In June 2010, Mark was asked to present a one-hour keynote on the state of research into socially responsible investing. This was presented in NYC to a large group organized by Steve Scheuth and his SRI in the Rockies / First Affirmative Financial organizations.
Socially Responsible Investing - Keynote - "State of the Union"
1. Progressive Investing:
A “State of the Union”
Review of Performance and Impact
Mark T. Donohue
Clean Technology Entrepreneur-in-Residence, Babson College
&
President, Sustainable Impact Investing, LLC
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2. SRI Investing Today: Sizing the Market
570 UN
“Principles for
Responsible SRI Industry
Investment”
Signatories $7 trillion in
assets under
management
$18 trillion in assets
under management
Source: UNEP Finance Initiative - Annual Report of the PRI initiative 2009; swissHEDGE
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3. SRI: Terminology
Ethical Investing: “Negative screening. Avoiding
companies on ethical, moral or religious grounds (e.g.
gambling, alcohol, tobacco). Classic SRI can embody solely
negative screens or negative plus positive screens.
Impact investing: “Actively placing capital in businesses
and funds that generate social and/or environmental good
and a range of returns, from return of principal to above
market.”* The primary focus is solely on positive screens.
*Adapted from the Monitor Institute: Investing for Social and Environmental Impact
**Adapted from Krosinsky: Sustainable Investing: The Art of Long-Term Performance
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4. SRI: Terminology
Sustainable Investing / ESG: “Simultaneously pursuing
opportunities that arise from climate change while at the
same time avoiding risk in securities and industries that will
most likely be affected by ESG issues.” (Environment, Social
& Governance issues)**
*Adapted from the Monitor Institute: Investing for Social and Environmental Impact
**Adapted from Krosinsky: Sustainable Investing: The Art of Long-Term Performance
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5. The New Criteria:
ESG
• Environmental
• Social
• Governance
• Used to find hidden value or
deficiencies that may not yet be
reflected in financial results and
share prices. *
*Adapted from RiskMetrics methodology, “Global ESG 100” January 2010
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6. Sustainable Investing Provides
Better Risk Management
Pricing in risk
Credit risk
Liability risk
Reputational risk
Adds managers that diversify world view
of your portfolio
Defining materiality of extra-financial
factors
Life cycle environmental cost-benefit-risk analysis
Companies with enhanced ESG performance offer reduced
risk in terms of “long term” beta, given their mgrs’ better info
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8. RiskMetrics Global ESG 100
Source: RiskMetrics Group, “Global ESG 100” January 2010
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9. Examining the Links Between ESG
Factors & Investment Performance
A review of 20 academic
12 studies that examined
fund performance from
1963-2005 (adapted from
“Demystifying
Responsible Investment
Performance,” UNEP &
Mercer
4 4
Positive Negative Neutral
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10. Moskowitz Prize Winners 2004-2009
• 2004: “Corporate Social and Financial Performance: A Meta-Analysis”
• 2005: "The Economic Value of Corporate Eco-Efficiency”
• 2006: "Monitoring the Monitor: Evaluating CalPERS' Shareholder
Activism”
• 2007: "Does the Stock Market Fully Value Intangibles? Employee
Satisfaction and Equity Prices”
• 2008: "The Wages of Social Responsibility”
• 2009: "The Economics and Politics of Corporate Social Performance"
Source: Center for Responsible Business, Haas School of Business, UC Berkeley; www.sristudies.org
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11. SRI as Valid Statistical Construct
2004 Winners - Orlitzky, Schmidt & Rynes: “Corporate
Social and Financial Performance: A Meta-Analysis”
University of Sydney & University of Iowa
• Meta-analysis of 52 studies examining the relationship between
Corporate Social Performance (CSP) and Financial Performance (CFP)
• The studies were performed during the 1972-1997 time period
• Conclusion: ”There is a positive association between CSP and CFP
across industries and across study contexts."
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12. Linking Environmental & Financial
Performance to Valuation
2005 Winners - Guenster, Derwall, Bauer and Koedijk:
"The Economic Value of Corporate Eco-Efficiency"
Erasmus University
• Authors found positive links between eco-efficiency and firm value
and eco-efficiency and return on assets
• Conclusion: “Results suggest that managers do not face a tradeoff
between eco-efficiency and financial performance, and that investors
can use environmental information for investment decisions."
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13. Measuring the Impact of
Shareholder and Social Activism
2006 Winner - Barber - "Monitoring the Monitor:
Evaluating CalPERS' Shareholder Activism"
University of California at Davis
• Author reviews the theory and empirical evidence underlying the
motivation for institutional activism while distinguishing between social
activism and shareholder activism.
• Estimated wealth generated via CalPERS shareholder activism is $3.1bn
between 1992-2005 (author’s figures)
• Conclusion: “Institutional activism should be limited
shareholder activism where there is strong theoretical and
empirical evidence indicating the proposed reforms will increase
shareholder value”
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14. Quantifying the Human Element
2007 Winner – Edmans - "Does the Stock Market Fully Value
Intangibles? Employee Satisfaction and Equity Prices"
University of Pennsylvania, The Wharton School
• A value-weighted portfolio of the "100 Best Companies to Work For in
America" earned an annual alpha of 3.5% from 1984-2009, and 2.1%
above industry benchmarks.
• Conclusions
• Employee satisfaction is positively correlated with
shareholder returns
• The stock market does not fully value intangibles
• Certain ("SRI") screens may improve investment returns
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15. Examining ‘Doing Well by Doing Good’
2008 Winners – Statman & Glushkov –
"The Wages of Social Responsibility"
Santa Clara University, Leavey School of Business
• The return advantage that comes to SR portfolios from the tilt
toward stocks of companies with high scores on social responsibility
is largely offset by the return disadvantage that comes to them by the
exclusion of stocks of ‘shunned’ companies.
• Conclusion: Investors can “do well by doing good” by using a
best-in-class method for portfolio construction. However, this
method does not call for negative screening of ‘sin’ stocks.
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16. The Relationship Among CSP, CFP
and Social Pressure
2009 Winners – Baron, Jo, Harjoto - "The Economics and
Politics of Corporate Social Performance"
Stanford University, Santa Clara University, Pepperdine University
• Authors examined examines the interrelations among CFP, CSP, and
social pressure using a large data set of firms with social engagement for
1996 to 2004.
• For consumer industries, greater CSP is associated with better CFP and
the opposite is true for industrial industries.
Conclusion: “Empirical studies have examined the relation
between CSR and CFP, and while the results are mixed, overall the
research has found a positive but weak correlation.”
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17. Paul Hawken: Critic or Purist?
“The cumulative investment portfolio of the
combined SRI mutual funds is virtually no
different than the combined portfolio of
conventional mutual funds.”
“The language used to describe SRI mutual
funds, including the term “SRI” itself, is vague and
indiscriminate and leads to misperception and
distortion of investor goals.”
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18. Walking the Walk: Hawken &
Highwater Global
• Over 90% of Fortune 500 companies fail HG screening
• Google, Vestas, Ford among select companies
• Since inception in the fall of 2005, Highwater has returned a
total of 52.55% (as of Feb, 2010)
• Key question:
“Are the company's products or services helpful?”
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19. Selected SRI Fund Performance 2006-2009
25%
20%
20%
15%
10%
5%
0%
0%
-5%
-10%
-15% -13%
-16%
-20%
Calvert Social Domini Social Parnassus Equity Highwater
Investment Equity Income Global Fund
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20. Source: Krosinsksy & Robins, 2010
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22. The Blended Value Approach
“…that all organizations, whether for-profit or
not, create value that consists of economic, social and
environmental value components—and that investors
simultaneously generate all three forms of value
through providing capital to organizations.”
- Jed Emerson
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23. Asset Class Vehicles Benchmark
Cash / cash equivalents Community banks, credit 91-day Treasury Index
unions, loan funds
Fixed income Bonds, debt securities Barclay’s Capital
(sovereign, corporate) Aggregate Bond Index
Public equities Stocks, mutual funds, ETFs Russell 2000, S&P 500
Private equity Hedge funds, fund of funds, Private Equity
other niche products Performance Index
Real estate REITs, MBSs NCREIF Property Index
Commodities ETFs linked to commodities, S&P GSCI Commodity
Chicago Climate Exchange Index
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24. Asset Class: Cash/Cash Equivalents
Small Banks/Credit Unions
• Support community development
• Local farming
• Local small, sustainable businesses
• Energy efficiency programs
Large Banks
• Via ESG/CSR criteria
• Provide funding to underserved communities
• Microfinance
• Community Reinvestment laws (CRA)
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25. Asset Class: Fixed Income Securities
Bonds: Targeted Investments
• Traditional low levels of ESG activity
• Community development / infrastructure
Corporate Debt
• Issued by corporations with strong social/environmental
programs
Government Debt
• Creation of public goods
• Development of sustainable energy sources
• Risk of political controversy for investors
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26. Fixed Income: Domini Social Bond Fund
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27. Fixed Income: Pax World High Yield
Bond vs. Barclays Aggregate Bond
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28. Asset Class: Public Equities
Financial Analysis & Portfolio Construction
• ESG analysis provides insight beyond what is presented
in financial statements
• SRI + ESG screening criteria results in slightly lower
volatility than non-screened benchmarks
Long Term Investment Horizon
• Lower turnover = higher returns
• Incentives for management to overcome ST
pressures, i.e. ‘market myopia’
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29. Winslow Green Growth vs. Russell 2000
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30. Performance of CleanTech Indices vs S&P 500
80%
60%
40%
20%
0%
2007 2008 2009 LTM Q1 2010 3 YTD
-20%
-40%
-60%
-80%
CTIUS ECO AGIGL NEX S&P
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33. Water: Long-Term Outperformance
Water Utility Stocks vs. Major Indices
1998-2003
800%
600%
400% Water Utility Stocks
DJIA
200% S&P 500
Nasdaq Composite
0%
Water DJIA S&P 500 Nasdaq
Utility Composite
Stocks
Source: Summit Global Management, Bloomberg
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34. Water: A True Neccessity 5 Yr Annualized Returns
25%
20%
15% Water Utility Stoc
DJIA
10% S&P 500
Nasdaq Composit
5%
0%
1989-1993 1993-1998 1998-2003 2003-2008
-5% Source: Summit
Global
Management, Bloom
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35. Asset Class: PE/VC
Private Equity & Hedge Funds
• Hedge funds can incorporate SRI criteria as input into
taking long and short positions in instruments
• Funds may adjust standard investment strategies by
limiting exposure to pre-defined SRI-compliant
instruments*
• Relatively few hedge funds known to incorporate ESG
criteria
Venture Capital
• Classic VC investments in SRI are found in the cleantech
sector
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36. International Clean Technology
Returns Analysis (ICTRA)
• Comprehensive annual report prepared by New Energy
Finance (Bloomberg) and European Energy Venture Fair
• Gathered from all stages of private equity investments
across EU and N. America, the analysis delivers aggregate
return metrics at the investment level rather than the fund
level
• 456 investments, 379 portfolio companies analyzed
• 2010 results will be presented in September at the
European Energy Venture Fair (EEVF)
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37. ICTRA Report: Investment IRR by Outcomes
(# investments, # companies)
21.3%*
Public listing (31, 25) 83.2%
Later up round (69, 65) 32.9%
M&A (33, 27) 13.5%
PIPE** (13, 12) -0.5%
No substantial change (186, 169) 0.0%
Later down round (56, 48) -15.5%
Written down (30, 29) -44.4%
Liquidated/written off (38, 35) N/A
All Venture (456, 379) 42.4%
Source: ICTRA, Bloomberg New Energy Finance
4.5%*
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38. Asset Class: Real Estate
Real Estate as Hard Assets
• Responsible Property Investing (RPI)
• No-cost & value-add strategies
• Green building & energy efficiency
• Community (re)development
• Sustainable materials
• Smart growth & conservation
Real Estate as Securities
• REITs
• Mortgage-backed securities
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39. Investments in Energy Efficiency = High Returns
Investment/ Rate of Annual Asset value Simple
sq ft (US$) energy savings/sq increase at payback
savings ft (US$) 10% cap
rate (US$)
Janitorial 0.01 5% 0.14 135,000 Immediate
O&M 0.05 9% 0.20 198,000 4 months
Lighting 1.04 16% 0.36 360,000 3 years
HVAC 1.21 9% 0.21 207,000 6 years
Combined 2.30 40% 0.90 900,000 2.5 years
Source: Krosinsky & Robins, 2010
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40. Asset Class: Commodities
Few opportunities for ESG
• Commodities directly tied to natural
resources
What role for carbon?
• As pricing mechanism for externalities
Potential for sub-categories
• Allow for sustainability factors, i.e. land use
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41. What Does the Future Hold?
• The convergence of sustainability and financial analysis will continue
• Continued integration of ESG criteria by more asset/fund managers
across asset classes, but primarily in public equities
• Evolution of regulations, standards and disclosures related to
emissions/exposures
• Growth and development of carbon markets will provide
opportunities and challenges
• Release of key UN report, "The Economics of Ecosystems and
Biodiversity“ in late 2010, which will try to offer best of class metrics is
valuing material inputs to business.
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42. Q&A
Contact Information:
Mark T. Donohue
Mark.donohue@babson.edu
617.571.4440
http://www.linkedin.com/in/marktdonohue
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43. Appendix: United Nations Principles for
Responsible Investment
1. We will incorporate ESG issues into investment
analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues
into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by
the entities in which we invest.
4. We will promote acceptance and implementation of
the Principles within the investment industry.
5. We will work together to enhance our effectiveness in
implementing the Principles.
6. We will each report on our activities and progress
towards implementing the Principles.
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44. Selected Sources
• Sustainable Investing: The Art of Long-Term Performance, Krosinsky & Robins
• Handbook on Responsible Investing Across Asset Classes, Boston College Carroll
School of Management, Institute for Responsible Investment
• UNEP FI publication: “Translating ESG into Sustainable Business Value”
• UNEP FI publication: “Demystifying Responsible Investment Performance”
• Goldman Sachs Global Investment Research: GS SUSTAIN focus list
• Impact Investing Report, The Parthenon Group
• Demystifying Responsible Investment Performance: A review of key academic
and broker research on ESG factors , UNEP FI & Mercer
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Notas do Editor
Over the past 30 years, the field of socially responsible investing has grown and become more sophisticated. With these developments has come a new and evolving vocabulary to define and describe the industry. Some observers, notably Paul Hawken, take a decidedly more critical approach to this evolving language: “The language used to describe SRI mutual funds, including the term “SRI” itself, is vague and indiscriminate and leads to misperception and distortion of investor goals.”
Over the past 30 years, the field of socially responsible investing has grown and become more sophisticated. With these developments has come a new and evolving vocabulary to define and describe the industry. Some observers, notably Paul Hawken, take a decidedly more critical approach to this evolving language: “The language used to describe SRI mutual funds, including the term “SRI” itself, is vague and indiscriminate and leads to misperception and distortion of investor goals.”
While leading companies and organizations such as Risk Metrics Group (formerly Innovest) and the United Nations Principles for Responsible Investment are working to establish international standards for ESG criteria, this is still an area that is evolving. However, we can see from across the spectrum of SRI funds that ESG criteria are the common theme when it comes to determining which companies are including in portfolio construction.ESG investing underscores the widespread acceptance of the principle that investors cannot, in the long run, achieve their goals by investing in corporations that externalize their costs onto society.The common theme among the new vocabulary of SRI is the foundation of environmental, social and governance issues. ESG criteria is the primary metric by which companies are being measured and valued today. As ESG criteria become standardized and integrated into more financial modeling and valuation techniques, the underlying investment philosophy will begin to change.
It is not entirely clear how risks posed to financial institutions when considering environmental/climate/social issues are priced into valuations. Current research suggests using beta analysis – that is, measuring a company’s financial risk – that includes sustainability criteria as derived from ESG metrics. Examples include looking at costs-benefits, e.g. impact of potential litigation costs from environmental factors (asbestos, oil spills, etc.)Cost-benefit: costs associated with regulations, legal costs, taxes, environmental provisionsLT growth: sustainability themes, demographics, renewables, developing world market growthRisk mitigation: internal policies, HR + human capital practices, stakeholder dialog, corporate governance practices, environmental management systems
Where are we today? After a horrendous 2008 where all funds across the world were battered, 2009 shows that sustainable funds are bouncing back quicker than other types of funds. As stated by analysts at SAM, sustainable investing is an “all-weather approach” that is supported by strong correlations between social performance (or CSR) and financial performance (as shown by stock returns).The Social Investment Forum (SIF), using data provided by an independent third party, Thompson Reuters, conducted a review of 160 socially responsible mutual funds from 22 different fund families. The analysis showed that 65% of the 160 funds outperformed their benchmarks over the entire 2009 calendar year. Social Investment Forum (January 21, 2010) “Two thirds of Socially Responsible Mutual Funds Outperformed Benchmarks During 2009 Economic Downturn.” Press Release. Retrieved 2010-3-27.
From its inception in February 2005, the Global ESG 100 has outperformed the benchmark FTSE All World Developed (AWD) Index by 116 basis points per annum, as of the end of 2009. This is just one example of several ESG-calculated funds that has outperformed its traditional, “mainstream” benchmark comparison index.
Adapted from Demystifying Responsible Investment Performance: A review of key academic and broker research on ESG factors (joint study by UNEP FI and Mercer).50% of the academic studies show a positive correlation between ESG factors and investment performance.
The annual Moskowitz Prize is the only global award recognizing outstanding quantitative research in the field of socially responsible investing (SRI). The prize was launched in 1996 by the Social Investment Forum - the national trade association for the socially and environmentally responsible investing (SRI) industry - to recognize the best quantitative SRI study.
Meta-analysis of SRI performance over the past 30 years shows that there is not a trade-off between social performance and financial performance of companies. In fact, the data shows that one reinforces the other. Ultimately, market mechanisms may encourage social performance.
Authors used Innovest environmental rating system as basis for hypothesis testing. Through statistical testing, they showed that companies with higher eco-efficiency ratings had higher values and better ROA.
From the paper:“The amount business spends on CSP dwarfs the amount it spends on campaign contributions and lobbying expenditures. Milyo, Primo, andGroseclose (2000) estimated that corporate campaign contributions and lobbying expenditures were $300 million and $3 billion, respectively, whereas charitable contributions alone were $35 billion.”“Despite the embrace by much of the business community, the relations between social performance, financial performance, and social pressure remain as much a matter of faith and speculation as of evidence, assessment, and calibration. Moreover, interpretations of empirical results vary, and the direction of causation remains an open question. That is, good CSP could cause good CFP, but good CFP could provide slack resources to spend on CSP.”
Highwater Global clearly outperforms other SRI funds.
One of the hallmarks of truly sustainable funds is low portfolio turnover. The graphic clearly shows a positive correlation between low turnover and fund performance. This further emphasizes the importance of having a long-term investment horizon versus short-term, more speculative holdings.As a broader illustration of how far removed we are from this ‘truth’, consider that stock market turnover has increased in the US, for example, from 25% in 1986 to 150% in 2004. What further proof is needed that fund managers and large investment banks focus on trading at the expense of long-term value creation?
Much of the research in SRI categorizes investments by asset class. These are some examples of the different investment vehicles available to investors in each category as well as a conventional benchmark that is used to measure SRI fund performance against the broader market. These are examples; different academics have differing views on benchmarking.Approaches [among investment funds] still vary widely between firms, which is confirmed by statistics from PRIassessments. ESG integration remains far from covering all asset classes. The latestreport noted that:■ Integration primarily concerns equities for both asset owners and investmentmanagers.■ Fixed-income products, especially those issued by governments, and hedge fundspost a lesser degree of integration.
Some important elements for this asset class include: Understand bank’s mission statement Identify key features of the financial institution’s internal social and environmental performanceExamples: Shore Bank (US);Triodos Bank (UK/NED), Wainwright, New Resource bank, RS Social FinanceCDFI: Community Development Finance Institution - are entitled to special federal grants on the condition thatthey direct a certain percentage of their capital and business to serving thosewho have historically lacked access to the financial markets.The generally strong performance of their loan portfolios demonstrates that,while the risk of lending in low-income communities—or to emerging sectorssuch as green banking—may be different, it is not necessarily greater than thatin other markets.Equator Principles: identify social and environmental guidelines for project finance.
Investors who want to select SRI-themed bonds are forced to rely on specialist asset managers/research providers as the ratings agencies are not yet playing a major role. New investments in infrastructure include certain cleantech initiatives such as water/wastewater treatment, efficiency projects, solar/wind & other power generation projects.Best practices include: Understand role of credit-ratings agencies Analyze credit risk through ESG lens to help identify elements that could lead to default Investors should directly negotiate terms that include ESG criteriaFund examples include Sarasin Sustainable Bond EUR (SUI); Pax World High-Yield Bond Fund (US); Norwich Sustainable Future Corporate Bond (UK); ABN AMRO Groen Funds (NED)
The Domini Social Bond Fund seeks to provide its shareholders with a high level of current income and total return by investing in bonds and other debt instruments that meet the Fund's social and environmental standards.Standards are achieved primarily through negative screening (tobacco, arms, etc.)Domini shows better performance than other, similar funds in this particular asset class. It is interesting to note the severity of the drop in late 2008 of the Barclay’s benchmark fund; Domini shows a much less severe drop and a more sustained rise in 2009.
The High Yield Bond Fund seeks to invest in forward-thinking companies with sustainable business models that meet positive environmental, social and governance standards. The High Yield Bond Fund avoids investing in companies that its investment adviser determines are significantly involved in the manufacture of weapons or weapons-related products, manufacture tobacco products, or engage in unethical business practices (negative screening).The fund typically invests in fixed income securities with ratings of BBB- or below (junk bonds).
- Review www.sristudies.org- Some studies show positive correlation between ESG/CSR and financial performance while other studies show no statistical significance:: jury is still out?- Screened investment products—and many other investment products as well—typically use optimization techniques to readjust the risk characteristicsof their screened portfolios relative to a particular benchmark.SRI funds typically show lower volatility than non-ESG screened funds. By properly recognizing the importance of certain ESG issues to the long-term performance of companies, investors are able to benefit as well as create incentives for managers to overcome the short-term pressure created by “market myopia.”It is important to determine whether or not fund managers have adequate ESG research capabilities; there are 3rd parties who can provide such specialized research including KLD Research & Analytics in the US and others around the world.Cleantech Index/CleanEdge Index (as proxies for cleantech industry)Alternative Energy IndexPZD (Powershares) / other ETFs
2001-2010 comparison rangeWGGTX: The investment seeks long-term capital growth. The fund normally invests 80% of net assets (plus any borrowings for investment purposes) in equity securities of environmentally sustainable companies. It may invest in any industry sector, but tends to focus on certain environmentally-oriented investment themes. The fund may invest in companies of any size capitalization. It intends to invest a significant portion of assets in domestic small-capitalization companies.The fund may invest up to 20% of assets in foreign securities
Brief history of Cleantech Index:Trading on the New York Stock Exchange (NYSE) since January 15, 2009, Cleantech Index (CTIUS) was introduced on the American Stock Exchange (ASE) in February, 2006 and represented the first index of its kind. The purpose of CTIUS was to provide the first cost-effective way to invest in the rapid growth of clean technology companies (which are found in a variety of industrial sectors). Within the Index, CTIUS companies fall into industrial sectors corresponding with the Cleantech Group's definition of cleantech.Additional remarks on cleantech as a separate asset class (from Cleantech Forum Paris, 2010)Asset class of clean technologies are exempt from taxes in some countries—these measures need to be increasingly widespreadClean energy needs to be a sustainable asset class to attract institutional investors, e.g. pension funds and bond finance. To achieve this, we have to be able to rate clean power plants, so investors can evaluate their investments.
Notes on Powershares Cleantech:The PowerShares Cleantech Portfolio (Fund) is based on the Cleantech Index™ (Index). The Fund will normally invest at least 90% of its total assets in securities that comprise the Index and ADRs based on the stocks in the Index.
PHO started in 2007 – only 3 yr performance comparison available
Water is very much a localized resource, unlike electricity or natural gas that can be widely distributed, so local waterprovision is one of the world’s few true natural monopolies. Their business is simple – to provide anuninterrupted supply of clean water and dependable wastewater services to an ever-growing andnever-satiated demographic. But this rather dull business model, plus the fact that water has no economicsubstitute, has created an enduring industry that is unequaled in long-term performance and relativelyunaffected by cyclical market conditions. (Taken from Summit Global water case study)
Impact of shorting on SRI: On the positive side, shorting is a way for responsible investors to profit from their insight into the materiality of ESG risks rather than just divesting a stock and preventing capital loss. (Taken from BC IRI handbook.)Basically, SRI investors can short companies that they think are not prepared to handle rigors of ESG-screening and go long on those that are higher ranked according to ESG criteria.
Participation is limited to private equity and venture capital investors that have made at least one clean technology investment in Europe or North America over the past seven years.Formerly known as the European Clean Energy Venture Returns Analysis (ECEVRA), ICTRA presents a comprehensive and robust insight into returns being achieved internationally on clean energy and green technology investments. Gathered from all stages of private equity investments across Europe and North America, the analysis delivers aggregate return metrics at the investment level rather than the fund level.
Energy conservation is the central factor that benefits investment returns: - Lowers operating costs - Improves net operating margins - Raises valuations = higher returns from operations and price appreciationREITs offer some targeted opportunities for investors to look at certain trusts that emphasize green buildings, energy efficiency, etc.MBS as fixed-income vehicles: burden lies with investors to examine MBS envelopes for holdings, e.g. are pools of mortgages tied to community (re)development, affordable housing, new ‘green’ construction, etc.CalPERS and CalSTRS have goals to reduce energy consumption in their RE holdings by 20% over 5 years.
This simple table shows that relatively small investments (low-cost strategy) are proven to result in increased returns and lower risks associated with exposure (financial, physical and policy risks).
Responsible investment in commodities remains more an idea to be explored than a developed practice.
Negative screening offers the potential to remove from investmentportfolios stocks that destroy long-term value through externalities, createheightened risk exposure because of social and/or environmental changes, orviolate an investor’s moral principles.Positive screens are used to emphasize those industries that responsibleinvestors believe are contributing solutions to ESG problems. Because ESGissues impact the long-term sustainability of companies and industries, positivescreens can act as a proxy for sound, long-term management practices in acompany.Henderson Global Investors Global Care Growth FundPerformance-based or “best-in-sector” screens are similar to positive screens,but rather than focusing on industry sectors, an external performance indicatoris used to identify companies that qualify as investable. For example, a company may be within thisinvestable universe if its level of carbon reductions puts it in the top 10 percentof its industry, or if its carbon emissions are below a particular percentage overa given time.