This document summarizes a presentation on progressive investing and sustainable impact investing. It discusses the size of the sustainable and responsible investing market and various terminology used. It also reviews academic literature that examines the links between environmental, social and governance factors and investment performance. Several sustainable investing fund performances are shown compared to benchmarks. The document concludes by examining various asset classes and vehicles for sustainable investing.
What is socially responsible investment?dean771100
Socially responsible investing (SRI) considers environmental, social and governance factors when selecting investments, with the goal of generating financial returns while also creating positive social change. SRI has been practiced for over 30 years and works by investing in companies that positively impact society and the environment in addition to financial performance. Determining what qualifies as socially responsible can vary between individual investors and requires research into how investment managers incorporate ESG factors.
New esg disclosure burden for midsize small cap companiesdean771100
New ESG Disclosure Burden for Midsize Small-Cap Companies
Capital markets have grown increasingly complex and globalized over the years, leading to increased complexity of risk management. This has led to a growing need for enhanced disclosure by companies in order to provide investors with information that enables them to understand risks related, among other things, to environmental, social and governance factors (ESG). These new ESG disclosure obligations will carry additional burden for midsize and small-cap businesses that may lack the required resources to adequately address all of these concerns. The new ESG disclosure obligations are primarily designed to help investors better understand risks related to environmental, social and governance factors. Midsize and small-cap firms usually have a more limited budget for disclosures as compared with larger companies which can devote more resources towards this area. The new regulations could impose substantial burdens on smaller firms.
What is an ESG Audit?
Environmental, social and governance (ESG) risks are inevitable for every business. But how these issues are collected, managed and reported are what will make the difference between a company that is prepared or not.
Balanced Rock Investment Advisors educational presentation on alternative investment strategies that reflect personal values.
Presented @ Brookline Library - 10.15.2015
These slides discusses on the environmental, social and governance (ESG) factors for responsible investment. It briefly covers the ongoing crisis our world economy is dealing with today, which adversely affects business owners and investors alike.
The document discusses responsible investing (RI), which considers environmental, social and governance factors in investment decisions. It provides background on stockholders and their objectives to generate returns. RI aims to achieve social or ethical objectives in addition to financial returns. The document outlines the history and typical processes of RI funds, including commonly used screens to identify companies aligned with environmental and social values. It also discusses indices used to measure RI performance and findings that RI funds do not typically outperform or underperform conventional funds.
What is the global reporting initiative?dean771100
What is the Global Reporting Initiative?
The GRI is a global standard for sustainability reporting designed by organizations and investors to measure business performance. The GRI has been adopted as a requirement by leading institutional investors, government regulators and development organizations around the world. It sets out a universal framework for sustainability reporting based on the shared understanding that such information can provide new insights into how companies operate and their contribution to sustainable development.
What is socially responsible investment?dean771100
Socially responsible investing (SRI) considers environmental, social and governance factors when selecting investments, with the goal of generating financial returns while also creating positive social change. SRI has been practiced for over 30 years and works by investing in companies that positively impact society and the environment in addition to financial performance. Determining what qualifies as socially responsible can vary between individual investors and requires research into how investment managers incorporate ESG factors.
New esg disclosure burden for midsize small cap companiesdean771100
New ESG Disclosure Burden for Midsize Small-Cap Companies
Capital markets have grown increasingly complex and globalized over the years, leading to increased complexity of risk management. This has led to a growing need for enhanced disclosure by companies in order to provide investors with information that enables them to understand risks related, among other things, to environmental, social and governance factors (ESG). These new ESG disclosure obligations will carry additional burden for midsize and small-cap businesses that may lack the required resources to adequately address all of these concerns. The new ESG disclosure obligations are primarily designed to help investors better understand risks related to environmental, social and governance factors. Midsize and small-cap firms usually have a more limited budget for disclosures as compared with larger companies which can devote more resources towards this area. The new regulations could impose substantial burdens on smaller firms.
What is an ESG Audit?
Environmental, social and governance (ESG) risks are inevitable for every business. But how these issues are collected, managed and reported are what will make the difference between a company that is prepared or not.
Balanced Rock Investment Advisors educational presentation on alternative investment strategies that reflect personal values.
Presented @ Brookline Library - 10.15.2015
These slides discusses on the environmental, social and governance (ESG) factors for responsible investment. It briefly covers the ongoing crisis our world economy is dealing with today, which adversely affects business owners and investors alike.
The document discusses responsible investing (RI), which considers environmental, social and governance factors in investment decisions. It provides background on stockholders and their objectives to generate returns. RI aims to achieve social or ethical objectives in addition to financial returns. The document outlines the history and typical processes of RI funds, including commonly used screens to identify companies aligned with environmental and social values. It also discusses indices used to measure RI performance and findings that RI funds do not typically outperform or underperform conventional funds.
What is the global reporting initiative?dean771100
What is the Global Reporting Initiative?
The GRI is a global standard for sustainability reporting designed by organizations and investors to measure business performance. The GRI has been adopted as a requirement by leading institutional investors, government regulators and development organizations around the world. It sets out a universal framework for sustainability reporting based on the shared understanding that such information can provide new insights into how companies operate and their contribution to sustainable development.
ESG investing leads to sustainability and ethical business practices but does ESG investing work when you want to make money? While this way to invest is a positive social force, does ESG investing work to increase your investment assets? Or is it a way to give to charitable causes while being disguised as a way to invest? Will you make money investing this way or would you do better simply giving your money to a cause that you support?
https://youtu.be/YXdOIB5uV_8
The document discusses Environmental, Social, and Governance (ESG) criteria. Over the past five years, the financial industry has adopted ESG as the standard terminology to evaluate extra-financial data that investors increasingly consider during comprehensive investment reviews. ESG criteria codify what companies disclose across environmental, social, and governance issues. Socially Responsible Investing (SRI) refers to how investors analyze companies based on their ESG disclosures and Corporate Social Responsibility (CSR) practices.
An introduction to ESG (Environmental, Social and Governance) Investing from Artifex Financial Group, a leader in ESG portfolio research and management.
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
Socially responsible investing (SRI) considers environmental and social factors when investing. SRI uses screening to invest more in companies with positive records and less in those with negatives ones. It also uses shareholder advocacy like proxy voting to encourage companies to improve. SRI has grown significantly over the past few decades and now manages over $2 trillion in assets, influenced by events like apartheid and corporate scandals.
The document describes the CedarGlobalEquities ESG ETF, which aims to outperform peers through businesses that address ESG factors and impact investing. It takes a unique approach based on Austrian economics, assessing companies on 7 quantitative and 7 qualitative factors including social/environmental criteria. The fund seeks dual impact of helping society/environment while achieving financial outperformance at lower risk. It incorporates ESG, SRI and impact investing into the process.
The Ultimate Active Ownership Guide (Presentation) Nawar Alsaadi
Active ownership entails an active dialogue between an investor and investee company to change corporate strategy or improve sustainability performance. The goal is to enhance and preserve investment value. Studies show that successful ESG engagements generate abnormal returns and improve board diversity and gender equality. Active ownership through engagement is an effective method to create both financial value and sustainability impact. Engagement fits within the responsible investing universe as a way to directly influence companies beyond screening or thematic investing approaches.
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
Political risk, ESG and market performance - March 2014Damian Karmelich
As the ASX releases new corporate governance guidelines with an increased focus on risk management and environmental, social and governance principles Political Monitor examines the link between ESG, political risk & market performance.
Environmental, social and governance (ESG) refers to the three main areas of concern that have developed as central factors in measuring the sustainability and ethical impact of an investment in a company or business. These areas cover a broad set of concerns increasingly included in the non-financial factors that figure in the valuation of equity, real-estate, corporate, and fixed-income investments. ESG is the catch-all term for the criteria used in what has become known as socially-responsible investing. Socially responsible investing is among several related concepts and approaches that influence and, in some cases govern, how asset managers invest portfolios.
Presentation by Vittorio Lusvarghi, chair of the Professional Accountants in Business Committee Sustainability Task Force, at the Institute of Cost Accountants of India's National Cost Convention, New Delhi, India, March 2012.
This document provides an ESG report from ADF Asset Management for the year 2020. It discusses ADF's approach to ESG integration, including establishing ESG principles and policies. The report is organized into three sections - "The Net Zero Transition", "Our People", and "Ethics and Governance Matter". For the Net Zero Transition, ADF discusses reducing carbon emissions, using sustainable materials, and preparing for the transition to a net zero economy. For Our People, ADF focuses on diversity and inclusion, employee development and health and safety. For Ethics and Governance, ADF emphasizes its commitment to strong governance, ethics and transparency.
This white paper was the culmination of a series of webinars and in-person conversations with corporate practitioners in the sustainability field. It provides the end user with an understanding of the ESG ratings and rankings field and helps prioritize engagement with the most influential organizations in the field.
Corporate Social Responsiblity, Ethics & Sustainabilitypercydeigh
This document discusses corporate social responsibility (CSR) and related topics. It provides context on why CSR has become important, noting corporate scandals, consumer cynicism, and demands for transparency. CSR is defined as considering society and stakeholder interests beyond legal obligations. The document outlines CSR's economic, social, and environmental dimensions and drivers of CSR development. It compares Western and African perspectives on CSR and the roles of governments and standards in facilitating CSR practices.
ESG Consciousness or financial performance? - Research says you can have bothSimran Jain
This research was inspired by John Mackey and Raj Sisodia's Conscious Capitalism Theory. It aims to look at 4 economy driving industries to understand the financial performance of ESG focused portfolios vs non-ESG focused portfolios.
This document provides insights on best practices for ESG engagements with companies in different asset classes. It discusses engagement strategies such as letters, phone calls, proxy voting, and shareholder proposals. It also outlines factors to consider in determining engagement approaches, such as the level of responsiveness from the company, whether issues warrant private or public strategies, and prioritizing relationships with core holdings. Examples are given of both light and heavy engagement by T. Rowe Price, and effective practices for writing engagement letters are highlighted.
Institutional investors are increasingly adopting ESG investing on a global scale. A survey of over 500 institutional investors found that more than half now fully integrate ESG into their investment approach, up from 36% in 2019. Motivations for ESG investing include obtaining better risk-adjusted returns and risk management. However, concerns around "greenwashing" where companies only pay lip service to ESG issues remain high. The lack of clear evidence linking ESG performance to financial performance also poses a barrier to greater ESG adoption.
Here is a slide deck on environmental and social governance investing. This is a long tern investment strategy that plays a large role in helping influence companies to take care of the environment around us.
Presentation from Duncan Milwain on social investment - in particular bonds.LeedsEmpties
Duncan Milwain, Head of The Charity and Social Enterprise Group at Lupton Fawcett Lee and Priestley, spoke at Leeds Empties event on investment and empty homes on 20 March 2013.
A social audit is a formal review of a company's endeavours in social responsibility. A social audit looks at factors such as a company's record of charitable giving, volunteer activity, energy use, transparency, work environment and worker pay and benefits to evaluate what kind of social and environmental impact a company is having in the locations where it operates. Social audits are optional--companies can choose whether to perform them and whether to release the results publicly or only use them internally.
Ethical investing depends on an investor's views; some may choose to eliminate certain industries entirely (such as gambling, alcohol, or firearms, also known as sin stocks) or to over-allocate to industries that meet the individual's ethical guidelines.
Ethical investing gives individuals the power to allocate capital toward companies that are in line with their personal views, whether they are based on environmental, religious or political precepts.
ESG investing leads to sustainability and ethical business practices but does ESG investing work when you want to make money? While this way to invest is a positive social force, does ESG investing work to increase your investment assets? Or is it a way to give to charitable causes while being disguised as a way to invest? Will you make money investing this way or would you do better simply giving your money to a cause that you support?
https://youtu.be/YXdOIB5uV_8
The document discusses Environmental, Social, and Governance (ESG) criteria. Over the past five years, the financial industry has adopted ESG as the standard terminology to evaluate extra-financial data that investors increasingly consider during comprehensive investment reviews. ESG criteria codify what companies disclose across environmental, social, and governance issues. Socially Responsible Investing (SRI) refers to how investors analyze companies based on their ESG disclosures and Corporate Social Responsibility (CSR) practices.
An introduction to ESG (Environmental, Social and Governance) Investing from Artifex Financial Group, a leader in ESG portfolio research and management.
ESG Engagement Insights, a presentation by Nawar Alsaadi of best engagement practices of 30 asset managers, owners, pension funds, and non-profits around the world. (The work is derived from BlackRock & Ceres’ paper entitled Engagement in the 21st Century).
Socially responsible investing (SRI) considers environmental and social factors when investing. SRI uses screening to invest more in companies with positive records and less in those with negatives ones. It also uses shareholder advocacy like proxy voting to encourage companies to improve. SRI has grown significantly over the past few decades and now manages over $2 trillion in assets, influenced by events like apartheid and corporate scandals.
The document describes the CedarGlobalEquities ESG ETF, which aims to outperform peers through businesses that address ESG factors and impact investing. It takes a unique approach based on Austrian economics, assessing companies on 7 quantitative and 7 qualitative factors including social/environmental criteria. The fund seeks dual impact of helping society/environment while achieving financial outperformance at lower risk. It incorporates ESG, SRI and impact investing into the process.
The Ultimate Active Ownership Guide (Presentation) Nawar Alsaadi
Active ownership entails an active dialogue between an investor and investee company to change corporate strategy or improve sustainability performance. The goal is to enhance and preserve investment value. Studies show that successful ESG engagements generate abnormal returns and improve board diversity and gender equality. Active ownership through engagement is an effective method to create both financial value and sustainability impact. Engagement fits within the responsible investing universe as a way to directly influence companies beyond screening or thematic investing approaches.
This Research Spotlight provides a summary of the academic literature on environmental, social, and governance (ESG) activities including:
• The relation between ESG activities and firm value
• The impact of environmental and social engagements on firm performance
• The market reaction to ESG events
• The relation between ESG and agency problems
• The performance of socially responsible investment (SRI) funds
This Research Spotlight expands upon issues introduced in the Quick Guide “Investors and Activism”.
Political risk, ESG and market performance - March 2014Damian Karmelich
As the ASX releases new corporate governance guidelines with an increased focus on risk management and environmental, social and governance principles Political Monitor examines the link between ESG, political risk & market performance.
Environmental, social and governance (ESG) refers to the three main areas of concern that have developed as central factors in measuring the sustainability and ethical impact of an investment in a company or business. These areas cover a broad set of concerns increasingly included in the non-financial factors that figure in the valuation of equity, real-estate, corporate, and fixed-income investments. ESG is the catch-all term for the criteria used in what has become known as socially-responsible investing. Socially responsible investing is among several related concepts and approaches that influence and, in some cases govern, how asset managers invest portfolios.
Presentation by Vittorio Lusvarghi, chair of the Professional Accountants in Business Committee Sustainability Task Force, at the Institute of Cost Accountants of India's National Cost Convention, New Delhi, India, March 2012.
This document provides an ESG report from ADF Asset Management for the year 2020. It discusses ADF's approach to ESG integration, including establishing ESG principles and policies. The report is organized into three sections - "The Net Zero Transition", "Our People", and "Ethics and Governance Matter". For the Net Zero Transition, ADF discusses reducing carbon emissions, using sustainable materials, and preparing for the transition to a net zero economy. For Our People, ADF focuses on diversity and inclusion, employee development and health and safety. For Ethics and Governance, ADF emphasizes its commitment to strong governance, ethics and transparency.
This white paper was the culmination of a series of webinars and in-person conversations with corporate practitioners in the sustainability field. It provides the end user with an understanding of the ESG ratings and rankings field and helps prioritize engagement with the most influential organizations in the field.
Corporate Social Responsiblity, Ethics & Sustainabilitypercydeigh
This document discusses corporate social responsibility (CSR) and related topics. It provides context on why CSR has become important, noting corporate scandals, consumer cynicism, and demands for transparency. CSR is defined as considering society and stakeholder interests beyond legal obligations. The document outlines CSR's economic, social, and environmental dimensions and drivers of CSR development. It compares Western and African perspectives on CSR and the roles of governments and standards in facilitating CSR practices.
ESG Consciousness or financial performance? - Research says you can have bothSimran Jain
This research was inspired by John Mackey and Raj Sisodia's Conscious Capitalism Theory. It aims to look at 4 economy driving industries to understand the financial performance of ESG focused portfolios vs non-ESG focused portfolios.
This document provides insights on best practices for ESG engagements with companies in different asset classes. It discusses engagement strategies such as letters, phone calls, proxy voting, and shareholder proposals. It also outlines factors to consider in determining engagement approaches, such as the level of responsiveness from the company, whether issues warrant private or public strategies, and prioritizing relationships with core holdings. Examples are given of both light and heavy engagement by T. Rowe Price, and effective practices for writing engagement letters are highlighted.
Institutional investors are increasingly adopting ESG investing on a global scale. A survey of over 500 institutional investors found that more than half now fully integrate ESG into their investment approach, up from 36% in 2019. Motivations for ESG investing include obtaining better risk-adjusted returns and risk management. However, concerns around "greenwashing" where companies only pay lip service to ESG issues remain high. The lack of clear evidence linking ESG performance to financial performance also poses a barrier to greater ESG adoption.
Here is a slide deck on environmental and social governance investing. This is a long tern investment strategy that plays a large role in helping influence companies to take care of the environment around us.
Presentation from Duncan Milwain on social investment - in particular bonds.LeedsEmpties
Duncan Milwain, Head of The Charity and Social Enterprise Group at Lupton Fawcett Lee and Priestley, spoke at Leeds Empties event on investment and empty homes on 20 March 2013.
A social audit is a formal review of a company's endeavours in social responsibility. A social audit looks at factors such as a company's record of charitable giving, volunteer activity, energy use, transparency, work environment and worker pay and benefits to evaluate what kind of social and environmental impact a company is having in the locations where it operates. Social audits are optional--companies can choose whether to perform them and whether to release the results publicly or only use them internally.
Ethical investing depends on an investor's views; some may choose to eliminate certain industries entirely (such as gambling, alcohol, or firearms, also known as sin stocks) or to over-allocate to industries that meet the individual's ethical guidelines.
Ethical investing gives individuals the power to allocate capital toward companies that are in line with their personal views, whether they are based on environmental, religious or political precepts.
This document discusses ethical investment. It defines ethical investment as strategies that seek both financial returns and social good by either avoiding companies in controversial sectors or targeting companies making a positive environmental/social impact. It provides tips for investing ethically, such as avoiding investments that cause harm and choosing ones that benefit society. The document also notes that public concern over issues like climate change has increased demand for ethical funds and evaluates Egypt as one of the worst emerging markets for ethical investment.
Princeton ethics in finance 2013 session 6 -- ethics of investingasoni98
The document summarizes information presented on ethics in financial markets. It includes:
1) A discussion of modern portfolio theory and forms of ethical investing such as socially responsible investing and impact investing.
2) Analysis of risk and return characteristics of different asset classes as well as how diversification affects portfolio risk.
3) Examination of traditional and non-traditional investment benchmarks and metrics used to evaluate the performance of investments like mutual funds, hedge funds, and impact investments relative to their benchmarks.
Social Investment Indonesia_Program Evaluation & MeasurementFajar Kurniawan
1. The document discusses methods for monitoring, evaluating, and measuring social investment programs, including social impact assessment, monitoring and evaluation methods, and social return on investment (SROI).
2. It provides an overview of typical issues assessed in social impact assessments and outlines steps for conducting SROI analyses, including identifying stakeholders, mapping outcomes, valuing outcomes, establishing impact, and calculating SROI ratios.
3. An example is given of conducting an SROI analysis for a training program for rubber farmers, identifying outcomes, valuing outcomes, establishing wider impacts on community welfare, and calculating SROI ratios.
01. sii strategic social investment bali_231013Fajar Kurniawan
Alur pelatihan investasi sosial mencakup konsep dan proposisi keberhasilan, pemahaman investasi sosial, kerangka pengukuran dampak, studi lapangan dan kerja kelompok, serta pengenalan alat pengukuran dampak. Topik utama meliputi konsep investasi sosial, tujuan dan manfaat bagi perusahaan maupun komunitas, serta pentingnya mengukur dampak program.
Social Investment Indonesia_Social Investment PlanningFajar Kurniawan
Ringkasan dokumen tersebut adalah:
1. Dokumen tersebut membahas perencanaan program investasi sosial yang strategis, termasuk pertimbangan, pemilihan fokus, perencanaan program, dan model pengelolaan program.
2. Beberapa pertimbangan yang dibahas adalah kaitan dengan bisnis perusahaan, isu pemangku kepentingan, persepsi mereka, prioritas komunitas, dan ketersediaan mitra.
3. Pemilihan fokus membahas bidang yang m
Social Investment Indonesia_Social Investment ConceptFajar Kurniawan
1. Dokumen tersebut membahas prinsip-prinsip pelaksanaan investasi sosial yang strategis oleh perusahaan, termasuk perumusan strategi, penyelarasan, kemitraan, dan keberlanjutan.
01. Social Investment Indonesia_Social Investment ConceptFajar Kurniawan
1. Dokumen tersebut membahas prinsip-prinsip pelaksanaan investasi sosial yang strategis oleh perusahaan, termasuk perumusan strategi, penyelarasan, kemitraan, dan keberlanjutan.
SA Finance Association Conference 2015: Investor Governance Revisited 160115Colin Habberton
This presentation is a summary of the purpose, process and findings of a pilot study into the decision-making dynamics of institutional investors in South Africa.
Putting “Impact” at the Center of Impact Investing: A Case Study of How Green...The Rockefeller Foundation
More than ever before, investors are looking to put their money where their values are. As a result, impact investing has burgeoned into an over $100 billion industry in just over ten years. But how do impact investors know whether their money is truly having a positive impact on people and
the planet? How can these investors better manage their results, and use material data – both positive and negative – about social and environmental performance to maximize their impact?
This case study documents the journey of one organization, Green Canopy Homes – and its financing arm, Green Canopy Capital – toward more systematically thinking about, measuring, and managing its impact. While developing the impact thesis for its resource-efficient homes, Green Canopy applied a theory of change tool, an approach common within the social sector, to systematically map the causal pathways between its strategies and intended impact. Its rationale for adopting this approach was simple: use it to maximize impact, and understand and minimize possible harm. The tool also effectively positioned Green Canopy to measure and communicate about its social and environmental performance, and to make client-centric adaptations to its business.
The case study provides an illuminating example of how investors can adapt theory of change to serve their impact management needs. By demonstrating the relevance and transferability of this tool for articulating, measuring, and managing impact, the hope is that this case study can contribute to strengthening other investors’ approaches, in turn contributing to building the evidence base for the “impact” of impact investments.
Leverage Investment to Create Real ImpactHenry Qin
The document discusses impact investing in the US, Hong Kong, and China. It finds that while impact investing is more developed in the US, it is still emerging in Hong Kong and China. It analyzes the impact investing ecosystem and market in the US, provides a case study of an impact investing firm, and interviews the firm's chairman. It then provides recommendations to develop impact investing in Hong Kong and China, including removing regulatory barriers, increasing government program effectiveness, providing private investment incentives, encouraging impact organizations, and standardizing measurements.
The impact of corporate social responsibility on investment recommendationslucahearth
This document discusses a study that investigates how corporate social responsibility (CSR) strategies impact security analysts' investment recommendations. The study finds that analysts issue more favorable recommendations for socially responsible firms now compared to earlier periods, indicating a changing view of CSR's value. Additionally, firms with greater visibility and analysts with more experience, CSR awareness or resources are more likely to view CSR strategies positively in their recommendations. In summary, the document examines how CSR can influence value creation in public markets through influencing analysts' recommendations.
The international context for impact measurement in impact investing is growing. Impact investment aims to generate both social/environmental impact and financial returns. Effective impact measurement is critical for the success of impact investing by providing a consistent approach for comparing investments and identifying the most impactful interventions. This report explores impact measurement frameworks from the perspectives of investors and investees. It analyzes nine existing approaches against characteristics like being cost-effective, well-recognized, clear and easily implementable. The goal is to advance the discussion on developing a shared impact measurement approach to further unlock private capital for public good.
Sustainable Reality: Understanding the Performance of Sustainable Investment ...Sustainable Brands
This document discusses a study on the performance of sustainable investment strategies compared to traditional investments. Some key findings:
- Sustainable equity mutual funds and SMAs had equal or higher median returns than traditional funds/SMAs for 64% of periods examined over 7 years. They also had equal or lower volatility for 64-72% of periods.
- One index of firms with high ESG ratings outperformed the S&P 500 by 45 basis points annually since 1990.
- Studies show corporate sustainability practices are linked to lower costs of capital, higher stock price performance, and improved operational performance. Firms scoring highly on ESG criteria tend to outperform over the long run.
- Manager selection is
Sustainable Reality: Understanding the Performance of Sustainable Investment ...Sustainable Brands
This document discusses a study on the performance of sustainable investment strategies. The key findings are:
- Sustainable equity funds and separately managed accounts had equal or higher returns and equal or lower risk than traditional peers for the majority of periods examined over the last 7 years.
- Research shows corporate investment in sustainability is positively related to stock price and operational performance.
- An index comprising firms with high environmental, social and governance scores outperformed the S&P 500 by 45 basis points annually since 1990.
- Manager selection is important for both sustainable and traditional investments, as there is high dispersion of returns across strategies.
This document discusses a study on the performance of sustainable investment strategies. Some key findings of the study include:
- Sustainable equity mutual funds and separately managed accounts had equal or higher returns and equal or lower risk than traditional peers for the majority of periods examined over the last 7 years.
- Existing research shows a positive relationship between corporate sustainability practices and stock price/operational performance.
- A sustainability-focused index outperformed the S&P 500 by 45 basis points annually since its inception in 1990.
- Manager selection is important for both sustainable and traditional strategies, as returns and risk vary significantly across funds.
This presentation is a short overview of the fundamental concepts of responsible property investing. Responsible Property Investing is expanding to include metrics that provide investors guidance on how to measure social responsibility within their portfolios and to compare social responsibility between different property portfolios.
This document provides an outline for a presentation on the impact of corporate social responsibility (CSR) on financial performance, with intellectual capital as a mediating factor. The presentation covers background on CSR and the debate around its impact on firm performance. It reviews literature showing both positive and contradictory relationships between CSR and performance. The presentation aims to establish a multidimensional relationship between CSR, intellectual capital, and financial performance in Pakistani firms. It outlines variables, hypotheses, and methodology involving a quantitative study of listed manufacturing firms.
Corporate Social Responsibility and Profitability in the Banking Sector: The ...Dr. Amarjeet Singh
In this article, we explore the relationship between corporate social responsibility and profitability with particular reference to Ethiopian financial industry. In line with this, the paper investigated the practice of corporate social responsibility and its impact on profitability in two private banks in Ethiopia. The study used two sampling phases. The first one is to sample out the two banks among the sixteen private banks operated in the country and the second phase is to select number of respondents within the selected banks. According to National Bank of Ethiopia, (NBE, 2020) annual report among the sixteen private commercial banks operated in the country, six of them were operated in the industry for more than 20 years and two banks namely Dashen and United banks were randomly selected for the study. The study used questionnaires as an instrument for data collection and the Cronbach alpha test was used to test the reliability of the instrument. Correlation analysis was carried out to identify the nature of strength and direction of the relationship between the independent variables (philanthropic, ethical, legal and economic responsibilities) and the dependent variables (profitability), regression analysis was also employed to determine the degree in which the dependent variable can be predicated or explained from the independent variables. The finding reveals that ethical, philanthropic, legal and economic responsibilities of CSR dimension have a positive and significant impact on profitability of the banks. Furthermore, the overall finding of the study suggested that CSR practice of banks has a significant impact on the level of their profitability. The study recommends that banks should improve their efforts exerted towards their CSR practice in order to enhance their profitability.
Impact Investing the Performance Realities WhitepaperPhil Zimmerman
Impact investing aims to generate both financial returns and positive social or environmental impact. While impact investing was once thought to require sacrificing returns, advances in impact data and portfolio construction now allow investors to pursue impact goals without compromising risk and return. More investors are demanding impact strategies, driving growth in impact funds and improved reporting from companies. Impact investing now spans asset classes and issues through strategies like ESG integration and positive screening rather than just negative screening.
Investissement responsable : la création de valeur à partir des enjeux enviro...PwC France
PwC s'est entretenu avec 17 sociétés de capital-investissement, dont six figurent parmi les dix plus grandes sociétés mondiales de capital-investissement, 11 parmi les 50 plus grandes, et six parmi les sociétés de taille intermédiaire. 10 sociétés ont leur siège social en Europe et sept aux États-Unis. Sept des groupes sont signataires des Principes pour L'investissement Responsable de l'ONU. L'étude relève qu'un examen du processus de conformité pour les membres signataires des PRI était déjà en cours. Il est possible qu'à l'avenir une communication obligatoire soit exigée des signataires.
Retrouvez toutes nos publications : http://www.pwc.fr/publications
The document is a primer for the 2014 Impact Capitalism Summit. It discusses how impact investing portfolios can outperform traditional investing by incorporating environmental, social and governance factors that are knowable but often ignored. It provides evidence that portfolios focused on high-impact companies can achieve lower risk and higher returns than benchmarks. The primer includes articles making the case for impact investing across different asset classes as part of a responsible investment strategy. It also profiles the summit organizers, Watershed Capital Group, and their experience assisting companies with sustainability solutions.
There is growing evidence that suggests that Environmental, Social and corporate Governance (ESG) factors, when integrated into investment analysis and decision making, it may offer investors potential long–term performance advantages. The number of companies disclosing information on their environmental, social and governance performance has grown very significantly in recent years. For large multinational companies, disclosure of ESG information has become a mainstream phenomenon It has become shorthand for investment methodologies that embrace ESG sustainable factors as a means of helping to identify companies with superior business models. ESG factors offer portfolio managers added insight into quality of a company’s management, culture, risk portfolio and other characteristics. By taking advantage of the increased level of scrutiny associated with ESG analysis, managers’ portfolios seek to identify companies based on performance indicators like
• Whether that company exhibits leadership in their industries.
• Whether that company is better managed and more forward thinking.
• Whether that company is better at anticipating and mitigating risk, meet positive standards of corporate responsibility.
• Whether that company is focused on the long term.
The applications of Sustainable Accounting, Reporting and Standardizations have taken a slow pace. The process began during early 1970s when it focused on social responsibility. During mid-late 1970s, it was shifted to employees and unions. 1980s saw explicit pursuit of economic goals with a thin veneer community concern and redefinition of employee rights as the major theme. In the 1990s attention shifted to environmental concern. Slowly, ‘environment reporting’, ‘triple bottom line reporting’, ‘sustainability reporting’ came into light.
This document summarizes a study that examines the impact of implementing social responsibility and disclosing social responsibility reports on capital costs for listed Chinese companies. The study uses quantile regression and ordinary least squares regression to analyze 227 listed companies rated by an ESG rating agency in 2019. The key findings are:
1) Implementing social responsibility had no significant overall impact on capital costs, but disclosing social responsibility reports was found to help reduce capital costs.
2) For companies with medium capital costs, better social responsibility performance was linked to higher capital costs, but performance had no significant impact for those with low or high costs.
3) Disclosing social responsibility reports effectively reduced capital costs, and the effect was more significant for companies
Barclays ESG_Brochure_US_18_small Sustainable Investing and bond returns NOV ...Andrew Bellak
1) The document presents the findings of a study by Barclays Research into the relationship between environmental, social, and governance (ESG) factors and corporate bond portfolio performance.
2) The study found that applying a positive tilt to ESG factors resulted in a small but steady performance advantage for corporate bond portfolios, with no evidence of negative performance impact. The positive effect was strongest for governance factors.
3) The study contributes new evidence that ESG investing need not negatively impact bondholder returns and can be successfully applied to credit markets in addition to equity markets.
Istanbul Stock Exchange Sustainability index project: what institutional inve...Graham Sinclair
Presentation to Istanbul Finance Summit covering SinCo perspective on what institutional investors want and the role of the ISE Sustainability Index project ISESI.
The document presents Climate Neutral Investments Ltd., a company that provides a climate neutral investing approach. It discusses socially responsible investing and outlines Climate Neutral's concept of researching portfolio carbon emissions and offsetting them through purchasing carbon credits from certified emission reduction projects. The company aims to neutralize the greenhouse gas emissions of investment portfolios while achieving traditional financial returns and positive social and environmental impacts.
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Socially Responsible Investing Keynote
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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Editor's Notes
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.