Transparency

Fukushima Accident Dims Prospects for a Nuclear Revival

The ongoing Fukushima disaster is a major setback for the nuclear power industry. A much-anticipated “nuclear renaissance” will be slowed and likely curtailed, as happened after the Three Mile Island and Chernobyl accidents . Increased regulatory scrutiny and safety precautions will add to the rising costs of this industry, which is already losing ground to cost-competitive alternatives, like natural gas, renewables and investments in energy efficiency.

Government subsidies will be essential for continued nuclear power expansion. Government support is needed to: defray the high capital costs of building nuclear reactors, decommissioning them, permanently disposing of spent fuel, and indemnifying plant operators from potentially huge insurance liabilities. Growing public recognition of these “hidden” costs may further limit nuclear power expansion.

Nuclear power will remain a part of the global energy mix. It provides nearly 15 percent of global electricity needs. It is promoted as a carbon-free power source that fights climate change. Its use may grow in nations with limited energy resources, policies to cap carbon emissions, and where public opinion continues to view nuclear power as a comparatively safe and affordable form of electricity. However, even pro-nuclear nations are reassessing their policies in light of the latest nuclear accident at Fukushima.

For more information, please contact us.

Investment Implications

New safety reviews will add to rising construction and operating costs of nuclear power plants. Added regulatory and investor scrutiny will increase costs in the following areas:

• Disaster planning and backup power
• Evacuation zones and community preparedness
• Storage and protection of spent nuclear fuel
• Plant financing and capital costs
• Insurance indemnification

MSCI ESG Research is factoring these cost considerations into its ongoing research of nuclear-generating electric utilities. Financial effects will vary by company and region. Electric utilities operating in countries with centrally planned generating systems, and which continue to receive substantial government support for nuclear power, will likely continue with their nuclear power expansion plans, albeit at a more tempered pace. Utilities operating in countries with more independent and decentralized regulatory systems, and which have reactors in areas of high seismic activity or in proximity to large population centers, are more vulnerable, and are likely to see a contraction of nuclear plant licensing extensions and new reactor orders.

MSCI ESG Research on Nuclear Power and Product Offerings

We take an in-depth and multi-faceted approach to companies involved in nuclear power. Our research addresses an array of client needs in portfolio screening, identification of controversies, and ESG ratings and profiles.

• ESG Manager: We track all publicly traded companies that manufacture or operate nuclear power plants so that concerned investors can screen these companies from their portfolios.
• Global Compact+: We alert investors to event risks at nuclear plants, including safety issues, questionable or unethical management practices, and regulatory decisions that invite controversy or reduce investor confidence in nuclear utilities.
• Intangible Value Assessment ratings and profiles: We assess risk exposure and management performance of nuclear plant operators in sector comparisons with other electric utility providers.

Continue reading Fukushima Accident Dims Prospects for a Nuclear Revival

Implications of the Japanese Nuclear Disaster: An ESG Research Perspective

The ongoing nuclear power crisis in Japan will have lasting implications for power generation around the globe. A much-anticipated “nuclear renaissance” could be curtailed as the world absorbs lessons from the worst nuclear accident since the Chernobyl disaster 25 years ago.

The United States, with 104 operating reactors, and Europe, with 143 reactors in 27 countries, now plan extensive reviews of their nuclear plants and disaster preparedness. China, with 11 operating reactors, has also suspended approval of more than two dozen new reactors.

This may give a boost to competing low-carbon generating sources, such as natural gas and renewable energy. MSCI’s Global Alternative Energy Index recorded a 10.1 percent gain in the first 10 days after Japan’s nuclear crisis began. This compares with a 22.8 percent loss for the MSCI Japan Electric Utilities Index over the same period. Coal may also get a short-term lift, since nuclear power is its chief rival in providing base-load power generation.

Source:  MSCI Sector and Thematic Indices

Continue reading Implications of the Japanese Nuclear Disaster: An ESG Research Perspective

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.

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

'Corporate Environmental Management and Credit Risk': Moskowitz Prize Study Finds ESG Impact on Debt Costs

Each year, the winner of the Moskowitz Prize for scholarly research of socially responsible investing (SRI) is announced at the “SRI in the Rockies” conference. The 2010 Prize winner is “Corporate Environmental Management and Credit Risk,” by Rob Bauer and Daniel Hann. Their study found that companies with strong environmental records consistently pay lower costs for debt, while firms with weaker records face higher costs of financing and lower credit ratings.

SRI strategies have typically been focused on equity investing, but some believe that environmental, social and governance (ESG) metrics could help investors evaluate credit risk and quality. (See this Dec. 1 article from Citywire of the UK, and these 2009 comments from Ran Fuchs of MSCI.) The Bauer/Hann study appears to confirm the utility of ESG research for fixed-income investment.

Co-authors Bauer (former head of research at Dutch pension fund ABP) and Hann (a PhD candidate at Maastricht University) studied the environmental practices of 582 US firms between 1995 and 2006. Their performance data was drawn from the database of KLD, which is now part of MSCI ESG Research. Along with finding that a company’s environmental performance is associated with its cost of credit, Bauer and Hann also found that this association has grown stronger in recent years – a trend they expect to continue.

Continue reading 'Corporate Environmental Management and Credit Risk': Moskowitz Prize Study Finds ESG Impact on Debt Costs

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:
 

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

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.”

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

China Revises State Secrets Law: State Asks Internet and Phone Firms for More Complicity in Censorship

On October 1, a revised version of China’s State Secrets Law went into effect.  Although little reported in the West, the revised law has serious implications for information and communications technology companies operating in China.  The update includes an article holding network operators and internet service providers (ISPs) responsible for censoring content and turning violators over to authorities.

China’s definition of “state secrets” continues to encompass citizens’ reporting of government corruption, malfeasance, and labor and environmental abuses. ISPs were already required to hand user data over to authorities if “state secrets” were involved, but now they will be expected to actively search user data for “secret” content. Perhaps in anticipation of the new rules, the Telegraph (UK) reported that state-controlled wireless provider China Mobile had begun monitoring the content of users’ text messages earlier this year.

If publicly-traded firms comply with the new law, will investors be complicit in repression? Human rights observers report that the Chinese government has repeatedly detained ordinary people who pass on “secret” information. Complicating the picture for investors is the fact that some state-controlled Chinese firms, like China Mobile, are also publicly traded.

Continue reading China Revises State Secrets Law: State Asks Internet and Phone Firms for More Complicity in Censorship

US Gov't Revising Nutritional Guidelines: Food Industry Marketing a Factor in Rising Childhood Obesity

Every five years, the federal government reviews and adjusts its dietary recommendations for Americans. The latest revisions, which will be released in December, are being developed amidst alarm over childhood obesity rates. Children in the US and other nations are heavier than ever, and public health experts are asking why.

One suspected culprit is the packaged food industry, because of the kinds of products that it markets directly to children. Recent industry initiatives, while welcome, haven’t done enough to get empty calories out of the American childhood diet.

Continue reading US Gov't Revising Nutritional Guidelines: Food Industry Marketing a Factor in Rising Childhood Obesity

'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:

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

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.]

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