourg, CEO of Global Currents Investment Management and Mary Jane McQuillen, Director and Portfolio Manager at ClearBridge Advisors, and a member of the UNEP FI Asset Management Working Group.

The presentation was introductory in nature, starting with a review of the UN PRI, which now has over 500 signatories worldwide representing over 18 trillion USD of assets. Tidbits such as the fact that 385 of the Fortune 500 companies have signed on to the Carbon Disclosure Project, including Legg Mason, and the recent addition of ESG metrics on Bloomberg terminals served to confirm the ever broadening appeal of socially responsible investment principles. The message to the largely institutional crowd in attendance was ‘SRI is not on the fringes anymore’.

Mr. Dieschbourg shook up audience preconceptions by asking ‘What was Forbes Green Company of the year in 2009?’ The answer is Exxon Mobil. Whether or not we agree with that choice, it was an excellent way to engage people and get them thinking about what social responsibility means today. Pushing companies to improve using shareholder engagement is at least as important now as negative screening. He stressed that SRI is about “putting money and capital in the hands of people who are doing the right thing.”

Carbon risk was used as an example of an ESG factor that has a financial impact and an impact on stock prices. But this risk varies widely among companies and investors need to know which companies are which. In this case, ESG analysis clearly demonstrates its value as a powerful enhancement to traditional investment analysis.

Mary Jane McQuillan began by looking at how far SRI has come. In the past she said, SRI was about performance, and then about products, both of which have been addressed. Now the focus is on education, with respect to fiduciary duty and responsible investment. The CFA Institute has added ESG analysis to its curriculum, and it is expected that some of that material will soon be covered in the CFA exams.

As someone closely involved with both the Freshfields report and Fiduciary II, Ms. McQuillan hoped that these publications, as well as others by UNEP FI, would enable trustees and asset managers to start having the discussion about ESG risks and opportunities. “When it comes to ESG integration, having the discussion is the first part of the process.”

With specific reference to Canada, Ms. McQuillan felt that as the worlds largest exporter of energy intensive products, many with environmental and human right implications, we needed to focus on ESG now. Mr Dieschbourg summed it up neatly with a hockey metaphor “You can ask yourself, did you make the play, did you take the shot, but it’s the end of the game that you have to think about.”

Tuesday, November 3, 2009

RiskMetrics confirms KLD buyout

As reported last month on SRI Monitor, RiskMetrics Group has acquired Boston-based KLD Research and Analytics.

"Together, RiskMetrics and KLD will offer institutional investors a comprehensive suite of ESG services so they can more easily incorporate ESG analytics into their investment processes," RiskMetrics said in a news release. "Specifically, the combined firms will deliver increased coverage, more robust data, expert insights, and user-friendly tools. These enhanced capabilities will enable more investors to uncover the ESG risks and opportunities of thousands of companies worldwide."

Formed in 1988, KLD published the first research designed to evaluate the risks and opportunities associated with corporate social and investment performance. It also created the world's first socially-screened index, known today as the FTSE KLD Social Index.

Earlier this year, RiskMetrics acquired SRI research group Innovest. The purchase of KLD solidifies RiskMetrics' position as the world's largest ESG research firm.

Monday, November 2, 2009

Just in time for proxy season!

The SEC, in Staff Legal Bulletin 14E (CF), will now allow shareholder resolutions on ESG issues which previously were excluded as relating to the assessment of operational risk by companies.

“In those cases in which a proposal's underlying subject matter transcends the day-to-day business matters of the company and raises policy issues so significant that it would be appropriate for a shareholder vote, the proposal generally will not be excludable under Rule 14a-8(i)(7) as long as a sufficient nexus exists between the nature of the proposal and the company.”

However, it appears at this point that the determination will be made on a case by case basis with more guidance likely once we see how the SEC makes its decisions over the coming year.

An update by McGuire Woods LLP states “Companies arguing that these types of proposals should be excluded will need to show that the “proposal’s underlying subject matter involves an ordinary business matter to the company,” or spell out some other basis for excluding the proposal. Not only will the new SLB serve as a basis for including more ESG proposals in public company proxy statements, it would appear to permit those proposals to expressly request that companies undertake risk/liability assessments regarding these topics.”

This welcome change has occurred just in time for the 2010 proxy season, as many resolutions are filed in November. “We always saw the SEC rule on risk as completely absurd” says Bob Walker, Vice President of Sustainability at Northwest & Ethical Investments LP. “While it did impact how we crafted the shareholder proposals we filed with US companies, we never considered it when filing in Canada. Advancing better ESG risk management forms the core of our Shareholder Action Program.”

“ We believe that the board responsibility to ensure proper enterprise risk management procedures are in place must include a well-resourced consideration of ESG factors.”

“14 E (CF) will advance ESG investing – and corporate decision-making – in the United States almost immediately.”