Thursday, September 30, 2010

a little action on the tar sands...

In response to serious concerns about water quality around the tar sands, Environment Minister Jim Prentice announced the creation of an advisory panel to look into water testing in the Athabasca river.

“The purpose of their inquiry is to make recommendations on what a state-of-the-art water monitoring regime should look like and then we will move to ensure that that is in place," Minister Prentice said at a news conference earlier today.

Chaired by Elizabeth Dowdeswell, a former Executive Director of UNEP, the panel will have 60 days to report back to the government. The other panel members, all academics, are Dr. Peter J. Dillon, Dr. Subhasis Ghoshal, Dr. Andrew D. Miall, Dr. Joseph Rasmussen, and Dr. John P. Smol. For capsule bios, click here. At this time, the government has said that the findings of the advisory panel will be made public.

"We are determined to develop Canada's oil sands in a manner that it sustainable and environmentally-sensitive," noted Minister Prentice. "This independent review by some of Canada's most respected scientists is a critical step in ensuring that environmental issues are balanced with economic considerations."

Tuesday, September 28, 2010

More Canadian mutual funds supporting shareholder proposals

Mutual fund votes for shareholder proposals rose to more than 21% in 2009 from just 3% in 2006, according to SHARE’s annual Proxy Voting by Canadian Mutual Funds report.

The numbers are significant since such proposals are almost always opposed by management, says Jackie Cook, founder of and a co-author of the report.

Although fund support for corporate management is declining, it remains very high except among funds managed by Canada’s three major SRI fund companies (Ethical Funds, Inhance and Meritas).

“The three SRI fund families we surveyed are far less supportive of management than each of the other fund families every year, and in every category of proposal examined,” the report states. “The vote reports of these fund companies indicate a strong desire for change on boards, in auditor appointments and on equity-based compensation. This sentiment is perhaps no better expressed than by the SRI fund companies’ strong support for shareholder initiatives, many of which were filed by one of these companies.”

“At the other extreme, the ten largest Canadian retail fund families voted, as a group, a higher percentage of their ballots in favour of management on all the issues we examined than the average of the 21 funds we surveyed. As these funds represent an enormous proportion of the voting power of all funds in which an individual can invest, they deliver a strong signal in favour of current corporate practice.”

Canadian mutual funds were particularly critical of management proposals on executive compensation, voting against 1 in every 5 in 2006 and 1 in 4 in 2009, the report notes. “SRI funds were more than four times more likely to reject management proposals on executive compensation than non-SRI fund families in 2009. The gap between SRI and non-SRI funds’ voting records on this issue has increased in the last four years.”

The proxy numbers were boosted by strong support from Canadian mutual funds on “say on pay” shareholder proposals filed at Canada’s largest banks. For example, in 2008, funds included in the report voted 52% of their proxy ballots for say on pay. The following year, fund support increased to 68% of ballots.

The report also notes a marked increase in mutual fund support for shareholder proposals on environmental and social issues, up to 39% in 2009 from 26% in 2006. SRI mutual fund companies supported 98% of the proposals that raised environmental and social matters.

“Mutual funds vote billions of shares every year. Fund unitholders cannot direct how those shares should be voted because they do not own shares directly,” says Laura O’Neill, SHARE’s director of law of policy. “What they can and should do is examine the voting decisions of their funds on key issues identified in this report and let their fund companies know if they have concerns about how this important franchise is being exercised.”

SHARE and analyzed four full years of data on votes cast by 258 funds managed by 21 fund companies in connection with the shareholder meetings of more than 200 senior Canadian issuers.

Thursday, September 23, 2010

SRI practices now common among large pension funds: UN report

Nearly half of the world’s largest pension funds report that they are incorporating ESG issues in the investment process, according to a report from the United Nations Conference on Trade and Development.

Approximately one-third of the funds studied are reporting ownership policy decisions related to ESG and are promoting RI practices and collaboration within the investment industry, and one-quarter of the world’s 100 largest pension funds have signed up to the United Nations Principles for Responsible Investment.

The findings suggest that commitment to responsible investment practices among large institutional investors has become common, states the Investment and Enterprise Responsibility Review.

About half the funds studied displayed some RI activity, and more than half of the assets managed in the sample were held by funds engaged in RI practices. “Large leading funds are more active in the area of RI and appear to be actively engaged in the mainstreaming of ESG issues.”

On the other hand, half the funds studied reported no RI activity whatsoever. “Given the emergence of these two groups … all institutional investors [should] be encouraged to formally articulate their stance on RI to all stakeholders. Such disclosure would be in line with the current disclosure practices of funds in other areas.”

The least found indicator of RI among the sample group was annual reporting, the report notes, with only 13 of the 100 funds reporting on RI practices.

The report notes that as RI becomes increasingly commonplace amongst institutional investors around the world, there is a corresponding increase in the level of investor pressure on companies to improve their ESG practices.

The report praises the Canada Pension Plan Investment Board, stating that the fund “excels in active ownership reporting.”

“With the assistance of ISS Governance Services (a division of RiskMetrics Group), CPPIB makes available via its website a searchable database of its proxy voting activity, which is implemented by ISS according to CPP’s voting guidelines.”

The top 100 largest pension funds in the world were extracted from Watson Wyatt’s Pensions and Investments list of the world’s largest 300 pension funds. The funds have combined assets under management of $8.6 trillion.

Wednesday, September 22, 2010

Reporting - 'Its not just a cost'

Ontario's new GHG Reporting Regulation and Emerging Cap-and-Trade Program. This mouthful of a title was for a webinar presented today by the Delphi Group. It was a highly informative overview of where we are now, where we are headed, and the opportunities for corporate Canada.

Jim Whitestone, from Ontario’s Ministry of the Environment, began with an overview of the three regional Cap and Trade programs, the Western Climate Initiative (WCI), the Northeastern Regional Greenhouse Gas Initiative (RGGI) and Midwestern Greenhouse Gas Reduction Accord (MGGRA).

A key precursor to cap and trade is accurate reporting of emissions. Ontario’s new regulations call for reporting of 2010 emissions in 2011 and annual reporting thereafter. Third party verification of emissions will be required starting with the 2011 emission reports. Ontario’s quantification methods are either an adaptation of WCI methods or US EPA methods. Smaller emitters of 10,000 to 25,000 tonnes are not required to report at this time. In an effort to keep things simple for reporters, Ontario continues to work with the federal government and other provinces to harmonize reporting requirements and methods where feasible.

Nancy Coulas, Director of Environmental Policy for Canadian Manufacturers and Exporters began by stating that ‘climate change is a key issue for our membership’. Using graphs she showed that although manufacturing has been growing, emissions have been growing at a slower pace, indicating that firms in this sector are reducing GHG emissions. Her key point was that we need to focus on practical outcomes that manufacturers can achieve while making a competitive rate of return on investment.

How does GHG reporting and management align with existing corporate priorities? That’s the question Jason Grove of the Delphi Group thinks that companies should be asking. He suggests that companies should aim to deliver value through GHG reporting, “it’s not just a cost”. “Who are your stakeholders? What are their interests? How can you realize value from meeting their needs and expectations?” Mr. Grove identified four stakeholder groups - regulators, internal stakeholders such as employees, investors (naming SRI funds as a relevant group here) and the public.

The message overall was that as we transition to a low carbon economy, successful companies will be those that focus on opportunities as well as costs.

Tuesday, September 14, 2010

Basel III – What’s all the fuss about?

Right wing commentators have talked about how increased capital requirements mean that banks won’t be able to get out there with their money and stimulate the economy. Left wing commentators hope that the buffer keeps executive compensation in check when tough times are upon us again. But overall, the Basel III changes are not going to have a meaningful impact on banks, nor are they going to prevent another financial meltdown.

The new regulations require banks to increase their core tier-one capital ratio to 4.5%, up from the current 2%. In addition, they will have to carry a capital conservation buffer of 2.5%. And this is all going to be phased in gradually – banks have until 2019 to be fully compliant!

According to the Basel Committee “The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions.” This means that, maybe, banks have to be more cautious about the timing of bonuses and dividend increases.

The new requirements are not onerous. While it is laudable that 27 countries have got together to accept these rules, thereby creating a level global playing field, it has not materially changed the banking environment. Don’t let anyone tell you it has.

Wednesday, September 8, 2010


Who says business news is boring…I have truly enjoyed following the hijinks at Hewlett Packard over the last month or so. In the latest installment, Mark Hurd, HPs ex CEO, gets hired by Oracle on Monday, and HP sues Mr. Hurd yesterday, seeking injunctive relief. More to come!

Aside from its entertainment value, why does this story matter? Because it shows us once again how difficult it is for a company to excel in the environmental, social and governance spheres, and the balancing act we must manage when choosing companies for SRI portfolios.

Hewlett Packard has long been a company that shines in E and S, but has a hard time with G.

Mark Hurd, the former Chairman and CEO of Hewlett-Packard, once stated, “Environmental responsibility is good business. We’ve reached the tipping point where the price and performance of IT are no longer compromised by being green, but are now enhanced by it.” Last year, when Newsweek ranked America’s top 500 corporations on environmental issues, Hewlett Packard was first although cooler heads at Greenpeace put it right in the middle of the electronics pack. HP has garnered enough awards and accolades that it is commonly accepted that they are a leader on the environmental front.

On the social side, HP has a commitment to human rights, and has long been renowned, pioneered by Bill and Dave, for having one of the most people friendly workplaces. The HP Way was a management philosophy that put people ahead of products or profits.

However, when it comes to Governance….

From the time that Carly Fiorina became Chair (and CEO) in 1999, the Hewlett Packard board has been in trouble. Characterized as dysfunctional, primarily due to a clash between the HP Way and the Fiorina Way, the Board nonetheless managed to keep it together enough to fire Fiorina in 2005. This was followed by criminal charges against new Board Chair Patricia Dunn for engaging in illegal monitoring of other Board members, and insider trading allegations against Mark Hurd and other senior executives and directors of HP.

And now, the Boards removal of Mark Hurd as Chair and CEO, although quick and efficient, lacks transparency. Michael Schrage, writing in the Harvard Business Review suggsts that “HP's directors may have been absolutely right to force Hurd's departure. But the firm's fiduciaries wrongly missed a world-class opportunity to simultaneously respect the best interests of its stakeholders and expand the boundaries of good governance.“

And I’ll give the last word (for now) to Oracle CEO Larry Ellison. "Oracle has long viewed HP as an important partner. By filing this vindictive lawsuit against Oracle and Mark Hurd, the HP board is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees. The HP Board is making it virtually impossible for Oracle and HP to continue to cooperate and work together in the IT marketplace."