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!     

Thursday, June 14, 2012

SIO questions proposed changes to environmental regulation

The Social Investment Organization is expressing its concern over proposed changes to federal environmental law contained in Bill C-38. The SIO believes this package of changes may serve to discourage investment in certain resource projects by calling into question the legitimacy of environmental approvals on such projects, the organization said in a letter to Prime Minister Stephen Harper.

The SIO says it recognizes the importance of natural resource projects to the Canadian economy and supports efforts to enhance the efficiency of the regulatory process. However, regulatory oversight must be thorough and credible, the SIO adds.

“For an environmental regulatory regime to benefit responsible long-term investors it must be rigorous and effective in terms of environmental protection as well as efficient in delivering decisions. Inadequate environmental regulation creates serious long-term financial risk and has the potential to discourage investment,” said Eugene Ellmen, Executive Director of the Social Investment Organization.

The SIO also expressed concern that the proposed changes to the federal environmental regulatory regime have been included within an omnibus budget. “Given the long-term environmental, social and financial impacts of major resource projects, the SIO does not believe that the government has provided an adequate forum for debate or input from investors and other key stakeholders.”

“Despite the fact that Bill C-38 is expected to be passed by Parliament today, we believe that such consultation is necessary to demonstrate that any enhanced efficiency in the environmental review process is not achieved at the expense of environmental protection,” the letter concludes.

In a separate release also issued today, the SIO announced its support for the Natural Capital Declaration and the Convention on Corporate Sustainability Reporting, two key proposals to be discussed next week at conferences leading up to Rio+20, and the Rio+20 summit itself.

“In the 20 years since the original Earth Summit, more and more attention is being paid to the role of finance and investment in sustainable development,” said Ellmen. “These two initiatives would help to move the globe toward a vision of sustainable investment by encouraging transparency and accountability on environmental, social and governance issues.”

Wednesday, June 13, 2012

Let's not forget about deepwater and Arctic drilling

In Canada we have recently been very focused on oil from Alberta’s oil sands, with respect to both the oil companies themselves and the companies owning the pipelines that may be transporting that oil. However, equally dangerous are new sources of oil, accessed through deep water drilling and Arctic exploration.

In a comprehensive report, Deeper and Colder: the Impacts and Risks of Deepwater and Arctic Hydrocarbon Development, complemented by a webinar this morning, Sustainalytic’s analyst Alberto Serna Martin, lays out the potential dangers of our quest for oil in these uncharted territories.

Key impacts are:

• Biodiversity, with negative impacts on air, habitat degradation and as a result of planned discharges. Unplanned discharges, or oil spills, are our worst nightmare. According to a report by the WWF, the Arctic offers the highest level of ecological sensitivity and the lowest level of capacity to clean up after an oil spill.

• Social, including employee and contractor health and safety as well as impacts on local and aboriginal communities.

Key risks are regulatory, litigation, reputational and operational. While the first three are SRI standards, the level of operational risk in these projects is significantly higher than normal. This is due to the harsh and remote environments, increased reliance on new technologies and the ever mounting uncertainty inherent in these activities. There is a low probability but extremely high cost to unplanned events. (Black Swan, anyone?). Deep pockets are therefore needed to bear the liability of any negative occurrences. The tab for the Deepwater Horizon disaster is coming in at around 40 billion dollars, but we will likely not know the true costs for many more years.

Deep water drilling is primarily taking place in the Gulf of Mexico, Brazil and West Africa. To the extent that these are less transparent and weaker regulatory environments, they present further risks, particularly on the social side, as well as risks associated with corruption. Serna Martin suggests that companies can and should mitigate risk by having high company wide standards, rather than geographic specific standards.

The report then offers a number of best practices that could be adopted, along with specific examples of companies who have addressed these issues. In conclusion, there are some suggestions for engagement, along with the caveat that ‘While the practices outlined above are important and should be encouraged, it should be noted that they do nothing to address or mitigate the contribution of fossil fuel consumption – specifically oil and natural gas – to climate change. In fact, a positive feedback cycle exists in that, as more oil and gas is extracted from Arctic environments, the associated increase in carbon dioxide decreases the amount of Arctic ice. More ice-free days translate into easier drilling conditions and the production of even more Arctic oil and gas. Therefore, while pushing for impact mitigation in the deepwater and Arctic oil and gas industry, responsible investors should also push for investment in renewable energy and for regulatory environments that incentivize such investments.’

Friday, June 8, 2012

Gateways to Impact

The Gateways to Impact report released this month provides information from their industry survey of financial advisors on sustainable and impact investing. The research was supported by Calvert Foundation, Deutsche Bank, Envestnet, Hope Consulting, Rockefeller Foundation and Veris.

I’m going to focus on some of the more interesting findings, ones that I think apply in Canada as well.

Because of the lack of clarity around what is SRI, what is sustainable investing, what is impact investing, the survey itself did not use a specific term, only a broad frame that was used as context for several survey questions: 'Investments or investment strategies that seek to generate a financial return and positive environmental and social benefits. These range from investments in corporations with best-in-class environmental, social, or corporate governance practices, to investments in companies that work on social or environmental issues, such as access to clean water, poverty alleviation, renewable energy, and others.'

The top barriers identified in the report seem to be the same barriers we face in Canada.

‘Many financial advisors do not fully engage in sustainable investing even if they are interested in sustainable investing and are already active in the market. Advisors are consistent in their reasons for not recommending sustainable investments. The top barriers that hold financial advisors back from recommending sustainable investments are (% of advisors citing barrier):

1. Belief that sustainable investments have insufficient track records (50%) and weak financial performance (47%)

2. Perception that there is insufficient client demand for sustainable investment products (45%)

3. Lack of access to the quality research and information, and lack of comfort advising their clients on sustainable investments (both 42%)
On client demand, 40% of advisors think that at least a fifth of their clients are interested in sustainable investing. However, they have little real information on clients’ interest, and on average have talked about sustainable investing with only 15% of their clients.’

Astoundingly, especially compared to the Canadian market, 47% of advisors surveyed have clients currently engaged in sustainable investing, and 24% of advisors report that they have recommended a sustainable investment product to clients within the last three years. I would guess that this sample might be a little skewed, as those numbers seem high even for the US retail market, and don’t seem to dovetail with the rest of the research results.

There is a useful segmentation of advisors as Engaged, Clearly Interested, Curious, Doubtful and Uninterested. The top three recommendations for wealth management firms were:

• Target advisors with high levels of interest or current activity in sustainable investing.

• Provide advisors with guidance on how to build their expertise in sustainable investing.

• Position sustainable investments in ways advisors prefer: speak to the reasons for advisors’ interest in sustainable investing, positioning expertise in the field as an opportunity to build one’s practice and know that advisors currently tend to refer to the sustainable investing tested in this research as “responsible investing,” “socially responsible investing,” or “sustainable investing.”

The research bears out a trend we have seen in Canada, which is that SRI is not an all or nothing proposition for advisors or for their clients. Advisors would recommend sustainable investments to roughly one-third of their clients and would allocate 10%-20% of those portfolios to these products.

The report concludes that ‘Financial advisors show significant interest in sustainable investing, and for many advisors that interest is rooted in building their practice by staying ahead of the curve, differentiating themselves from their competition, and better meeting the needs of their clients. However, most do not sufficiently understand the market to recommend these products to their clients. Advisors need more education, especially around financial performance, client demand, and where to find quality information, to become more comfortable.’

Friday, June 1, 2012

Flow-through shares for the innovation sector

Richard Sutin, head of Norton Rose's cleantech team, suggests that flow-through shares, traditionally used for resource financing, should be extended to the cleantech sector.

"Like the resource sector, innovation is about discovery and commercialization, reliant on large amounts of high-risk, venture capital where revenues are uncertain and remote. Canada has world class capital markets (led by the TSX and the TSX Venture Exchange, with global leadership in the resource sector) and world class scientific research. As with the resource sector (and as with areas like Silicon Valley for tech venture capital), places where risk capital can be accessed will draw innovators, entrepreneurs and investors which, in turn, will draw talent and intellectual capital, becoming a self-reinforcing cluster resulting in high-quality jobs.

Flow-through shares will incentivize risk capital to those areas the government determines by defining qualifying investments; for example, qualified expenditures could be targeted towards jobs.

The competition for a share of the innovation economy is global and stiff, with jobs and prosperity at stake. Canada is competitive in most respects, particularly with respect to our human capital, but risk financing is important enough to offset that advantage. Many governments are engaged in incentive programs to encourage local innovation activity. Flow through shares, unique to Canada, are superior to other financial incentive programs and have the following advantages:

  • flow-through shares represent government facilitation of private risk capital formation, which is far more valuable than direct government funding;
  • flow-through shares have years of demonstrated success creating industry leadership without abuse or discredit;
  • flow-through shares helped Canada introduce public venture capital which is a legitimate alternative to private venture capital;
  • in addition to the benefits of an innovation cluster, flow-through shares will enhance Canada’s stature as a leading financial centre;
  • flow-through shares, according to Department of Finance and National Resources Canada reports, generate significant incremental spending that benefits local economies; and
  • flow-through shares catalyze other private sector investment.

We cannot take the chance that our innovation initiatives are compromised by uncompetitive risk capital formation. Our future prosperity is tied to success in the innovation economy and entrepreneurial endeavours. Flow-through shares, a unique Canadian success, can provide the basis for private sector financial support for commercialization activity. They are not costly according to the government’s own reports. The innovation economy is about taking and funding risk; extending flow-through shares to qualified expenditures in the innovation economy is a small risk for the government to take."

Read the bulletin here.