Ethical & Sustainable Investing News to Profit By!

Where do you find green bonds? New report highly critical of most ESG indexes. Though passive ESG ETFs can be attractive from an annual cost perspective, check what's in them and see if their holdings agree with your values. There's a strong argument that active management for ESG investing is best. And much more here

Transcript & Links 29 March 2019

In this edition, I'm going to cover several recent items that I believe are most important for News to Profit By listeners.

Our first story, Why ESG Is Too Nuanced for Index Investing, Frances E. Tuite, ThinkAdvisor.

The writer says, that, "Active management brings deeper analysis and nimbler choices into building socially responsible portfolios."

Frances makes some good points why active management of funds – rather than just sitting on a group of stocks indefinitely – can be preferable. Among the points are, and I quote,

1) "Active managers combine valuation, fundamental analysis and ESG factors into their stock selection. A passive or index strategy does not encompass individual stock selection; rather, stocks are added based on a positive or negative screen without regard to valuation or fundamental research."

2) "An active manager may create a select and concentrated portfolio (40 or 50 names) while passive funds may hold a large diversified portfolio (in some cases over 1,000 positions) that due to liquidity needs, out of necessity, can include stocks with low ESG ratings."

Frances says that the new Vanguard ESG U.S. Stock ETF includes Facebook and Amazon which both now have low ESG scores by some analysts. Amazon for the treatment of their workforce and Facebook for its data issues.

So, though passive ESG ETFs can be attractive from an annual cost perspective, check what's in them and see if their holdings agree with your values. Go to this podcasts' blog page at investingforthesoul.com/podcasts to find out where to get reliable sustainable and ethical fund information for where you live.

Americans at https://charts.ussif.org/mfpc/ Canadians can check out funds at https://www.riacanada.ca/ri-marketplace/investment-options/ . UK investors at http://www.yourethicalmoney.org/investments/ . For Australians and New Zealanders https://www.responsiblereturns.com.au/ .

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The second story, What Are Green Bonds and How 'Green' Is Green? By Lyubov Pronina, Bloomberg Businessweek

A quick quote reads, "Because investors face the challenge of judging whether a note is truly green, regulators are working on standards to help guard against greenwashing, or misleading claims about just how good a friend to the environment an issuer is."

Green bonds go to existing or new projects that have beneficial environmental or climate impacts. $580 billion of them were sold in 2018.

There's been a real problem of creating standards for them. For instance, how can you ascertain exactly what's green? So, now the standards are coming together.

Issuers in over 50 countries have sold green bonds and include institutions like the World Bank and the EU's European Investment Bank.

For a long time, ethical investors had difficulty in creating a fixed income or bond portfolio. Now, with the advent of green bonds ethical and sustainable fixed income investing is becoming a lot easier! Look into it if you haven't already done so and get some quality green bonds in your portfolio. To get started, one good source for green bond investing is The Climate Bonds Initiative which lists most of the green bonds out there.

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Our third item is, The Blind Spot in Corporate Sustainability Rankings: Climate Policy Leadership, by the Environmental Defense Fund.

Here's a quote that gives the gist of the study, "The authors reviewed eight rankings by evaluating the methodologies that these systems have published online and that are available to the public. They assessed whether companies' policy engagement activities were considered in the rankings, and how, if considered, they were tabulated as part of the companies' overall rankings or scores..."

And, "Most corporate sustainability rankings do little to encourage companies to engage in climate policy, as they neither recognize support for nor penalize opposition to climate policy."

The Environmental Defense Fund has done a brilliant job in analyzing which sustainability screened stock indexes only include companies who are also screened for their environmental advocacy. The reason for such screening allows investors to better determine which companies are truly on board with combating climate change. Of the eight major indexes only two were recommended. They are Corporate Knights' Global 100 and InfluenceMap. So that's who to go to if you really want to invest only in the most serious companies about climate change—but who also offer the potential of decent returns.

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My fourth item of news, is, Ethical Funds Have Never Been Cheaper As Vanguard Spurs Fee War, by Bloomberg News

Quoting the article, "The price war has come to socially conscious investing. BlackRock (BLK), Vanguard Group and Deutsche Bank's (DB) DWS Group have slashed fees for exchange traded funds that track companies performing well on environmental, social and governance criteria."

Incidentally, an insightful write up on Vanguard's new Global ESG Select Stock fund by Morningstar's great Jon Hale, Ph.D. is worthy of a read. Get the link on this podcasts page at investingforthesoul.com/podcasts.

Also, in my podcast of March 15, I mentioned how annual fund fees for ESG ETFs were now often comparable to those of conventional funds. This article goes into some depth about that.

However, I absolutely maintain that if you truly want a portfolio that reflects your deep beliefs and values, the only way to do that is to buy individual stocks. I make that simple with my 1-hour DIY Ethical-Sustainable Investing Pays Tutorial. See the link on my website investingforthesoul.com.

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A fifth news story I want to cover is, How to Evaluate Funds that Invest in Women, by Debbie Carlson, US News

Here's an interesting quote, "Because data around gender was so thin, Andrew Behar, CEO of As You Sow, a California-based nonprofit shareholder advocacy group focused on ESG, says his group worked with Equileap to compile more information about corporate gender policies, including policies like training, career development, safety at work, human rights and other issues...

His group recently created a gender-equality funds tool that analyzes mutual funds and ETFs, taking into account these different gender attributes and giving each fund a score."

There are now some good ETFs that are gender focused and I covered them in my March 15 podcast in a commentary concerning an article, Who runs the world? The global status of women in leadership.

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Now my next, sixth story is quite revealing, Large fund firms' support for combating climate change is all talk, as proxy voting record shows bottom performance, by Eric Rosenbaum, CNBC.

Here's a great quote! "A data analysis released by Ceres in early March shows that when BlackRock and Vanguard are measured on their up-or-down votes on climate change resolutions at stockholder annual meetings, they have among the worst voting records in the fund industry."

So, the voting data would appear irrefutable that the largest American fund companies don't 'walk their talk. Senior managers of some of these huge fund companies, including Blackrock's CEO, Larry Fink, have been loudly espousing their love for ESG. I hope it's just a simple case that views of the funds senior managers on ESG hadn't yet filtered down to the managers making the proxy decisions who are likely engaged with other concerns. I expect that the 2019 and 2020 proxy seasons will show much-improved results.

I suggest if you're concerned about how your fund company stacks up on ESG and climate change related stockholder voting, see the Ceres report. Again, the link is on my podcast page for this show.

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And now the seventh and final story I want to cover, is, Investors Lose a Major Justification for Holding Tobacco Stocks, by Lisa Pham, Bloomberg.

Here's an insightful quote from it, "In recent years, a flurry of European pension funds and insurers have begun divesting their holdings, putting pressure on the share prices. BAT had its worst year on record last year, slumping 50 percent, as the U.S. Food and Drug Administration toughened its stance toward the tobacco industry. Philip Morris slumped 37 percent."

Some of you might think it unsurprising that tobacco stocks are down. However, until recently most investors would've have told you that tobacco stocks are great as they've demonstrated terrific returns for decades!

Well, I've been arguing for many years now that the days were numbered for big tobacco. In July 2010, I wrote an editorial on my Investing for the Soul site, Sin or Ethical Investing: Which Pays Best? There, I said, "Over the next five to ten years I suspect that ethical stock portfolios could outperform both the sin and conventional variety." And it looks like I'll be proven right.

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So, there we have it for this podcast!

Just a reminder, to download the transcript of this podcast and get all the links and additional information mentioned here, please go to investingforthesoul.com/podcasts and look for this edition.

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 anything else investment related.

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

Come again! Bye for now!

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

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!

If any terms are unfamiliar to you, you might like to go to INVESTOPEDIA and scroll down to the very bottom to see their A-Z dictionary.

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

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.