Tuesday, December 18, 2012

Study finds dramatic rise in sustainability reporting

Sustainability reporting is becoming more popular among publicly-traded companies, according to an analysis from New York-based Governance & Accountability Institute.

In 2011, 53% of S&P 500 companies reported on their environmental, social and governance (ESG) impacts, up from just 19% the previous year, the study found. Similarly, 57% of Fortune 500 companies reported on their sustainability effort in the latest analysis, compared with 20% in the prior year. The majority of companies that report in the S&P 500 and the Fortune 500 use the GRI framework.

“An increasing number of corporate managers and boards are recognizing the many benefits that measuring, managing, and disclosing their strategies and performance on Environmental, Social and Governance (ESG) factors can have for their companies,” the study said.
There are tangential benefits to sustainability reporting, the G&A Institute says. “Companies that are measuring and managing their sustainability issues appear to perform better over the long-term in the capital markets.”

In addition, the analysis states that companies that report on their sustainability strategies, initiatives, programs and ESG performance appear to be more likely to be selected for key sustainability reputational lists, ranked higher by sustainability reputation raters and rankers, and, selected for inclusion on leading sustainability investment indexes.

The study notes that as 53% of S&P500 and 57% of Fortune 500 companies are reporting on their ESG impacts, for the first time, the non-reporters are in the minority.

"We believe this minority universe will continue to shrink as it has in the past few years as more large-cap companies embrace sustainability reporting,” said G&A Institute Chairman Hank Boerner in a press release. “The benefits of sustainability reporting are becoming increasingly obvious over time and the long-term benefits of adopting sustainability strategies and reporting on performance become easier to measure and quantify."

Friday, December 7, 2012

Mercer investigates loyalty program for long-term shareholders

Mercer is exploring the concept of loyalty rewards for long-term shareholders over concerns that short-term decision making in the market could be damaging the way corporations are managed. Such rewards could include loyalty dividends, warrants or additional voting rights, Mercer said in a news release.

"With the launch of this project, we are looking to dig deeper into the various proposed solutions to short-termism and determine the possible role that loyalty and related instruments could play," said Jane Ambachtsheer, Mercer's Global Head of Responsible Investment. "There are some interesting precedents, and a range of opinions. Towards the end of this project, we will have a much better sense of whether and how incentives could be utilised by a broader range of issuers, and if not, why not."

Earlier this year, the Generation Foundation published a white paper which included loyalty shares as one of five key actions to accelerate the mainstreaming of sustainability by 2020.

"While we do not have all the answers, we do have some ideas we think may work,
such as incentivizing longer term, engaged ownership," said Peter Knight, Partner at Generation Investment Management and Trustee of the Generation Foundation. "By commissioning Mercer to undertake this consultation, the Generation Foundation wants to see if this idea has merit among key stakeholders.”

Mercer will lead the project with support from Canadian legal firm Stikeman Elliott LLP.

Mercer, Stikeman Elliott and the Generation Foundation will conduct interviews and focus groups to investigate short-termism from various perspectives, discuss possible solutions, and determine the level of interest in, feasibility and practicality of loyalty  instruments.

Mercer has put out a call for interested parties to participate, including topic experts, such as legal practitioners and academics, corporations that have considered or implemented loyalty instruments, investors and other stakeholders.

Findings from the interviews and focus groups will be discussed at a summer 2013 event, after which a report will be publicly available.

Friday, November 23, 2012

Ellmen resigns from Social Investment Organization

The Social Investment Organization announced today that long-time executive director Eugene Ellmen will be leaving his position to assume a new role as National Director for Oikocredit Canada.

Ellmen has been the SIO’s executive director since 1999.

“The SRI industry in Canada is indebted to Eugene for the hard work and dedication he has brought to his role at the SIO over the last 13 years”, said Gary Hawton, President of the SIO.  “He will be greatly missed at the SIO and our loss is definitely Oikocredit’s gain. Eugene and I have spoken about his new role and it is a natural fit and progression for him; and it keeps him well within the SRI industry given the interplay between SRI and development finance,” added Hawton.   
In his new position, Ellmen will collaborate with the three Oikocredit Support Associations in Vancouver, Toronto and Halifax in order to represent Oikocredit nationally with the SRI community, cooperatives, financial advisors, the media and prospective new investors.
“We see many opportunities for Oikocredit in Canada and decided to recruit a national representative,” said Ylse van der Schoot, Director, Investor Relations at Oikocredit International. “We are pleased Eugene is joining us, because his level of experience, his network and skills will be very beneficial to Oikocredit.”     
Ellmen will continue his duties as SIO Executive Director until mid-January. The SIO’s board is developing a transition plan to put a new Executive Director in place in advance of the SIO’s national conference in Vancouver in June 2013.

Monday, November 12, 2012

Globe story provokes backlash in SRI community

A Globe & Mail story suggesting that socially responsible investing is not the best approach to building a sound investment portfolio produced a strong reaction among the SRI community, with advocates accusing the Globe writer of failing to do his homework on the subject.

“The problem with SRI is that you limit your universe of stocks,” said Globe writer David Berman in the controversial article. “And this limit simply cannot do a better job of building wealth.”

Berman went on to argue that there are better things to do with your money, such as giving it away to a good cause.

“As Vice President NEI Ethical Funds & ESG Services, I read this story with great interest and disappointment. I believe you have completely missed the mark with your take on socially responsible investing,” said Ethical Funds’ Bob Walker.

Walker noted that the NEI Ethical Global Dividend Fund and the NEI Special Equity Fund are both four star Morningstar rated funds, and as at October 31, 2012, the NEI Ethical Global Dividend Fund is first quartile in all time periods. “So comparing the performance of SRIs to charitable giving is a woefully inaccurate position to take.”

“The proof is out there -- evidence shows that socially responsible companies do better in the long run,” Walker added

“There is a great deal of research confirming that investors do not have to compromise returns when aligning their investments with their values,” said Ian Bragg, associate director of research and policy at the Social Investment Organization. “In fact, we recently published an article showing that socially responsible investing mutual funds perform strongly relative to their peers in virtually all major asset classes.”

"As a social investment financial advisor, I find Mr. Berman's article is totally lacking in research," said Ross Campbell. "Ian Bragg of the Social Investment Organization has done extensive research comparing social value/ethical funds with mainstream mutual funds and has found in almost all categories that the mutual funds that had social screens and used ESG criteria outperformed mainstream funds. Mr. Berman might want to check with Ian Bragg before he writes his next article on social investing."

There are dozens more comments on the article on the Globe website, many in support of SRI. It's heartening to see the community coming together to debunk common myths about SRI.

Wednesday, October 17, 2012

BMO tops 2012 Carbon Disclosure Project rankings

Only one company scored high enough to make the 2012 Canada 200 Carbon Performance Leadership Index (CPLI) – Bank of Montreal. Performance is grouped into 6 bands A, A-, B, C, D and E. The CPLI includes only Performance band A, which this year was achieved only by Bank of Montreal.

The CDLI (Carbon Disclosure Leadership Index) is made up of the 20 companies with the highest carbon disclosure scores from the Canada 200 sample, and these are, in order:

Bank of Montreal 91

ARC Resources Ltd. 90

Stantec Inc. 89

Teck Resources Limited 88

TMX Group Inc. 84

Suncor Energy Inc. 84

Barrick Gold Corporation 84

Enbridge Inc. 84

TransCanada Corporation 83

Enerplus Corporation 83

Telus Corporation 82

Bank of Nova Scotia 82

Tim Hortons Inc. 80

Emera Inc. 79

Cenovus Energy Inc. 79

Toronto-Dominion Bank 78

Inmet Mining Corporation 78

Nexen Inc. 78

SNC-Lavalin Group Inc. 77

Canadian National Railway Company 77

The 2012 Investor CDP Information Request was sent to the Canada 200 companies on behalf of 655 institutional investors (CDP signatories) representing $78 trillion in assets. 107 of the Canada 200 companies responded, a meagre 54%; however, they represent 79% of the Canada 200 by market capitalization.

Apart from the scoring, 3 key findings of the report, ‘Improving transparency as the foundation for carbon performance’ were:

• Companies are identifying more climate change risks with a direct short-term impact on their business

• Companies prioritize climate change on the corporate agenda, finding more value in emissions reduction initiatives and more opportunity to improve profitability

• Companies improve transparency on climate change issues, but lag on performance criteria

There is plenty of detail in the report, as well as graphics which clearly illustrate the range of responses. Accenture, the official writer of the report and CDP’s global implementation partner, has done an excellent job assembling the results and making the information accessible.

There remains a significant gap between the CDLI average and the Canada 200 average. So, while the leaders are improving, it’s not clear that the laggards are catching up. Furthermore, the range of scores for the 2012 CDLI is 77 - 91, while the range of scores for the Global 500 CDLI companies is 94 -100. Canada has a lot of catching up to do!

Tuesday, October 16, 2012

2012 CDP Canada 200 Report launched today

At concurrent events in Toronto and Montreal today the Carbon Disclosure Project (CDP) launched the CDP Canada 200 Climate Change Report 2012.

A capacity crowd of dark suits enjoyed coffee and snacks provided by Tim Hortons, as Scott Bonikowsky, Vice President, Corporate, Public and Government affairs, Tim Hortons Inc., was the keynote speaker.

The Toronto event began with an introduction by Stephen Donofrio of the CPD, who provided a brief overview of the work of the CPD, that is, to use the power of measurement and information disclosure to improve the management of environmental risk. Having worked on climate change through carbon disclosure for over a decade, the CDP is now addressing water use and beginning next year will be integrating the work of the Forest Footprint Disclosure Project, creating a comprehensive system for reporting on natural capital.

Mr. Bonikowsky then gave us some perspectives on Tim Horton’s sustainability journey, frankly admitting at the start, “We have made considerable strides and progress but we have considerable challenges ahead of us.” Tim’s created a sustainability strategy in 2009, from a starting point of adding value to the business, while recognizing that the company had to mitigate its significant negative environmental impacts. Some of this was driven by the recognition of the ‘relentless push towards increased transparency’ and the surprising number of requests for information on what Tim’s was doing with respect to sustainability and environmental initiatives. When the company released its first GRI report in 2010, it was downloaded 82,000 times, both a testament to the desire for information, and a spur to continue providing it.

He described some of Tim’s' challenges, including trying to reduce the absolute/aggregate impacts of a fast growing company, dealing with franchise owners as partners who have to be relied upon to execute many of the measures, and, in a comment echoed by many, the lack of standardization in sustainability reporting, leading to questionnaire fatigue and the ironic result that companies find themselves spending more time reporting and less time engaging in actual activities that reduce their footprint.

Brief remarks from Ernst Ligteringen, CEO, Global Reporting Initiative, commended the participation of the TMX at the launch, both in Toronto and Montreal. He stated that we need policy initiatives to encourage companies to make sustainability reporting part of the normal flow of information they release. The Shanghai Stock Exchange has been particularly active on this front, resulting in an increase in sustainability reporting initiatives among Chinese companies.

This was followed by highlights of the report (I’ll blog about this fully in the next post), and a brief Q and A and wrap up.

Monday, October 15, 2012

Three Cheers for Expensive Oil


October 15, 2012

Three Cheers for Expensive Oil


A version of this article appeared October 15, 2012, on page R4 in the U.S. edition of The Wall Street Journal, with the headline: Three Cheers for Expensive Oil.

Scarce oil may be one of the best things that could happen to agriculture.

To understand how that could be, consider two facts. First, agriculture uses a huge amount of energy—almost a fifth of the total consumption in the U.S. alone. And second, farming as we know it erodes fertile land far faster than nature can replace it.

Now, thanks to steep rises in oil prices, growers are adopting practices that use less fuel. As a tremendous side benefit, these methods not only fight erosion but they build soil and enrich it with nutrients crops need. In fact, I'd argue that for perhaps the first time in modern history, the short-term incentives for individual farmers are aligning with humanity's long-term interest in conserving the soil and its fertility. It's a potentially huge change that could reshape farming as we know it.

Here's a look at two of the most rapidly growing and effective practices already in use and another that may take off soon.

Ditching the Plow

The most popular fuel-reducing strategy involves a radically new way of planting seeds. Instead of breaking up the ground with a plow to plant seeds, no-till farming leaves the remains of last year's crop on the surface. Drills punch through this mat of vegetation and insert seeds into the ground.

Ditching the plow can cut fuel consumption by as much as half, bringing substantial savings. It also reduces the need for expensive fertilizer. Specialized machinery can inject fertilizer along with the seeds, putting just enough right where developing crops need it most.

Those savings help explain why farmers have been moving to no-till, and why even more will as the cost of oil rises. But the side benefit of this shift will be alleviating a problem that's been plaguing humanity for thousands of years.

Plowing removes plant cover, and bare fields erode 10 to 100 times faster than shielded soil, far faster than nature can make more. Overplowing has stripped whole regions bare and helped bring down past civilizations. Parts of Syria that were extensively farmed in Roman times are now bare, rocky slopes, for instance, and in southern Greece you can still find ancient agricultural tools scattered on hillsides that can no longer support cultivation.

Modern industrial societies aren't immune. Islands of unplowed prairie in pioneer cemeteries across the American heartland stand higher than the surrounding, eroded fields. On some corn fields in the Midwest, I've seen soil that was so degraded it looked like beach sand.

No-till farming can change all that. The practice can reduce erosion by more than 90%, and bring soil loss close to the pace of soil production. Over time, no-till can also increase soil organic matter and boost microbial activity that helps cycle nutrients from the soil into crops and back again. And not plowing helps reduce runoff, leaving more water in the ground where it's available to crops.

Feeding the Earth

The next strategy involves reducing reliance on fertilizers that don't enrich the soil and require a lot of oil to manufacture. Instead, low-cost organic matter like manure, crop stubble, garden trimmings and even household food scraps are used.

This certainly isn't a new idea. Centuries ago, the Dutch reclaimed land from the sea and enriched it with organic wastes. Long before then, farmers from China to Peru improved their soils by returning organic matter to their fields.

But in the U.S. and Europe, organic sources of fertilizer fell out of favor in the middle of the past century. There are a lot of reasons, some of which don't have anything to do with agricultural effectiveness. Big crop subsidies led many farmers to stop keeping livestock, which meant no more on-farm manure. And after World War II, former munitions factories started cranking out cheap fertilizer, which together with cheap oil made animal husbandry an expensive, labor-intensive anachronism.

Intensive chemical-fertilizer use also dramatically increased crop production, especially on already-degraded land, during the Green Revolution that has helped feed the world's rising population. But the cost of fertilizer is tied to the price of oil.

With the price of manufactured fertilizers rising, recycling organic matter is becoming more cost-effective. It also can build fertile soil. While chemical fertilizers won't disappear from agriculture anytime soon, rising prices will make it increasingly attractive to rebuild soil fertility using organic matter, particularly on the third of the world's cropland already degraded beyond use.

Spurred by high fertilizer prices, some farmers are bringing livestock back onto their land. One energetic couple in Missouri told me how they used chicken and goat manure along with intensive composting to turn an abandoned farm with degraded soil back into a productive and profitable working farm in under five years.

It's not just conventional farmers who are adopting these methods. Some cities are setting up community food gardens to help counter rising food prices. These urban farmers see recycling organic waste as the key to growing fresh, affordable produce in cities, where most of humanity now lives.

I saw this for myself when I visited one such garden built atop a reclaimed landfill near downtown Seattle. Looking at the oversize vegetables and digging my hands into rich fertile soil, I could hardly believe this farm was started less than a decade before with trucked-in, sterilized dirt. Regular additions of compost rapidly turned this small patch of land into a reliable source of fresh fruit and vegetables for residents and local food banks.

Putting Down Roots

The final alternative strategy isn't here yet. But when it arrives, it has the potential to change the way American farmers harvest the country's third-largest crop: wheat.

The Land Institute in Salina, Kan., is developing a range of perennial grains that would make annual plowing unnecessary. To my mind, the most revolutionary efforts involve a version of wheat that can be used in many of the same foods as the regular stuff.

Harvesting perennial wheat would mean fewer passes with the tractor and less oil burned. Meanwhile, the longer roots of perennial wheat reach deeper into the soil, tapping into more of the water it holds, increasing crop tolerance to drought. Longer roots also enhance nutrient uptake, further reducing the need for fertilizer.

There's a dramatic illustration of the idea hanging in a stairwell at the Land Institute: a life-size picture, close to two stories tall, of a perennial wheat plant and its Rapunzel-like roots. Next to it, a picture of a conventional wheat plant looks anemic by comparison, its roots reaching down just several steps.

Perennial wheat also has the potential to do long-term good. Harvesting the wheat would leave the plant and its root system in place, storing a lot of organic matter below ground, where it helps support the growth of the next crop. Minimally disturbed ground, reinforced by interlaced root systems, also means far less soil erosion.

To some, I'm sure that all this speculation about a revolution in farming sounds naively optimistic. But the movement toward these new methods is already under way, and the economic case for more farmers to adopt them will only get stronger as oil and fertilizer get pricier.

Let's hope so, for our descendants will need productive, fertile soil just as much as, if not more than, we do today. And what we now consider alternative methods of farming are some of the best ways to ensure that they'll have plenty of it.

Dr. Montgomery, a professor of geomorphology at the University of Washington in Seattle, is the author of "Dirt: The Erosion of Civilizations." He can be reached at reports@wsj.com.

Saturday, October 13, 2012

Responsible investors expanding into emerging markets

Responsible investment allocations to emerging markets have increased to about US$161 billion, up from US$125 billion in 2009, a 30% rise, according to a survey of more than 40 global responsible investment houses by RI researcher EIRIS.

The US$161 billion figure represents about 7% of the survey respondents’ total assets under management. 

Around a quarter of investors indicated that they have increased their exposure to emerging markets in the aftermath of the financial crisis. “Arguably one of the positive effects of the crisis has been to convince an increasing number of mainstream investors of the value of taking factors such as climate change, environmental and social disclosure and corporate governance into account when making their investment decisions and exercising their ownership obligations,” the survey says.

The survey points to a “heightened materiality” of ESG issues in emerging markets.

“Whether it is deforestation of the Amazon in Brazil, the conflict between Vedanta and indigenous peoples in India or environmental pollution or labour issues in China it is clear that company ESG issues have a major impact on peoples’ lives in emerging markets,” the survey said. “For this reason there will be strong pressure from those affected, or likely to be affected, to mitigate the negative impacts of company operations. This is likely to feed into demands for better ESG disclosure and performance.”

The survey found that stock exchanges in Brazil and South Africa have leapfrogged their developed-world peers by creating advanced ESG listing requirements, sustainability indices and other products to drive disclosure.

"The term 'emerging markets' is increasingly outdated, especially when applied to huge markets like China - the second largest economy in the world. South Africa and Brazil are leading the way with ESG initiatives which developed markets could well learn from,” said Josh Brewer, report author and Head of Financials and Technology team at EIRIS.

Poor corporate ESG disclosure remains the number one challenge to investing in emerging markets, with more than 78% of surveyed investors mentioning it. Environmental issues, compliance with international norms and corporate governance remain core responsible investment concerns in emerging markets, just as they are in developed markets, the survey said.

Investors named ESG-themed funds as the most popular emerging markets investment strategy, followed closely by general socially responsible investment funds and then niche SRI funds.

China was identified as the most popular emerging market, followed by Brazil, Taiwan, Thailand and India. The survey also asked responsible investors which emerging market countries were making positive steps towards ESG disclosure; Brazil, South Africa and Turkey were identified as ESG leaders.

“The identification of Brazil and South Africa as leaders in terms of ESG is borne out by EIRIS research, with a majority of companies from these two countries consistently scoring better than their emerging market peers,” the survey said. “In fact, the top ranked companies from Brazil and South Africa often do as well, or better than, the best  performers from any markets, developed or emerging.”


Thursday, October 4, 2012

European SRI assets flourishing, study says, though mainly institutional

Sustainable and responsible investment is flourishing in Europe, according to a Eurosif study released this week.

“This is an incontrovertible truth whichever strategy one chooses to look at and whatever definition of SRI one ascribes to,” the study said. “During a timeframe when European assets under management increased by 3.8%, all of the sustainable and responsible strategies have outpaced this growth.”

For example, sustainability themed investments rose to 48,090 million euros in 2011, from 25,361 million in 2009, a 38% increase. Similarly, best in class/positive screen investments rose 46% to 283,206 million euros.

However, the impressive growth figures “mask some uncomfortable truths,” the study adds. “The European SRI market remains primarily institutional, and most of the growth in each of the individual strategies comes from a small number of institutional players investing in new mandates. The growth in each strategy is not from SRI assets outperforming the market, nor is it from an inflow of assets from the retail market, but a conversion of existing investments to one of the strategies.”

The proportion of SRI institutional assets has grown from 92% in 2009 to 94% in 2011.

Eurosif notes that this represents a challenge for the industry: Why are retail sales not keeping pace with institutional investors and professional asset managers who are pouring money into SRI? “Clearly, communication and clarification is needed to make retail investors see the same value in SRI that professional investors do.”

Thursday, September 20, 2012

Enbridge Removed from Jantzi Social Index

Citing the company’s poor environmental performance, Sustainalytics has removed Enbridge Inc. from the Jantzi Social Index, a socially screened stock index consisting of 60 Canadian companies that pass a set of broadly based environmental, social, and governance rating criteria.

“In the summer of 2012, the company experienced a spill in Wisconsin and at a remote Alberta field, each of which exceeded 1,000 barrels,” Sustainalytics said in a release. “This coincides with the recent conclusion of an investigation by the National Transportation and Safety Board into a 20,082 barrel leak at its Lakehead pipeline system in Michigan in 2010. “

Despite strong sustainability commitments and recent capital investment in pipeline integrity management programs, the company has failed to prevent significant releases and its spill record is concerning to investors, Sustainalytics added.

It’s another setback for Enbridge, which last month was removed from the IA Clarington Inhance SRI funds by Vancity. That decision was based on the U.S. National Transportation Safety Board report on the Enbridge 2010 pipeline spill in Michigan.

Vancity Investment Management is a sub-advisor on three SRI funds for IA Clarington and determines which holdings are contained within the funds, based on ESG criteria. Two of these funds previously contained Enbridge holdings.

Wednesday, September 12, 2012

Extreme weather events drive climate change awareness: Carbon Disclosure Project

Increasing incidents of extreme weather events which disrupted business operations and supply chains around the world have pushed climate change up the boardroom agenda, according to the Carbon Disclosure Project’s Global 500 Climate Change report released today.

“With the hottest U.S. summer on record, fires in Russia and flooding in the U.K., Japan and Thailand, among other events, 81% of reporting companies now identify physical risk from climate change, with 37% perceiving these risks as a real and present danger, up from 10% in 2010,” CDP said in a press release..

“Extreme weather events are causing significant financial damage to markets,” says Paul Simpson, CEO of the Carbon Disclosure Project. “Investors therefore expect corporations to think more about climate resilience. There are still leaders and laggards but the economic driver for action is growing, as is the number of investors requesting emissions data. Governments seeking to build strong economies should take note.”

The report notes that 2012 has seen a ten percentage point increase year-on-year in companies integrating climate change into their business strategies (2012: 78%, 2011: 68%), contributing to a 13.8% reduction in reported corporate greenhouse gas emissions, the report found.

Malcolm Preston, global lead, sustainability and climate change, PwC says: “Even with progress year-on-year, the reality is the level of corporate and national ambition on emissions reduction is nowhere near what is required. The new ‘normal’ for businesses is a period of high uncertainty, subdued growth and volatile commodity prices. If the regulatory certainty that tips significant long term investment decisions doesn’t come soon, businesses’ ability to plan and act, particularly around energy, supply chain and risk could be anything but ‘normal’.”

The CDP report, co-written by professional services firm PwC on behalf of 655 institutional investors representing $78 trillion in assets, provides an annual update on greenhouse gas emissions data and climate change strategies at the world’s largest public corporations.

The report features emissions data from 379 companies and rates them according to their climate change transparency. The best disclosers enter CDP’s Carbon Disclosure Leadership Index. This year, two companies achieved the maximum carbon disclosures scores of 100: German pharmaceuticals company Bayer and the consumer goods giant Nestle of Switzerland. While U.S. companies dominate the leadership index, German companies are proportionally over-represented, as are companies from Finland, Spain and the Netherlands.

Royal Bank of Canada was listed as one of the world’s largest non-responders to CDP’s request for emissions data, along with other big names such as Apple Inc., Berkshire Hathaway, Caterpillar Inc. and Amazon.com.

Thursday, September 6, 2012

SIBs: the newest arrow in the SRI quiver

Social Finance in the UK, an SIB pioneer, defines ‘Social Impact Bond’ as “a financial vehicle that brings in non-government investment to pay for services which, if successful, deliver both social value and public sector cost savings. Investors receive a financial return from a proportion of the cost savings delivered.”

In an SIPC webinar today, Christian Novak of Frontier Market Advisors Inc. provided an introduction to Social Impact Bonds. He began by outlining some benefits of SIBs - risk is transferred from the government to private investors, they ensure that outcomes are the primary focus of the program and can maximize use of government funds.

He then provided two examples of SIBs, Peterborough Prison in the UK, and Rikers Island jail in New York City. The Peterborough SIB was launched in 2010 and has a goal of reducing recidivism rates by 7.5% or more compared to a control group of short sentence prisoners in the UK. It is a multi-stakeholder initiative with 17 investors and at least 3 social service organizations involved.

In Rikers Island, the sole investor is Goldman Sachs (!!?!), and once again the goal is to reduce recidivism, but here by 10% or more. In a twist, although Goldman Sachs is putting up 9.6 million dollars, it only stands to lose 25% of it (2.4 million) if outcomes are not reached, as Mayor Michael Bloomberg’s personal foundation is providing a guarantee for the balance. If SIBs are a ‘merger of profit and social progress’ as described by Mr. Novak, we can see whose interest is profit and whose is social progress…

Some of the risks of SIBs enumerated by Mr. Novak are performance risks, structural risk, government risk and reputational risk, particularly as SIBS are very visible transactions and the ‘financialization’ of the social sector remains controversial. Challenges facing SIBs are creating easily and accurately measurable metrics, linking metrics to measurable savings, the development and selection of intermediaries, establishing appropriate legal and regulatory frameworks, broadening investor participation and perhaps eventually creating a liquid secondary market for SIBs.

Read Deloitte’s report Paying for outcomes Solving complex societal issues through Social Impact Bonds

Check out social finance for more about what’s happening in Canada.

Thursday, August 23, 2012

SEC eviscerates conflict minerals reporting requirements

A version of this article appeared August 23, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Wal-Mart, Target Avoid Mining Rule.

WASHINGTON—Big retailers including Target Corp. and Wal-Mart Stores Inc. may largely escape a costly new rule that requires U.S.-listed companies to disclose whether their goods contain so-called conflict minerals that are blamed for fueling violence in central Africa. Retailers lobbied to be exempted from the requirement, which will affect manufacturers of a range of products, including smartphones, light bulbs and footwear.

The Securities and Exchange Commission had proposed an earlier version of the rule that would have applied to retailers carrying products sold under their own brand names, but which are typically produced by outside contractors. On Wednesday, however, the SEC voted 3-2 to adopt a final rule that would exempt companies that don't exert direct control over the manufacture of such products.
The rule, which was mandated by the Dodd-Frank financial overhaul, has been a source of friction between the SEC and companies ever since the law was passed in 2010. Companies have said the requirement would be burdensome and expensive.

Indeed, the SEC on Wednesday sharply raised its estimate of the rule's financial impact, saying it would cost companies a total of $3 billion to $4 billion upfront, plus more than $200 million a year. The SEC initially had said the cost of compliance would be just $71 million. It said it revised its estimate based on comments from the business community and others.The SEC estimates around 6,000 U.S. and foreign companies would have to comply with the conflict-minerals rule, which covers products containing tin, tantalum, tungsten and gold.

Unverified Origins
Some store-brand goods that may include 'conflict minerals'—tin, tantalum, tungsten or gold mined in or around the Democratic Republic of Congo:
Wal-Mart Stores:
Canned goods (tin in cans)

Light bulbs

Clothing and footwear

Canned goods


Best Buy:
MP3 players

Flat-screen TVs

Companies that merely attached their brand or label to a generic product made by another company aren't covered, the SEC said. But it added that if their involvement with the product went beyond that point, they "would need to consider all of the facts and circumstances" to determine if they were governed by the rule. The SEC also on Wednesday passed a similar disclosure rule focused on the development of foreign oil fields, which was also mandated by the Dodd-Frank law.

Industry lobbyists were optimistic the bulk of store-brand goods sold by leading retailers wouldn't fall under the conflict-minerals requirement, but they were waiting to read the full text of the rule."We are pleasantly surprised where [the agency] ended up," said Jonathan Gold, National Retail Federation vice president. Mr. Gold declined to elaborate before seeing the full text, which the SEC posted on its website Wednesday evening.

SEC Chairman Mary Schapiro said Wednesday the conflict-minerals rule was implemented in a "fair and balanced manner," and the SEC "incorporated many changes from the proposal that are designed to address concerns about the costs."

A spokeswoman for Target said the retailer is "committed to sourcing products from business partners who engage in responsible mining practices" and is "taking time to understand the impact of the new rule." Best Buy Co., which also sells store-brand products, declined to comment.

The four minerals covered by the rule are thought to be used to finance armed groups in the Democratic Republic of Congo and the surrounding region. Companies using any of these minerals are required to investigate whether they were mined from the area. Those that believe they use minerals from the region must file a report with the SEC saying what steps they took to verify the minerals weren't taxed or controlled by rebel groups.
"We remain concerned about the challenge of complying with these new and complex requirements," said Retail Industry Leaders Association Vice President Stephanie Lester.The companies don't have to file a so-called minerals report with the SEC if their materials come from scrap or recycled sources. Companies that fail to verify their sources of supply still can sell their products, but run some reputational risk if their connections to problems in the region are publicized.

Nonprofit groups wanted companies to take immediate steps to comply with the rule, rather than take advantage of a two-year transition period during which they could categorize certain products as "DRC conflict undeterminable."Corinna Gilfillan, head of the U.S. office of Global Witness, a human-rights group, said she was disappointed the SEC approved a two-year phase-in period for the rule, accusing the agency of caving to pressure from businesses.

SEC records indicate that representatives of Best Buy, J.C. Penney Co., JCP Costco Wholesale Corp., Lowe's Cos., Wal-Mart and Target met with officials to air their concerns about the rule. Costco declined to comment. J.C. Penney and Lowe's Cos. didn't respond to requests for comment.

Republican SEC commissioners Troy Paredes and Dan Gallagher opposed the rule, questioning whether it belonged in the securities laws and whether the agency had determined the rule would do more harm than good.

The SEC rejected other demands from business groups, including an exemption for companies using minimal amounts of minerals. The SEC said companies' minerals reports would be subject to the same level of legal liability as annual reports and other important SEC filings. Also on Wednesday, the SEC voted 2-1 to adopt rules requiring companies to report their payments to the U.S. and foreign governments for developing oil and gas fields, another regulation that businesses say could cost them billions of dollars. The SEC rejected a plea from the industry for an exemption for companies operating in places that forbid the disclosure of such payments.The American Petroleum Institute, in a press release, said the rule would hand U.S. oil companies' competitors a tactical advantage.

—Shelly Banjo contributed to this article.

Write to Jessica Holzer at jessica.holzer@dowjones.com

Wednesday, August 22, 2012

Vancity Divests Enbridge Holdings from IA Clarington Inhance SRI Funds

Vancity announced today that pipeline company Enbridge no longer meets Vancity Investment Management’s environmental, social and governance criteria for its socially responsible investments. The decision was based on the U.S. National Transportation Safety Board report on the Enbridge 2010 pipeline spill in Michigan.

As a result, Vancity Investment Management (VCIM) has divested its Enbridge holdings in the IA Clarington Inhance SRI funds which it manages.

VCIM is a sub-advisor on three SRI funds for IA Clarington and determines which holdings are contained within the funds, based on ESG criteria. Two of these funds previously contained Enbridge holdings.

“When you purchase the IA Clarington Inhance SRI funds, you are also investing in a disciplined process that considers ESG factors and financial analysis,” says Tamara Vrooman, President and CEO of Vancity. “Vancity Investment Management’s portfolio managers balance risk, return and the impact of all the investments that are made. They believe in engaging with companies to improve their ESG performance, however, if companies no longer meet the ESG criteria, they will divest the holdings from the portfolio.”

“It looks like there’s even more risk [to Enbridge], which we think further potentially puts the financial performance at risk,” Vrooman told the Globe & Mail. “We think the balance has tipped such that it’s not going to be a higher-performing investment in our criteria.”

The Globe also notes that Vancity is not the only investment firm considering divesting Enbridge. Northwest & Ethical Investments LP (NEI) has spent six years pressuring the company to gain better first nations acceptance before pursuing the Northern Gateway pipeline. NEI sponsored a resolution at this year’s annual general meeting calling for a report to shareholders on how first nations opposition would impact plans for the project. It failed, but gained 29% support.

NEI, which has pushed for executive compensation to be more closely tied to pipeline safety, the Globe reports, is now seriously weighing the benefits of sticking with Enbridge, and expects to revisit its position on the company following meetings with management and the board in September and November.

“We are kind of running out of rope here on Enbridge,” Bob Walker, NEI’s vice president of sustainability told the Globe. “Typically we see things moving in a more progressive direction. With Enbridge, things seem to be going from bad to worse.”

Monday, July 30, 2012

Nexen takeover: Losing an ESG leader

CNOOC Ltd.’s takeover bid for Nexen raises concerns for responsible investors as the Chinese state-owned oil and gas company is an industry laggard on environmental, social and governance (ESG) issues, according to a recent corporate action alert published by Sustainalytics.

CNOOC has “significant gaps” in its ESG expertise, the report notes. “However, as integration moves ahead, responsible investors should keep a particularly close eye on CNOOC Ltd.’s performance related to social issues such as labour relations, human rights and community relations, with special attention to First Nations communities.”

The report points to CNOOC’s “weak” policies on the environment, human rights, bribery and corruption. In addition, the company’s ESG disclosure is of limited strength, there’s no evidence of a formal program to reduce greenhouse gas emissions, and policies on indigenous peoples’ rights and community engagement are lacking.

In contrast, Nexen has been an environmental leader in the oil and gas sector for a number of years, with operations either in line or beyond compliance, Sustainalytics says. “Of note are its strong environmental policy, its environmental management system and its track record on greenhouse gas emissions.”

“As CNOOC Ltd. becomes the operator of Long Lake, a major oil sands in situ extraction and upgrading site, responsible investors will expect higher levels of transparency and attention to environmental issues.”

Of particular concern for responsible investors, the report notes, is the disparity in how the two companies manage their human rights risks related to operations in sensitive countries. Nexen has a strong human rights record while CNOOC’s operations in Burma have faced allegations of human rights abuses.

“CNOOC is not, and, after acquiring Nexen, will not constitute an eligible investment for many responsible investors due to human rights issues in Burma.”

As demand for energy grows in emerging markets, the report concludes, natural resource acquisitions in politically stable countries will continue, and Chinese ownership in major oil and gas basins will grow.

“Given the state ownership of Chinese oil and gas companies, the need to target Chinese policy makers cannot be discounted. Regardless, responsible investor engagement on ESG issues in the oil and gas sector has to include Chinese companies in order to move the bar on environmental and social issues.”

Friday, June 29, 2012

Sustainalytics acquires Singapore’s Responsible Research

Sustainalytics today announced the completion of an agreement to acquire Responsible Research, a Singapore-based provider of Asian and emerging markets environmental, social and governance (ESG) research and analysis. The deal was first announced in March.

Responsible Research's core analyst and institutional relations team will remain intact and continue to operate out of a new office in Singapore. The deal will also see Responsible Research's shareholders, including Lucy Carmody and Melissa Brown, become shareholders of Sustainalytics.

"The addition of the highly-respected Responsible Research team means our clients around the world will have access to leading-edge, regionally-informed insights into Asian and emerging markets," said Sustainalytics CEO Michael Jantzi. "This is another step in fulfilling our commitment to clients to provide ESG solutions that add value to their investment decision-making processes."

Melissa Brown, Responsible Research board member said, "Asian investors have long needed a world class ESG research provider. We believe that the combination of Responsible Research's Asian expertise with Sustainalytics' global coverage will ensure that investors have the best local coverage and an international product range that only a global leader like Sustainalytics can bring. "

Friday, June 22, 2012

On track for Rio + 20: EIRIS's take

In a lively presentation at the Canadian Responsible Investment Conference Wednesday, Lisa Hayles of EIRIS reviewed their latest report, On Track for Rio + 20 How are global companies responding to sustainability?. The report analyses the sustainability performance of 50 of the world's largest companies by market capitalization.

At the top of the list is Puma. No surprise given the accolades the company has received for its ground breaking environmental profit and loss reporting. (Remember that the next time you go out to buy a pair of casual or athletic shoes.) A number of pharmaceutical companies were highly ranked, and Ms. Hayles explained that this was due to fact that the ratings assigned weight to the product that is made, and big pharma does deliver a range of health providing and disease fighting products.
While Ms. Hayles went through some of the data and methodology quite carefully with us, the sustainability ratings themselves are intended to be simple. The ratings provide a complete picture of corporate sustainability performance, expressed on a clear A-E Scale, and combine EIRIS' assessment of a company’s sustainability impacts with analysis of management response to ESG risks.

Ms. Hayles also discussed two new initiatives EIRIS is supporting at RIO+20, the Natural Capital Declaration (NCD) and the Corporate Sustainability Reporting Coalition (CSRC).

The NCD is a declaration by the financial sector demonstrating their commitment at the Rio+ 20 Earth Summit to work towards integrating Natural Capital considerations into financial products and services. The 39 banks, investors and insurers who now back the Natural Capital Declaration joined forces with more than 50 countries including Botswana, the Philippines, South Africa and the United Kingdom, as well as corporations such as Unilever, Puma, Dow Chemical and Mars Incorporated, to make a collective call for natural capital valuation and accounting.

The CSCR is urging all nations at Rio+20 to commit to develop an international policy framework fostering the development of national measures requiring, on a report or explain basis, the integration of material sustainability issues within the corporate reporting cycle of all listed and large private companies. In a wonderful example of how companies are always a mix of the good, the bad and the ugly, the sponsor of the CSCR is Aviva, who recently got into a spot of trouble over executive compensation.
We’ll have more on these two initiatives as developments unfold.

Wednesday, June 20, 2012

Paul Martin Speaks on Canada's Natives

“It's the greatest social problem of our time.” That's how former Prime Minister Paul Martin described the plight of Canada's aboriginal community, speaking on Wednesday at the Canadian Responsible Investment Conference in Montreal.

“We have engaged in actions that are beyond belief and we continue to do so,” Martin said. “We're making it impossible for them [aboriginals] to succeed.”

To that end, Martin pointed to his own initiative, the $50 million CAPE fund, set up to invest in aboriginal communities. “We want to create a class of aboriginal entrepreneurs.”

Martin noted that the private sector can assist in such ventures, but government should help out.“Tax incentives are required because the major return is a social return.”

Martin discussed a few other issues during a hour-long interview with Gary Hawton, the president of Oceanrock Investments and the incoming president of the Social Investment Organization. (Hawton was also the winner of the 2012 SRI Distinguished Service Award):

Paul Martin on the Oil sands: “The oil sands are a huge economic asset but they have to operate in an environmentally sustainable way.”

Europe: “The Europeans are cutting when everyone else is. It's driving their economy into the ground.”

“You need institutions to make the euro work. Europe won't come through this crisis unless they focus on a political union.”

The Occupy movement: “If things continue as they are, we're going to have some huge issues.”

Highlights of the Canadian Responsible Investment Conference

Check out Social Finance's coverage of the Canadian Responsible Investment Conference in Montreal, including a round-up of conference-related tweets.

Use the link below or click here

re-posted with permission from Social Finance

Tuesday, June 19, 2012

Sustainable investment seen as megatrend

Sustainable investing is a megatrend, a societal and economic shift akin to globalization, says Concordia University adjunct professor Amr Addas, speaking today at the Canadian Responsible Investment Conference in Montreal.

“It's a tremendous business opportunity and a strategic imperative for corporate leaders,” Addas said in a morning session aimed at financial advisors.

Managers can no longer afford to ignore sustainability, he said, noting that 67% believe that sustainability is a key to competitive success.

Addas made note of the exponential growth of ESG-focused investment funds and the myth of underperformance. “Pure ESG strategies have outperformed massively,” he said. “It's unequivocal.”

Still, “there are plenty of cynics,” noted Tessa Hebb, director of the Carleton Centre for Community Innovation. “Mainstream beliefs in the financial system run counter to this [sustainability] view.”

On the plus side, there are plenty of good SRI products on the market, said Edmonton-based investment advisor Gail Taylor. “You can give your clients a whole new comfort level.”

“Ultimately, the business case will win out,” said Truscost Senior Vice President Cary Krosinski. “It's about the bottom line.”

Monday, June 18, 2012

Shareholders v. Stakeholders

The opening session of the 2012 Responsible Investment Conference in Montreal was a humorous and informative discussion between Bob Walker, VP of ESG Services at NEI and Lynn Stout, Distinguished Professor of Corporate and Business Law, Clarke Business Law Institute at Cornell Law School.

Bob Walker set the tone of the presentation with a slide – ‘Dear Capitalism, it’s not you, it’s us. Just kidding. It’s you.’

Walker and Stout then discussed a few American legal cases, Dodge v. Ford and Revlon, Inc. v. MacAndrews & Forbes Holdings, to buttress Stout’s conclusion that there is no legal support for the widely held assumption that corporate law requires directors, executives and employees to maximize shareholder wealth. Furthermore, a corporate law doctrine called ‘the business judgment rule’ allows directors a wide range of autonomy in deciding what to do with a corporation’s earnings and assets.

Lynn Stout believes that the model we have been using to measure corporate success ‘Gee, did the share price go up?’ is flawed, perhaps fatally so. The idea that maximizing shareholder value is the only job of corporations, an idea popularized by Milton Friedman, has not benefited anyone over the past 30 years or so, including shareholders themselves. Prof. Stout described one of main problems with shareholder value thinking, ‘There is no such thing as a free floating platonic shareholder who cares only about the price of single firm.’ Au contraire, shareholders are human beings with a wide range of concerns. A significant conflict of interest occurs, for example, between short term shareholders and long term shareholders. We see this most prominently in the actions of activist hedge funds, which have made money for their unit holders in the short term, but often at the expense of the long term shareholder.

She also dispels the myth of ‘homo economicus’, the rational man who always chooses what’s best for him, regardless of the effect on others. The best news the SRI community has heard in a long time is that 97% of investors are, at least to some degree, ‘pro social’ - that is, investors will make a modest personal sacrifice to avoid doing harm. Prof. Stout assured us that our target market is a whole lot bigger than we thought it was!