April 26, 2019

PODCAST: Green Finance, ESG Credit Ratings, Best Sustainable-Ethical Indices!


My podcasts are planned every two weeks beginning March 16, 2019. This edition -- actually published February 26 -- is to test and obtain feedback from listeners on all aspects of its content and production. However, this podcast also contains great content! Included is a full transcript and links to all news covered and more!

Podcast notes November 23, 2018

For links to all the news I’m covering today, go to my Investing for the Soul homepage.

If any terms are unfamiliar to you, a good source for their definition is INVESTOPEDIA and scroll down to the very bottom to see their A-Z dictionary

News

1) Green finance: a contrarian take, by Thomas Hale, November 15, 2018, FT Advisor, UK.

"Renaissance’s argument thereafter is that, even if emerging markets have far lower ESG scores, directing capital their way allows for the highest overall rate of improvement, and so the greatest ethical utility. This is, unsurprisingly, an argument for more investment in EM."

Points:

1) The argument presented here by Renaissance Capital, a Russian investment bank, is equivalent to the idea of investing in companies who are just beginning to engage in ESG seriously so as to take advantage of their possible rapid stock price as they're identified as a potential 'high' ESG company. As it's recognized by many investors that high ESG scoring companies also now have a premium to their stock prices.

2) Renaissance produces a wonderful graph showing how high GDP per capita is highly correlated to high ESG country scores.

3) Another quote, “As a side note, the report finds ‘virtually zero correlation’ between ESG scores and sovereign bond pricing after adjusting for per capita GDP.)

Again, the argument here is that going for up and coming ESG performers in emerging countries could be a great bet for stock or bond outperformance.

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2) From upstream to mainstream: ESG at a tipping point, November 15, 2018, by IN Research and Calvert, Investment News, USA.

"In a year's time, the percentage of Millennials expressing a high level of interest in ESG investing jumped from 26% to 35%, advisers say, while the percentage of Gen Xers embracing ESG spiked from 16% to 25%.

This is more than a generational story, however... Twenty-six percent of ultra-high-net-worth investors now show a high level of interest in ESG investing, advisers say, up from only 10% in 2017. Similarly, interest among very-high net worth investors shot from 13% to 19% in a year's time."

Points:

1) These results are from a US survey of 300 advisors. The jump in numbers over just one-year is impressive. Demonstrates just how fast ESG is being accepted.

2) Somewhat interesting is that its regular advisors reporting the rapid growth. Generally, advisors have been ‘behind the curve’ regarding their positivity concerning sustainable, ESG and ethical investing. Now many are hurrying to get familiar with it!

3) Calvert, a well-known and respected ethical investing mutual fund manager was involved too. Not sure if this fact had a relevance to the conduct and results of the survey. Knowing Calvert, probably not.

4) You can download the full report here.

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3) Are ESG Ratings the New Credit Rating for Stock Prices? By Ginger Szala, November 19, 2018, ThinkAdvisor, USA. "A new MSCI study of ESG ratings finds they have a similar impact on share prices as do credit ratings."

Points:

1) Though to me the findings are unsurprising, it is the first study to demonstrate that ESG ratings have a similar impact to credit ratings on a company's stock price.

This finding will no doubt be challenged, but comes at a time when investors everywhere are looking at the inclusion of ESG criteria in their investment research. It bodes well for the mainstreaming of ESG!

2) Many credit ratings’ agencies such as S&P, Moody’s and Fitch have long been criticized for potential significant conflicts of interest and bias. They take clients’ funds to provide new issue ratings and have historically slow to act to in changing their ratings, particularly negatively, to new circumstances!

So, since ESG ratings’ companies like Sustainalytics, MSCI, RobecoSAM, etc., don’t take funds for their corporate ratings—as far as I know—they may well be even a greater indicator of corporate ‘safety’ than the credit ratings’ agencies!

3) You can download the MSCI study here.

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4) Companies Leading on Disability Inclusion Outperform Peers, by Megan Amrich, November 20, 2018, TriplePundit, USA. "Accenture, in partnership with Disability:IN and the American Association of People with Disabilities (AAPD), has released 'Getting to Equal: The Disability Inclusion Advantage.' This report looks at both the disability practices and financial performance of 140 companies over the past four years... Companies that 'embrace best practices for employing and supporting more people with disabilities in their workforces' are several times more likely to outperform their peers financially."

Points:

1) This is a pioneering and worthy study. It might also be true that employees with disabilities feel they have to prove themselves and so are more productive. Hence, forward-looking companies know this and so increasingly employ individuals with disabilities? Thus, such employment is not always out of charity.

2) One has to wonder too, however, is that highly profitable companies feel they are able to hire more persons with disability because of the high profits?

3) Are such companies also aiming to create even higher reputation in the communities they serve?

Subject:  What are the best ESG-Sustainable-Ethical indices?

The range of indices is immense today. When I began to follow these around 2001, there were a handful globally, and mostly unknown. Today, it’s extraordinary the number of them and what they cover.

The idea of these indices are that they can act as benchmarks for you to assess your own performance. Furthermore, there are numerous mutual funds and ETFs that you can be purchased that are based on them.

For a good listing of them go to my page, Ethical Investing Stock and Bond Indices.

Here are my favourites though.

Equities

Dow Jones Sustainability Index
One of the oldest index families and an ethical investor’s favourite.
“The family was launched in 1999 as the first global sustainability benchmark and tracks the stock performance of the world's leading companies in terms of economic, environmental and social criteria.” The DJSI data is compiled and analyzed by the Swiss organization RobecoSAM. They review some 10,000 companies!”

Fossil Free Indexes(Global) "The Fossil Free Indexes are a suite of benchmarks designed for investable products that provide broad market exposure to index investors who wish to divest from fossil fuel companies. These investors are typically motivated either by a concern about unacceptable levels of climate change or by a concern about overvaluation and risk in the sector." These indices are capitalization weighted, meaning that larger companies have a bigger influence in the index; smaller companies a smaller weight.

FTSE4Good Index Series and FTSE Smart Sustainability Index Series(Global) "The FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong Environmental, Social and Governance (ESG) practices. Transparent management and clearly-defined ESG criteria make FTSE4Good indices suitable tools to be used by a wide variety of market participants when creating or assessing responsible investment products."

FTSE Russell Green Revenues Index Series(Global) "FTSE Russell’s Green Revenues (LCE) data model and Green Revenues Index Series track companies that generate green revenues – a critical component missing from current sustainability models. Now, investors can accurately identify and support their investment in companies that stand to benefit from the world’s transition to a green economy with consistent, transparent data and indexes." I really like the concept of this index with it’s scoring based on green revenues! That means industries such as tobacco, won’t score highly, whereas in other ESG-sustainable-ethical indices, they could!

MSCI ESG Indices(Global) "With 40 years of expertise in index construction and maintenance, MSCI aims to set new standards for ESG indices – allowing clients to more effectively benchmark ESG investment performance, issue index-based ESG investment products, as well as to manage, measure and report on their compliance with ESG mandates."

NASDAQ Green Economy Indices What I like about these are that there’re separate indices for various types of alternative energy sectors, such as solar and wind plus indices focusing on water services and products.
(Global) "NASDAQ OMX offers a complete family of indexes tracking the growing environmental and clean-energy sector, also known as the 'Green Economy.' Green Economy is the shift of economic development towards sustainable practices in business and infrastructure..."

S&P Dow Jones ESG Indices
They truly offer something for almost any sustainable-ethically oriented investor!

Canada—Equities

Jantzi Social Index(JSI)
I’ve known Michael Jantzi, whose firm established this index, since the 1990s. He is head of and founded, Sustainalytics, one of the world’s leading ESG ratings’ agencies.
(Canada) "In January 2000, Jantzi Research launched the Jantzi Social Index®, partnered with Dow Jones Indexes. The JSI, a socially screened, market capitalization-weighted common stock index modeled on the S&P/TSX 60 consists of 60 Canadian companies that pass a set of broadly based environmental, social, and governance rating criteria. The JSI has begun to generate the first definitive data on the effects of social screening on financial performance in Canada."

Bonds

S&P ESG Sovereign Bond index family
“The S&P ESG Sovereign Bond Index family offers investors exposure to the same sovereign bonds as standard cap-weighted sovereign bond indices but tilts the country weights towards more sustainable countries, based on RobecoSAM’s”

© 2019 Ron Robins, Investing for the Soul. All rights reserved.


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