Friday, January 29, 2010

SEC issues climate change disclosure guidelines

The U.S. Securities and Exchange Commission has voted in favour of providing public companies with interpretive guidance clarifying existing SEC disclosure requirements related to climate change.

The interpretive release provides guidance on disclosure rules that may require a company to disclose the impact that business or legal developments related to climate change may have on its business, the SEC said in a statement. “The relevant rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis.”

“The Commission is not making any kind of statement regarding the facts as they relate to the topic of climate change or global warming,” SEC chair Mary Schapiro said in a speech. “And, we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today's guidance will help to ensure that our disclosure rules are consistently applied."

The guidance highlights four areas as examples of situations where climate change may trigger disclosure requirements: the impact of legislation and regulation; the impact of international accords; the indirect consequences of regulation or business trends; and the physical impact of climate change.

“Companies should evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business,” the SEC says.

Environmental coalition group Ceres, one of many groups which signed a climate disclosure petition, welcomed the SEC’s move.

“Today’s vote is a clarion call about the vast risks and opportunities climate change poses for U.S. companies and the urgency for integrating them into investment decision making,” said Mindy Lubber, president of Ceres and director of the Investor Network on Climate Risk. “The business risks of climate change cannot be ignored. With this guidance investors can make more sound decisions based on better information – and businesses will have a level-playing field with clear standards and expectations for disclosure.”

The lack of specific guidance until now has resulted in weak and inconsistent climate-related disclosure by public companies, Ceres said in a statement.

Thursday, January 28, 2010

NEI Portfolio Managers Symposium

by Christie Stephenson, Vancouver correspondent

From Wednesday January 20th to Friday January 22nd, Northwest and Ethical Investing held its annual Portfolio Managers Symposium, bringing together Ethical Funds’ portfolio managers with NEI’s Sustainability Team.

NEI’s Vice President of Sustainability, Bob Walker, held a session on Global Developments in Socially Responsible Investing that covered the growth in assets and ESG mainstreaming. As well, NEI’s AVP & Portfolio Manager, Russell Moldowan presented a Market Scan of Mutual Funds and Socially Responsible Investing in Canada. The day was rounded out with time for the managers to meet with the analyst team, before heading to Whistler.

On the second day, NEI’s Manager of Sustainability Research, Michelle de Cordova, presented the findings of the recently launched White Paper “Lines in the Sands: Benchmarking Oil Sands Companies”. She discussed the research process and findings of the report. NEI’s Manager of Shareholder Action, Jennifer Coulson, overviewed the 2010 Focus List, noting the companies and the issues that would be the subject for engagement this year. Finally, Bob Walker gave a presentation on the Principles and Implications of the United Nations Principles of Responsible Investment (UNPRI). During this session he reviewed the six principles, current signatories, implementation strategies, and NEI’s performance in the UNPRI Annual Report on Progress.

For the third and final day, NEI’s Manager of Sustainability Evaluations, Christie Stephenson, presented on New Developments in Environmental, Social, and Governance Evaluations. She reviewed the processes for eligibility reviews and monitoring for Ethical Funds portfolios, including proprietary Headline Risk Analysis and Management Breach Investigations approaches. She also discussed trends in evaluations including market-time analysis, performance data metrics, integration and materiality.

Members of the NEI team were joined by portfolio managers from Guardian Capital LP, QV Investors Inc., Beutel Goodman & Company Ltd., Manning & Napier Advisors Inc., and William Blair & Company. Guardian’s Sam Baldwin commented that “the annual symposium is a great way to learn about developments in SRI. It also provides an in-depth look into the ESG criteria used for evaluating companies and how a thoughtful approach to engagement with corporate management teams can produce positive change.”

NEI’s Russell Moldowan noted that “Over the years, we have been very successful in imparting the value of incorporating environmental, social and governance criteria in fundamental investment analysis. This event demonstrates the strength of having dedicated portfolio managers and experienced shareholders advocates working together.”

This year marks the fourth year of the company’s Portfolio Managers Symposium. The first principle of the UNPRI is “We will incorporate ESG issues into investment analysis and decision-making processes.” The annual Portfolio Managers Symposium puts this principal into action.

Wednesday, January 27, 2010

Paul Ekins and Environmental Tax Reform

  • Environmental Tax Reform (ETR), as cleverly described by Prof. Paul Ekins, is the shifting of taxation from ‘goods’ such as income and profits to ‘bads’ like resource use and pollution.

    In a presentation earlier this month sponsored by the Empire Club and Sustainable Prosperity, Prof. Ekins discussed the role of ETR in the transition to a low carbon economy. As Director of the UK Green Fiscal Commission and Professor of Energy and Environment Policy at Kings College London, he is renowned as an expert on public policy and ETR.

    According to Green Fiscal Commission website, ‘There is now general agreement among policy analysts that a significant programme of green fiscal reform (in which environmental taxes are increased, and other taxes are reduced in a fiscally neutral way) could play a considerable role in contributing to the cost-effective solution of environmental problems, and in particular climate change.’

    Prof. Ekins discussed the findings of the Green Fiscal Commission which concluded that
    •Environmental taxes work –they reduce environmental impacts
    •Environmental taxes are efficient –they improve the environment at least cost
    •Environmental taxes can raise stable revenues
    •ETR will stimulate resource efficient innovation
    •The public can be won round to Green Fiscal Reform

    This last point was met with consternation by the audience given Canada’s experience with green tax policies. In the GFC’s final report some attention is paid to this challenge, and although it is addressed to the UK, the analysis seems applicable to Canada.

    ‘It is regrettable that green fiscal reform emerges from the above analysis as a necessary condition for significant carbon reduction, because governments, including the UK Government, find green taxes politically problematic. At least four interacting, or mutually reinforcing, factors make this so in the UK context.
    Because people do not regard green taxes as a legitimate source of revenues…
    And people tend to think green taxes are extra taxes rather than replacements for other taxes…
    And they are thought to affect business competitiveness negatively…
    And they are seen as unfair…
    BUT, despite these negative perceptions, in fact green fiscal reform should lead to widespread economic, environmental and welfare benefits.

    The Green Fiscal Commission report looked at six countries which have implemented ETR, and concluded that outcomes have been broadly positive in both environmental and economic terms.

    Prof. Ekins stated that in order to move ahead in Canada “we need a carbon price” and that “carbon pricing is not only country specific, it’s also jurisdiction specific.” And as the report concludes “The key issue now for climate policy is whether governments will price carbon so that high-carbon investments become economically unviable, and low-carbon investments become businesses’ first choice and the foundation for competitiveness in the future. While such a policy may be challenging for energy-intensive sectors in the short term, these challenges can be addressed.”

Tuesday, January 26, 2010

Goldman Sachs criticized for failing to rein in compensation

Investment banking giant Goldman Sachs has been accused of failing to address systemic issues relating to employee compensation raised in a shareholder proposal filed last year by Vancouver-based Ethical Funds and U.S. SRI fund company MMA Praxis.

Last week, Goldman announced that company compensation in 2009 was over $16 billion dollars, an average of US$500,000 per employee. That’s a 20% drop compared to 2007, and a step in the right direction, but clearly not enough, Ethical and MMA Praxis stated in a press release.

“Although Goldman Sachs has shown some restraint, it is not evidence of a long term, systemic change. We want to make sure that we do not return to business as usual on Wall Street," says Bob Walker, Vice President of Sustainability for Ethical Funds.

The shareholder proposal asked Goldman’s board to establish an Independent Executive Compensation Review Panel to review the company’s long-term compensation, including bonuses, and compare it against industry trends. “The review shall include an analysis of the trends in Executive Compensation at our company and the impact on our company’s reputation, employees, relations with investors, political leaders and the general public,” the proposal reads.

In today’s press release, Ethical and MMA Praxis note that “given that the U.S. government had to prop up the entire U.S. financial sector with public funds, shareholders are adamant that independent oversight is the key to fostering the kind of long term systemic change that can bring reason to compensation practices at the firm and on Wall Street, and in particular can ensure that excessive risk-taking, believed by many to be a major cause of the market meltdown, is not driven by compensation practices at Wall Street firms.”

The two firms concede that Goldman made “significant” changes to its compensation practices in December 2009, including adopting “say on pay” and reducing the bonus pool. “However, more fundamental issues remain unaddressed. In calling for some reflection and further justification for high levels of compensation so soon after being bailed out by US taxpayers, Ethical Funds and MMA Praxis echo concerns emerging from the Obama Administration and regulatory bodies in Washington.”

Ethical and MMA Praxis also accuse Goldman of trying to prevent shareholders from having a say on this issue at its 2010 Annual General Meeting. “Goldman Sachs has challenged the shareholder proposal at the Securities and Exchange Commission in an attempt to omit it from the proxy ballot and to stifle the compensation debate."

Wednesday, January 20, 2010

SIO Annual Advisors Dinner in Vancouver

by Christie Stephenson, Vancouver correspondent

On January 19th, the Social Investment Organization (SIO) hosted its annual Advisors Dinner in Vancouver. Held at Al Porto Ristorante in Vancouver’s historic Gastown district, the event was sponsored by Acuity, Ethical Funds, IA Clarington Investments, Meritas Mutual Funds, and RBC Asset Management. The event was one of seven advisor dinners taking place in cities across the country during January and February.

Meritas’ Brian Barsness said he was struck by the growth and excitement around the annual dinners, contrasting the first he’d attended with only a half dozen advisors to this year’s crowd of around 50 attendees. NEI’s Rob Torrance reported he looked forward to attending the dinners each year because of their “forward thinking”.

The evening’s keynote address was given by Pete Bresnahan, a former stock broker who now consults to the financial industry on ethics. He also writes a blog on business ethics and the investment industry. His topic for the evening was applying ethics to business strategy.

Mr. Bresnahan asserted that “the biggest challenge we face is not writing new laws and regulations, but rather choosing better leaders and training financial advisors to understand the implications of their behaviour in the community”. He suggested approaching this challenge by determining “how to cultivate better FAs instead of regulating them into a state of bureaucratic frustration and paralysis”. Mr. Bresnahan believes that accountability, from both from a regulatory perspective and a moral standpoint, is essential for the efficient functioning of free markets, and he expressed concern over a lack of responsibility by major players in the financial markets since the “popping of the leverage bubble on Wall Street”. He concluded that the “crisis which currently besieges the global economy may provide the opportunity for the traditions of the free market economic system to adapt a more balanced approach” and suggested that this “must take root at the level of the individual pursuing excellence”.

Vancity’s Petra Remy reported that she appreciated Mr. Bresnahan’s talk for being “on the ground”.

The SIO's Andrika Boshyk noted that the lingering effects of the financial crisis that began in 2008 have put a spotlight on ethics in the financial services industry. She concluded that this underscores once again the importance of investors' trust in the competence and professional ethics of their advisors. As a result, she called Mr. Bresnahan's presentation a "timely contribution for the SRI community".

Monday, January 18, 2010

Water concerns going mainstream, says Jantzi-Sustainalytics

Last year’s launch of the Carbon Disclosure Project’s Water Disclosure Initiative is “the surest sign to date” that investors are increasingly concerned about the impacts of water scarcity and pollution, according to a recently-published Jantzi-Sustainalytics commentary: “Water: The Next Carbon.”

The CDP plans to send a questionnaire to the world’s largest 300 companies operating in water intensive sectors. “Investors will use the answers to assess risk and to invest in sustainable water technologies,” says Jantzi-Sustainalytics researcher Kathryn Morrison.

“While it took almost ten years from the CDP launch for carbon to reach the mainstream, it is unlikely that it will take ten years for the water crisis to become material to investors and business owners.”

Water has risen to become a significant material risk for many companies, as well as their investors, the commentary states, noting that Norway’s massive government pension fund, with assets of $456 billion, recently announced new provisions for water management at the companies in which it invests. “Companies will be assessed systematically and individually against criteria specified in the fund’s expectations document on water management, each company receiving a scorecard.”

All businesses should take measure of their exposure to water related opportunities and risks, Morrison writes, adding that companies with significant exposure should develop corporate water strategies, as they have done with greenhouse gas emissions and energy efficiency.

For instance, companies should develop water policies, implement programs and performance targets to ensure proactive management of water impacts and engage with stakeholders on water-related issues, the commentary suggests.

“To date, company reporting on water-related risks has been less than sufficient. There is a lack of discussion pertaining to how a company may be impacted by broader water issues.”

Morrison predicts that the business case for action on water management and risk reduction will likely follow the same path that brought carbon into the mainstream. “Stakeholder and regulatory pressures will increase, in part due to demographic and climate change trends. As a result, some companies’ cost structures, reputations and licences to operate may turn out to be surprisingly linked to their ability to manage water impacts.”

Thursday, January 14, 2010

Ontario regulator backs off on ESG rules

Following a lengthy consultation process, Ontario’s securities regulator has announced plans to enhance corporate governance and environmental disclosure requirements for public companies. However, the Ontario Securities Commission (OSC) stopped short of proposing new environmental, social and governance (ESG) regulations.

“The majority of stakeholders consulted as part of this initiative would like to see the OSC assume a greater role in advancing and promoting corporate governance and environmental disclosure,” the commission stated in a submission to the province’s finance minister. “However, most of them believe that this can best be achieved through providing more guidance to issuers and conducting more continuous disclosure reviews, rather than by expanding existing disclosure requirements.”

As part of its plan to enhance corporate governance and environmental disclosure, the OSC says it will conduct a follow-up compliance review on corporate governance disclosure, continue educational outreach to issuers, provide additional guidance for issuers on existing environmental disclosure requirements and improve training for OSC staff on environmental disclosure.

In 2010, the OSC says it will conduct a compliance review of corporate governance disclosure and develop guidance for issuers on compliance with existing environmental disclosure requirements. “The OSC intends to consult stakeholders in connection with the development of that guidance and to publish the guidance by December 2010, giving reporting issuers sufficient time to consider it when preparing their 2010 annual continuous disclosure documents.”

And the project could be expanded outside Ontario’s borders: the regulator will invite staff at other Canadian securities administrators to participate in the corporate governance compliance review and the development of guidance for environmental disclosures.

The issue of mandated ESG disclosure has been a long-standing public policy issue for the socially responsible investment industry, says Eugene Ellmen, executive director of the Social Investment Organization. “In a number of previous regulatory submissions, SIO has taken the position that there is significant investor demand for ESG information, and the current voluntary framework for ESG disclosure is not adequate to meet investor needs.”

Ellmen concedes that the rejection of regulatory change is a setback for the SRI industry. But he adds there are a number of positive developments in the commission’s report. “The OSC will be conducting a review on governance and will be issuing further guidance on environmental disclosure in 2010, which gives the investment community in general, and the SRI industry specifically, a further opportunity to make their views known.”

The OSC launched a corporate sustainability reporting initiative in response to a resolution passed by the Ontario legislature in April 2009 calling on the commission to undertake a broad consultation to consider best practice corporate social responsibility and environmental, social and governance disclosure standards.

Wednesday, January 13, 2010

Sunshine on a cloudy day

Sometimes, I think no one knows what we do.

So I was pleasantly surprised to read about one of Canada’s newest Rhodes scholars, Rosanna Nicol, in yesterday’s Metro. Asked about what she might be doing at Oxford she replied “I’m pretty interested in socially responsible investing and how we could get capital flow to areas that need it, but within a market structure rather than an aid framework.”

Looking forward to that Master’s thesis - way to go Rosanna!

In these cold dark days of winter, another burst of sunshine was provided by TD Canada Trust. TD, along with the other banks, is well represented in most SRI portfolios. I am often asked, 'what makes the banks socially responsible?' Well, here’s an answer. TD has a new pilot program, the Direct Deposit Initiative, which helps people open bank accounts and deposit their social assistance cheques. An article by Rita Trichur in the Toronto Star says “The latest data – a 2006 survey conducted for the Financial Consumer Agency of Canada – found that 96% of Canadians aged 18 and over have a savings, chequing or other account. Those who don’t tend to be the poorest of the poor, even though a basic chequing account is the crucial first step in participating in the financial mainstream.” It makes sense. Who better than a bank to help these disenfranchised people get a bank account?

And then there’s that triple bottom line. “A profitable account for any bank is one where there is regular activity, no bounced cheques and some modest fee revenue coming in every month,” Gunn said. “We are not altogether just altruistic. It is a good win for us too.”
Read the whole article here.

Wednesday, January 6, 2010

U.S. pension fund divests from Sudan-involved companies

U.S. pension fund giant TIAA-CREF has sold its holding of four Asian firms to protest their business relationships with the government of Sudan, which is accused of presiding over the genocide in Darfur.

In March 2009, TIAA-CREF, with more than US$400 billion in assets under management, said it would seek meetings with China’s Sinopec, PetroChina and CNPC Hong Kong; India’s Oil and Natural Gas Corporation; and Malaysia’s Petronas – and would divest by year-end 2009 from those that "refused to acknowledge the genocide and engage in a productive dialogue about how to confront it."

In a statement, the pension fund noted that there was "insufficient progress" in talks with the companies, with the exception of Petronas.

"Our decision to sell shares in these companies culminated a three-year effort to encourage them to end their ties to Sudan or attempt to end suffering there," said Roger W. Ferguson, Jr., TIAA-CREF's chief executive. "We have not divested from Petronas, which has acknowledged our concerns and engaged in dialogue about how it might address them."

Responsible Investor reports that the equity holdings in the four companies are believed to have been valued at about US$60 million and were sold on December 31, 2009.

In 2007, the U.S. House of Representatives and the Senate passed the Sudan Accountability and Divestment Act, which allows states and institutions to legally divest from Sudan.

TIAA-CREF says its corporate governance policy sets a "high bar for divestment. The company's decision regarding portfolio companies with ties to Sudan considered a number of factors. They included the gravity of TIAA-CREF's concerns in Sudan, the likelihood of successful dialogue with target companies and a conclusion that divestment would have an insignificant impact on the financial performance of participants' portfolios."

The fund provides retirement services in the American academic, research, medical and cultural fields.