April 26, 2019

PODCAST: Low Cost ESG, Sustainable Companies, Robo-Advisor Greenwashing


In this edition, I’m covering several items that I believe are important to listeners of Ethical and Sustainable News to Profit By! Plus, I’m doing a special review of robo-advisors and their offerings for ethical and sustainable investors in the USA and Canada.

The four most recent newsworthy items for ethical and sustainable investing are:

1) Who runs the world? The global status of women in leadership.

2) ESG investing does not cost more, research shows.

3) The 100 Most Sustainable U.S. Companies.

4) Sustainable and ethical standards are in vogue, but only governance is affecting ratings, Fitch finds.

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1) Who runs the world? The global status of women in leadership, by Sophie L'Helias & Adria Vasil, March 9, 2019, Corporate Knights, Canada.

This is a quote from their article: "Regardless of progress at the board level, the glaring reality is that the world’s largest corporations are stalled in second gear when it comes to hiring women in C-suite leadership roles. Top senior executive officers with the letter C in their title (CEO, CFO, CIO, COO, CSO) lag behind on gender in all markets."

Although several reputable studies have shown that having women and diversities on boards and in management generally leads to superior financial performance, corporations generally have been slow to include them.

Some further thoughts on this:

Firstly, the study covered the 1,500 largest publicly-traded companies for more than three years.

Secondly, in the article there’s a great country breakdown and it shows—as usual—Scandinavian countries leading.

But, progress is being made by women and as an investor interested in ethical and sustainable investing, you might want to consider when investing the proportion of women and diversities on the boards and in management of the companies you’re interested in. Furthermore, there are several new funds that specifically invest in companies with higher proportions of women in management.

They include:

- Impact Shares YWCA Women's Empowerment ETF on the NYSE Arca exchange, under the ticker WOMN

- In Canada, the RBC Vision Women’s Leadership MSCI Canada Index ETF, RLDR on the Aequitas NEO Exchange.

- In the UK, Barclays Women in Leadership Total Return Index – ETF Tracker, ticker symbol WIL.

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2) ESG investing does not cost more, research shows, by Frank van Alphen, February 19, 2019, IPE, UK

Quoting the article, "Pension funds performing well on environmental, social and corporate governance (ESG) factors don’t incur higher asset management costs, according to research. Research by Dutch consultant Gaston Siegelaer indicated that improvements to investors’ ESG policies did not increase costs either."

These were Dutch pension funds that were studied. Now, most people believe that ESG investing does cost more. However, the big differential that once existed is now much lower. Also, it used to be that ethical and sustainable funds were small, that ESG information was not as available and was expensive to produce. So, for those reasons ethical and sustainable funds did have significantly higher fees.

However, today, the situation is considerably different. Vanguard, in the US, now has sustainable funds with fees as low 0.12% annually!

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3) The 100 Most Sustainable U.S. Companies, by Leslie P. Norton, February 8, 2019, Barron's, USA.

Barron's list is compiled by the well-known and respected SRI fund company, Calvert Research and Management. Hence, it's to be respected. Calvert has been around since 1982 and helped pioneer socially responsible investing in the US. To create the list, Calvert rated the SRI credentials of the 1,000 largest (by market capitalization) publicly held companies headquartered and incorporated in the United States

I have a link in my transcript to the article (here.) Their top 5 American companies are: Best Buy, Cisco Systems, Agilent Technologies, HP Inc. and Texas Instruments.

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4) Sustainable and ethical standards are in vogue, but only governance is affecting ratings, Fitch finds, by Chad Bray, February 26, 2019, South China Morning Post courtesy of Yahoo!, Hong Kong.

This is a fascinating stat from the article: "The credit rating agency, however, found that less than one per cent of financial institutions have ESG factors that have actually driven a ratings change, with governance risk being the biggest issue. Governance includes such things as executive pay, audits and efforts to weed out money laundering."

Two key points stand out in Fitch's findings. Firstly, how small an impact ESG is having on credit ratings! It makes me wonder how much credit rating agencies utilize ESG criteria. Secondly, Fitch doesn't say if the analysis was only from their company or if other ratings' agencies were involved. For instance, it would be interesting to know what differences there are in the use of ESG criteria between agencies. Ethical investors, particularly, might find that useful.

However, it seems that in the future that just as these ratings agencies grade bonds—AAA, BBB, etc.--they’re likely to add ESG credit grades to stocks! This could revolutionize how we make investment decisions!

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Now for a special review of robo-advisors. These are automated app based low cost investment platforms. So rather than going to, say, an investment advisor or stock broker and getting advice and funds or stocks from them, there are now these apps—called robo-advisors—to do all that work for you.

There was recently a great review of these in a post titled,

Is your ethical investing app upselling greenwash? by Adria Vasil, March 5, 2019, Corporate Knights, Canada.

Corporate Knights have produced one of the few really good analytical studies on ethical investing apps for North Americans. They believe there are some good robo apps for Americans, but not so for Canadians.

Before going into their findings let me make some points.

My principle concern with robo investing apps for ethical and sustainable investing is that they will still put you into a least a few investments that don’t reflect your personal values. You rarely, if ever, really feel completely comfortable with everything in their portfolio.

This is because they nearly all use low cost ESG ETFs. These are mostly passive, not actively managed, funds. But the big drawback is that they’re based on ESG indexes and these indexes will rarely match your personal values.

Also, these indexes tend to be poorly diversified. Often, they’re overweight in tech and financial stocks too. The 100 Most Sustainable U.S. Companies reviewed above is a clear example of this as their top 5 companies are related to tech. So, it’s a bit like putting all your eggs in one basket – that’s never a good idea.

Also, many of the robo-advisors are new financial entities. What happens to your money if the management firm dissolves—for whatever reason? That is a concern rarely discussed but if your looking at long-term investing, it’s a very real consideration! Now in most developed countries there are usually government regulations concerning such investments so your actual principal might have a degree of protection.

Also, with many data breaches in the news, how secure is your information on their site?

It’s for these and many other reasons that I suggest those interested in ethical and sustainable investing take my 1-hour DIY Ethical-Sustainable Investing Pays Tutorial before even considering robo-advisors, or in fact, investing at all. In my tutorial, you’ll easily learn how to create a portfolio of stocks that truly represent your personal values! And no financial is required and you won’t have to bother with any math. Furthermore, creating your own stock portfolio will likely cost you even less than the lowest fee robo-advisor!

However, should you want to review some ethical-sustainable investing robo-advisors, I suggest you look at those in the Corporate Knights post. But do your own research and perhaps check with an investment professional before deciding for yourself.

For Americans, Corporate Knights suggest looking at Swell and OpenInvest.

While, Corporate Knights says, “For Canadians, well, robo-advisors may not be the best route for you until the companies behind them offer more truly values-driven options.”

For listeners elsewhere, you might want to do a web search for reviews of robo- advisors in your country.

As you would expect, robo-advisors are largely targeted at younger, tech oriented investors. So, read the research on them by Corporate Knights and other trustworthy sources, but remember my remarks here.

That’s all I want to cover in this edition—though let me add a few final points.

And remember, I’m here to help you grow in your investment success—and investing in opportunities that reflect your personal values!

Please don’t hesitate to contact me if you have any questions about this podcast or for anything else investment related.

A big thank you for listening—and please click any of the share buttons to share this podcast with your friends and family.

Bye for now!

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


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