Financial Planning

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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'Green is the New Black': New Report, Free Webcast on ESG Risk in Apparel Retail Sector

On December 2, MSCI ESG senior analyst Olga Emelianova will present “Green is the New Black,” a webinar on environmental, social and governance (ESG) issues in the global apparel retail sector. While every business faces some universal ESG issues, some concerns are especially relevant to Adidas, The Gap, and their global sector peers.

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Global Sustainability Index Fund Wins 'Gold' Mutual Fund Award: Northern Trust's Fund is Based on MSCI ESG World Index

Earlier this month, Northern Trust announced that its Global Sustainability Index Fund (NSRIX), which tracks the MSCI ESG World Index, won the highest award in the first S&P Mutual Fund Excellence Awards Program. Of the 30 “Gold” winners, the NSRIX is the only one focused on ESG, and the only one whose constituents are passively determined by tracking an index.

The MSCI ESG World Index is a market capitalization weighted index of large and mid-cap companies in developed markets - North America, Europe and Asia-Pacific. The index is comprised of companies from the MSCI World Index that rate favorably relative to their sector peers in environmental, social and governance management performance based on analysis generated by MSCI ESG proprietary research.

The MSCI ESG World Index is one of 22 MSCI ESG Indices. Click here for more information.

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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Q&A with a 'Quant': A Pro's Perspective on ESG Integration into Mathematical Modeling

In a November 2 Wall Street Journal article, reporter Carolyn Cui wrote that “math geeks and altruists are forging unlikely alliances in the quest for better investment returns.” “Quants and Do-Gooders Unite” provided recent examples of the integration of environmental, social and governance (ESG) data into mathematical modeling of possible portfolio performance.

ESG factors are conventionally understood as “qualitative” attributes of a given business, rather than as comparative data that could tell investors how that business’s stock may perform. For example, a traditional socially responsible investor (SRI) might seek to avoid holding any companies that produce military weapons. For that investor, the only numbers needed are binary; a company either passes their “no weapons” screen or not.

Over the past 20 years, SRI/ESG research firms have sought to enable more subtle and granular analysis of corporate ESG performance. MSCI ESG Research progenitors Innovest and KLD developed comprehensive frameworks to generate comparative data across a spectrum of ESG indicators, from carbon emissions to executive compensation practices. IVA, Global Socrates, and the KLD Indexes (now MSCI ESG Indices) support both qualitative and quantitative approaches to portfolio construction.

While Ms. Cui’s article highlights the novelty of “math geeks and altruists” working together, such détente isn’t without precedent. In 2005, KLD worked with Barclays Global Investors to create an exchange-traded fund based on what is now called the MSCI KLD 400 Social Index.

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Foreclosure Problems Make Investors Wary of Big US Banks: Could ESG Risk Analysis Have Given an Early Warning?

On Monday, the New York Times reported that Bank of America would resume foreclosures in 23 states where such actions had been suspended in recent weeks. The moratorium had been put in place because of concerns over both the foreclosure process and a growing concern about how, in many cases, it was unclear which entity actually held the mortgage notes for the properties in question.

Why end the moratorium now, when such questions are still outstanding? The Times’ Floyd Norris noted that B of A was scheduled to report quarterly earnings on Tuesday, and suggested that the speedy resumption of foreclosures “is likely to be greeted favorably by shareholders.”

But do investors really want to see a perfunctory halt to the review of American mortgage practices? The Financial Times reported Friday that the SEC is beginning an investigation of the mortgage mess, which would indicate that there is a lot that investors and the public still don’t know about this problem. More information and analysis of lending, servicing and securitization practices could help markets properly value bank stocks.

Towards this goal, the MSCI ESG Research team presented an October webinar entitled “A New Normal for Banks: Sustainable Finance After the Crisis.” Click here for a free replay of this webcast. 

[Click here to get access to more MSCI ESG research and analysis of the banking sector.]

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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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MSCI ESG Indices: Building on 20-year Track Record of KLD

Since the 2009 acquisition of KLD by RiskMetrics – and the subsequent 2010 sale of RMG to MSCI – we KLD alums have fielded many questions about the future of our legacy businesses.

I’m happy to report that MSCI has made a concrete commitment to the ESG index business. Below is the text from this week’s announcement introducing MSCI ESG Indices. This also includes a table of the Indices’ new names.

If you’d like to learn more about the 20-year history of the KLD index business – the first of its kind in the world – take a look here:  http://www.kld.com/about/20years/

Also see these ESG Insight articles on this topic:

Dan DiBartolomeo and Lloyd Kurtz on the KLD400 Social Index: 20 Years of ‘SRI as a Free Good’

The Impact of ESG Integration: A Roundup of Research on Risk and Returns

Passive Strategies for ESG Investing: An Overview from Index Universe

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