Thursday, April 17, 2014

Responsible Investment Association announces conference details

The Responsible Investment Association (RIA) today announced details of the Canadian Responsible Investment Conference, to be held May 26-28 at the Hyatt Regency hotel in Toronto.

“The annual conference brings together experts and thought leaders from industry, academia, government and nonprofits to tackle the latest environmental, social and corporate governance (ESG) issues that present both challenges and opportunities for investors,” RIA said in a news release.
The conference, the flagship event of the inaugural Responsible Investment Week, will feature responsible investment presentations, panel discussions and workshops, including a plenary session on fossil fuels: “Carbon Constraints and Investment Strategy,” hosted by ESG academic Cary Krosinsky, as well as a workshop on climate change, led by Heather Lang of Sustainalytics.

Federal MP Chrystia Freeland will kick off the conference with a plenary session on income inequality: “The Global Super-Rich and the New Economy: Implications for Investors,” while a senior executive from Loblaw will take part in a panel discussion on safety in the supply chain.
Details on conference speakers and topics are available on the RIA website.

Monday, April 14, 2014

Green Bond Principles Governance Framework Announced

The governance framework of the recently-created Green Bond Principles was released today, with the support of 25 international financial institutions.

The voluntary guidelines will allow for diverse stakeholder input into the Principles, provide effective oversight, and support their further development, the International Capital Markets Association, which will provide administrative duties for the project, said in a release.
“The Green Bond Principles were developed with guidance from issuers, investors, and environmental groups, and serve as voluntary guidelines on recommended process for the development and issuance of Green Bonds,” ICMA said. “The Principles suggest process for designating, disclosing, managing, and reporting on the proceeds of a Green Bond. They are designed to provide issuers with guidance on the key components involved in launching a Green Bond, to aid investors by ensuring the availability of information necessary to evaluate the environmental impact of their Green Bond investments, and to assist underwriters by moving the market toward standard disclosures that facilitate transactions. “

The framework sets out the membership eligibility, which requires organizations to have issued, underwritten, or invested in Green Bonds, and admits others in the field of green finance as observers.
The 25 banks include four founders, Bank of America Merrill Lynch, Citi, Crédit Agricole CIB, and JPMorgan Chase & Co., as well as supporters BMO Financial Group and RBC Capital Markets.

“Endorsing the Green Bond Principles is RBC’s latest commitment to embedding sustainability into our core business activities,” said Sandra Odendahl, director of Corporate Sustainability at RBC, in a statement. “We have been incorporating environmental considerations into financing since we added environmental credit risk management to our lending policies in 1991. Since then, we’ve broadened and deepened our environmental programs, and have been recognized as a corporate leader in environmental sustainability. As the market for green bonds grows, RBC will continue to explore how financial products can be used to drive positive social and environmental impact.”
RBC highlighted the rapid growth of the global green bond market since the first green bond was issued in 2007. “Between 2007-2013, total green bond issuance sits at $24.2 billion, with 2013 issuance alone comprising $11.8 billion and Q1 2014 yielding record issuance of $9 billion.”

RBC also noted that the Ontario government has announced its intention to launch its first green bond in 2014 as a strategy to finance environmentally-friendly infrastructure projects. In March, TD Bank launched a $500 million green bond, the first commercial bank in Canada to offer a product dedicated to funding green initiatives.

Friday, April 11, 2014

Do we have to choose between independent and socially responsible?

Something to think about over the weekend: how can small, usually independent companies afford the costs of CSR, the costs of certifications? Yet without these assurances, how do we as investors and consumers feel comfortable with a company's commitment to social responsibility?

An article in this week's Economist (April 5th) discusses this vexing issue.

"The Kenyan horticultural industry has provoked a predictable debate. Critics say it is folly to transport flowers, fruit and vegetables halfway across the world. Defenders retort that growing roses in Kenya, where it is hot and light all year round, produces fewer carbon-dioxide emissions than growing them in dank, dark Britain or the Netherlands. Critics complain that poor Kenyans are labouring long hours to produce salads for lazy Europeans. Defenders reply that horticulture is creating jobs in parts of Kenya where they are in short supply. But the most interesting thing about the industry is the way that it is shaking up ideological certainties. The West’s demand that companies be good citizens is confounding many on the left by consolidating more power in the hands of giant agribusinesses. At the same time it is confounding many on the right: far from choking enterprise, it is encouraging firms to become more productive and innovative."

Read the whole article here.
and click here for a link to a BBC video from 2012 about smaller flower growers in Kenya.

Tuesday, April 8, 2014

Carbon-free portfolios can outperform, even in Canada: study

The returns of a carbon-free portfolio can closely mimic – even outperform – the returns of a broad market index, according to a study by Aperio Group.

Annualized returns of Aperio’s hypothetical carbon-free portfolio in Canada were 9.23% over a 13-year period between 2000 and 2013, compared with 8.38% for the S&P/TSX Composite Index.

“The hypothetical returns for Tracking Portfolios should in no way be construed to imply that divestment leads to better performance,” Aperio noted. “It shows only that over the time periods analyzed, this version of divestment just happened to play out that way.”

Aperio used a two-step process in constructing its carbon-free portfolios. In the first step, oil, gas and consumable fuels stocks are excluded. In the second step, the remaining stocks are re-weighted so that the portfolio can track the index as closely as possible.

The study found a significant tracking error of nearly 3% in Canada, reflecting the substantial exposure to carbon stocks in the country’s market. That exposure averaged 20.6% over the 13-year study period.

Aperio notes that as funds normally allocated to carbon industries are reallocated, some sectors become overweight. For example in Canada’s carbon-free portfolio, the materials sector is overweight nearly 6%, utilities 3.7%. “In other words, the investment shifted from carbon-heavy energy producers to energy consumers,” the study says. “For some investors concerned with climate change, this transfer may not be acceptable from a values perspective.”

Screening out oil and gas stocks will remain controversial, particularly in Canada, but it seems that it is historically possible to closely track broadly diversified indexes with carbon-free portfolios.