Engagement

Dodd-Frank Not Just About Banks: Conflict Mineral Reporting Requirements will Affect Chipmakers, Other Electronics Firms

Since its passage in July 2010, the Dodd-Frank Act has gotten a lot of attention, mostly for its sweeping new regulations affecting the financial industry. But buried in all those pages, in Section 1502 to be exact, is also a small provision aimed at addressing the problem of conflict minerals originating from the Democratic Republic of Congo (DRC). Along with requiring the US Secretary of State to develop a strategy to address the issue, Dodd-Frank requires companies under the jurisdiction of the SEC to report annually on whether they are using minerals from the DRC or its nine immediate neighbors. All companies must also report on the due diligence they have undertaken to verify their supply chain and avoid tainted metals. The SEC has until April 2011 to develop regulations to carry out this mandate.

In December 2010, MSCI ESG Research published an Industry Report on makers of semiconductors and related equipment. Along with other key ESG metrics, we looked at how the 34 firms in this space managed their supply chains. Our analysis included, in the wake of Dodd-Frank, an assessment of company efforts to keep conflict minerals out of their products. We found a wide variation in supply chain-related ESG risk exposure between leaders and laggards; click here to get access to the full report.

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Investors Seek More Disclosure by US Chamber of Commerce Members: Secrecy of Trade Groups' Political Spending at Issue

Earlier this month, a coalition of investors filed resolutions at four corporations whose members sit on the Board of the US Chamber of Commerce. The filers called for Accenture, IBM, Pepsi, and Pfizer to “review their policies and oversight of political expenditures, especially through trade associations,” according to a release by coalition member Walden Asset Management.

The Supreme Court’s January 2010 Citizens United decision explicitly permitted unlimited, anonymous political spending by private organizations, including unions and corporations. This decision has already sent waves of undisclosed money through the US political system. In the November elections, out-of-state oil companies spent millions on a California ballot proposition, while the Chamber spent almost $30 million on campaigns nationwide, according to BusinessWeek:
 

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ESG for Everyone: New SIF Trends Report Details Public Policy Drivers of SRI Growth

Earlier this month, the US Social Investment Forum (SIF) released its 2010 Report on Socially Responsible Investing Trends. The Report has been a standard reference for the American SRI market since the first was produced in 1995. (MSCI is one of two lead sponsors of the 2010 Trends Report.)

SRI has grown steadily over that period, and since 2007, its growth has accelerated dramatically. While total US assets under management grew less than 1 percent, sustainable/SRI assets expanded more than 13 percent over the past three years.

Along with other data to support this growth story, the Report also explores themes that deserve wider notice. These include the pivotal role played by institutional investors; the expansion of "positive" environmental, social and governance (ESG) integration methods; and how public policy changes are driving further ESG integration by investors – including those who aren’t explicitly “socially responsible.”

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'Our Judgments are Shaped by Facts and Experience' MSCI ESG Analyst Sharon Squillace on the Newsweek Green Rankings

The current issue of Newsweek presents the 2010 Green Rankings of the 500 largest US companies, and the 100 largest companies worldwide. This is the second annual Green Rankings, and like last year, MSCI ESG Research was a core provider of research and analysis for the project. Joel Makower at Greenbiz.com writes that the Green Rankings have “become a major metric in corporate America.” He describes how, in a recent meeting with 30 corporate sustainability officers, almost all of them knew their firms’ positions on the list.

Mr. Makower also provides some points to keep in mind as we compare one company’s ranking to another’s, and compare this year’s list to last year’s. He explains that the methodology changed somewhat since last year; that the scores are normalized so that a “100” score doesn’t indicate perfection, but rather than a firm has done comparatively better than all others; and that there is some “subjectivity” behind the analysis and rankings of each company.

Sharon Squillace, the MSCI ESG Research Analyst responsible for the Green Rankings project, offered to explain some of the thinking behind the Rankings methodology. She writes that the availability of accurate performance data by researched companies helps temper the “subjectivity” of a firm’s Green Ranking:

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Oil & Gas Firms Spend Millions on California's 'Prop 23': 80 Percent of S&P 500 Don't Disclose Political Spending

When a business faces new regulations, is shareholder capital best spent on complying with the rules, or on lobbying to overturn them? How companies answer this question will be of growing concern for investors in coming years.

On Wednesday, the Los Angeles Times reported on a shareholder campaign targeting three large oil and gas companies for their spending on an effort to overturn California’s greenhouse gas (GHG) regulations. The ballot initiative, called “Proposition 23,” would delay or prevent implementation of the 2006 Global Warming Solutions Act, known as “AB32.”

The fight over Prop 23 highlights two related issues. First, corporations’ political spending – now explicitly protected speech after the Supreme Court's 2010 Citizens United ruling – could give them more influence over laws and regulations that involve their businesses. And second, the oil and gas sector is only the first whose competitive landscape could be redrawn by GHG restrictions, such as the low-carbon fuel standards of AB32. 

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MSCI Signs on to UN Principles for Responsible Investment: In Post-Crisis World, PRI Growth Accelerates

This morning, MSCI announced that it has become a signatory to the United Nations Principles for Responsible Investment (PRI). The text of this announcement is presented below.

The global financial crisis hasn't stifled institutional interest in responsible investing. In fact, as reported by Investments & Pensions Europe, the number of PRI signatories has jumped 30% since July of 2009. The 800-plus firms signing on to the PRI include asset owners, investment managers, and service providers like MSCI. Owners and managers who are PRI signatories are responsible for more than $22 trillion of combined assets under management. 

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WSJ Takes on CSR, But Who Are They Talking About? The Problem of Agency in Parsing Punditry

On August 23, the Wall Street Journal published an editorial by Dr. Aneel Karnani that questioned the value of corporate social responsibility (CSR). His argument was directed against “pleas” and “appeals” for executives to “act voluntarily in the public interest and against shareholder interests.” He called CSR “irrelevant or ineffective,” an “illusion, potentially a dangerous one.” A reader unfamiliar with the term might surmise that CSR is actually a dangerous chemical, like DDT.

The socially responsible investing (SRI) community, as expected, took issue with Dr. Karnani’s column. Social Investment Forum (SIF) CEO Lisa Woll wrote to the Journal, countering the polemic with real-world evidence about the positive impact of corporate sustainability efforts. (With permission from SIF, Ms. Woll’s letter is printed in full at the bottom of this article.)

Besides its empirical shortcomings, Dr. Karnani’s case also betrays a methodological flaw that is both common, and instructive: While we can tell what he takes issue with, it’s never quite clear who he’s talking about. Here is the plainest statement of his thesis about corporate social responsibility:

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Answering SRI Skeptics, in Germany and Beyond: Some Research on Historical Returns, Plus New Standardized ESG Metrics

Trend stories are a staple of the news media, and two articles this past weekend explored the prospects for socially responsible investing (SRI). What’s interesting is that one story (in the Boston Globe) found that SRI’s trend line points up, while a piece in the Financial Times asked why its growth has stalled. This divergence comes because the Globe considered the US market, where SRI mutual funds have kept growing even as mainstream equity funds shed billions. The FT looked at a lagging market for SRI: Germany.

The FT reporters found “rather typical” explanations for Germans’ lack of interest in environmental, social and governance (ESG) integration. But it should be noted that the ESG community has taken concrete steps towards answering skeptics in Germany, and around the world. These steps include ongoing academic research into the performance impact of ESG integration, and an initiative to develop standardized metrics for comparative evaluation of company performance. MSCI’s ESG team has supported both of these efforts.

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Google and China Call a Truce, but Cold War over Global Internet Censorship Goes On

From WikiLeaks to the “Facebook spy,” government exposure through new media outlets has made headlines this summer. The Internet’s capacity for spreading information threatens secrecy, and thereby weakens the power of those who hold secrets, whether they’re individuals, companies, or governments.

The tense relations between China and Google, among other foreign firms, have shown how a government’s desire for secrecy and control of its citizens can conflict with its need to participate in the global information economy. In January 2010, the US-based search giant balked at Chinese government demands for Google to censor its google.cn search results. Google had in fact previously complied with such demands, but starting in March, the firm automatically redirected visitors to google.com.hk, its uncensored Hong Kong-based site.

In July, however, the two sides compromised. As reported by CNN, Google will retain its license to operate in China, and Chinese users will retain access to google.com.hk. So what grand bargain resolved what the New York Times called a “tense standoff”? Nothing more than an extra click: Chinese google.cn users must now opt to see uncensored google.com.hk results.

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More Shareholders Call for Political, Climate Risk Disclosure: A Post-Season Review of 2010 Environmental and Social Proxy Proposals

During the 2010 US proxy season, shareholder resolutions seeking enhanced disclosure on climate change and sustainability attracted greater approval than in years past. 2010 also saw increased support for proposals that ask companies to report on their political contributions. Another hopeful sign was the withdrawal of an unprecedented number of environmental and social resolutions, as more companies agreed to address such issues before they came to a vote.

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