Category: Socially Responsible Investing

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Socially Responsible Companies from Penn Olson

The enclosed article is from a writer called Nizam, who blogs for Penn Olson.  He’s described as a flamboyant Media and Communication graduate from Singapore Polytechnic. This is an interesting, growing website, with a growing list of bloggers, and an Asian flare. 

It’s always good to have another perspective, which this site gives, though it heavily advertises on its website, a big “turn-off” for me.  Below Nizam, chose and wrote about his favorite Socially Responsible Companies.

Corporate Social Responsibility (CSR) is essentially about doing good and doing well. Generally, it refers to the process of integrating social values and mission within business decision-making process, so as to achieve positive and sustainable outcomes towards the business, environment and the community at large.

Many companies nowadays believe that they have this responsibility to give back to society. Such socially responsible companies see to it that this act permeates everything they do.
Here are 5 companies that stood out, in my opinion, as great examples of how social responsibility can be productively coupled with sound strategies to advance goodwill, while building sustainable and impressive businesses.
1. Vodafone
vodafone
In April, Vodafone promised to cut down their carbon dioxide emissions in half by 2020 through improving the energy efficiency of its global mobile-phone networks. Additional points for Vodafone on CSR because they are constantly updating us with the results of the campaign; no matter whether it’s going well or not.
Future promises includes pledging to recycle 95% of network equipment waste and plans to reduce work-related accidents that cause lost time by 10%. On top of that, Vodafone is a leading business in socially responsible products such as the text-to-speech software for blind people and easy-to-use handsets for the elderly.
2. The Body Shop
body shop
The Body Shop can be considered one of the pioneers of modern corporate social responsibility. Founder Anita Roddick led her company to stand up for its beliefs and champion causes such as self-esteem, environmental protection, animal rights, community trade and human rights.
One of their major achievements was back in 1985, where they managed to work with Greenpeace and garner more than 4,000,000 signatures against animal testing in the European Union. They have also contributed significantly to the causes they stand for, and exemplifies how others can do the same thing.
3. Starbucks Coffee
starbucks
Since the beginning back in 1971, Starbucks Coffee aims on acting responsibly and ethically. One of their focuses is the sustainable production of green coffee; C.A.F.E.
The project practices a set of guidelines to achieve product quality, economic accountability, social responsibility and environmental leadership. On top of that, the company supports Ethos Water; a company that brings clean water to more than 1 billion people who does not have access to it.
4. Ben & Jerry’s
mapleblondie.jpg
The founders of Ben & Jerry’s, Ben Cohen and Jerry Greenfield have infused the company with the notions of giving back in every way possible, as well as “linked prosperity” between the company, its employees and the community.
Since they started, they have been donating a full 7.5% of pretax profits to charitable organizations. In their own words “strive to show a deep respect for human beings inside and outside our company and for the communities in which they live.”
5. HSBC Holdings
HSBC
The bank’s head of corporate sustainability, Teresa Au, has said that despite the economic situation, HSBC would continue to support its sustainability campaign. Initiatives include providing small businesses with sustainability insurance options and developing an index for climate change.
The business has also boosted its management of ethical and socially responsible investing funds by 60% over the last two years. HSBC has an American unit that is dedicated to assisting local communities by promoting affordable homeownership, among other goals.

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EMERGING MARKETS: a safe place for SRI ?

During January 2011, the Wall Street Journal’s Erin McCarthy wrote an interesting piece entitled Socially Responsible Funds Take on Emerging Markets.

Erin noted there’s been an inflow of funds gushing into Emerging Markets, with over $92Bn  in 2010 alone (that’s up 11% from the prior year).  This was in sharp contrast to funds in Developed countries such as the U.S. that witnessed over $62Bn in outflows (mostly into bond funds).  (Note: this data is sourced from EPFR Global.)

With all that green flowing into Emerging Markets, it is a foretold conclusion that some of the monies would collect into SRI-based funds.  Recently, MMA Praxis Mutual Funds launched a “socially responsible investment fund.”   Chad Horning, its chief investment officer is aiming to screen out the worst companies.  (Hmm, which reminds me of a list we  posted on this website, but that worst list was for shares of Developed countries click here.)  Another fund set-up for SRI is Amana Developing World Fund, which invests according to Islamic principles, or Shariah, according to WSJ’s Erin McCarthy.

Well, just by reading about the two funds mentioned above, readers can already ascertain some of the difficulties with Emerging Markets.  Below are specific concerns, etc. that investors should look out for…

  1. Typical SRI principles may not be applied uniformly (several definitions exist in the U.S. alone)
  2. Emerging Markets do not have developed ESG disclosures, or corporate reporting that some Developed countries do.  (France, for example, requires disclosures).   Though, the small market of Estonia, also requires publicly listed companies to disclose ESG data.
  3. Cultural differences make the “S” in ESG quite difficult to get a grasp on, as what may not be accepted in Developed Markets, may be considered normal business in Emerging Markets (for example, Human Rights may not be respected.)
  4. There is a lack of independent, ESG databases that can be relied on.
  5. Lack of consistency and transparency in ESG reporting, as well as financial reporting 
  6. Cultures may interfere with disclosures and analysis (see Egypt comments below)
  7. Local governments may interfere with the due diligence of analysts.
What are “hands on” Asset Managers and Analysts saying….
  • According to Matt Patsky,  who is the CEO of Trillium Asset Management,  in order to perform decent analysis in an Emerging Market, you would not only need an ESG database, but several, so that they can be cross-checked against each other.

  •  Magnus Furugard, of GES Investment Services (Stockholm, Sweden) says that the Social issues are the most difficult to examine.  This is because investors don’t understand the local cultures, and are unaware of the local politics going on behind the scenes.

  • Andrus Alber, of NASDAQ OMX Tallinn (Estonia) says that the Environmental issues were difficult for companies to manage several years ago.  However, now it’s Governance issues, especially in Central and Eastern Europe. The exception is Estonia (see numbered points above).

  • Geoffrey Williams, of OWW Consulting (Malaysia) also finds Governance issues challenging.  He notes that “what we read in company reports, and even newspapers doesn’t always reflect the reality in practice.  Information flows to shareholders tend to be quite sparse.”

  • Jay Vontobel of Vietnam Holding Asset Management, finds that transparency and corporate governance pose significant challenges to SRI and financial evaluation. In the former planned economy of Vietnam, the state retains holdings in many companies, entailing a lack of flexibility and dependency on government officials.  He also notes that Environmental issues are a challenge, legislation is enforced selectively.

  • Gaetan Herinckx, of Sustainable Capital, (Mauritius) notes that there is a general lack of transparency irrespective of the ESG dimension.  Therefore, SRI analysis demands significant “hands on” in-site due-diligence.

  • Ashraf Gamal from the Egyptian Institute of Directors, notes there is a fairly high level of corruption that needs to be dealt with.  This is because in some industries, corruption is an acceptable way of getting things done.  Investors also need to be aware of “conflicts of interest.”  Thus, they need to evaluate the independence of professional service providers (auditors, accounting firms).  Note these comments were made before the transition of power in Egypt occurred.

  • Jerome Tagger is COO of Principles for Responsible Investment. He believes the Social aspect is difficult to access given the wide potpourri of cultures involved.  However, people (investors) he speaks to say that data disclosures are a key challenge.

  • Peter Mihalyi of University of Pannonia (Hungary) has a different take than the others.  He believes country risk is a big overwhelming issue given the high levels of risk (and debt) in Hungary.
Conclusion:  From the comments above, one can see that Socially Responsible Investing has yet to hit its stride in Emerging economies.  While this writer expected Social and Environmental issues to be key challenges for investors, the comments above more than suggest the key issue is Governance/Transparency.   This can also be interpreted meaning that non-SRI analysis remains challenging in several Emerging economies.


Readers that are interested in SRI Emerging Markets are encouraged to contact Emerging Markets ESG  Emerging Markets ESG is dedicated to the analysis, benchmarking, development and promotion of reporting on environmental, social and governance (ESG) indicators in emerging markets
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Update on Socially Responsible Investing TRENDS

Gee, right after we finished writing our 5-part series on SRI Trends, SocialInvest.org released its latest survey on the subject.  I read the report to determine if there were any changes worth talking (actually more like writing) about.
The biggest change, or more like surprise, was the continued growth in SRI assets, despite the troubling waters of capital markets.  In fact, SRI has not only become increasingly popular, but Hip!  From the start of 2007 to the beginning of 2010, SRI assets increased more than 13%.  Total AUM was $3.1 trillion excluding the effects of overlapping strategies.  (See table).  This compares with anemic growth of 1% for overall professionally managed assets.  Demand for Socially Responsible Investments has come from the “grass-roots” efforts of investors, and not from the institutions (or their portfolio managers) themselves.
The fastest growth of what’s categorized as ESG investing vehicles was what is called Alternative Investment Funds.  The Social Investment Forum Foundation identified 177 of these vehicles with AUM of $37.8Bn.  Alternative investments vehicles include ones I’ve focused on in my 5-part Series such as Hedge Funds (mostly quant funds) as well as private equity.  Can private equity really do good, or is this an oxymoron?
The number of alternative investment vehicles incorporating ESG criteria increased 285% since 2007, while AUM grew an even faster 6x.  Surprisingly, leading investment criteria were clean technology versus what I had expected would be quantitative funds that screen.
On the U.S. Registered side of SRI, there were 281 mutual funds with $320.3Bn under management.  Most of this was to the ever familiar mutual funds.  The smallest share was to Closed-end funds (just a bit over $200MM).  However, the fastest growth was in Exchange-Traded-Funds (“ETFs”) growing 225% since 2007, to $4Bn.  While still a relatively small AUM, we expect ETFs to continue leading the way in SRI.  As mentioned previously, we like the growth being witnessed here, but are disturbed by the disassociation of the individual investor from the ETF’s investments, and the tendency of ETFs to become like casinos.  (Please review Part V of our SRI Trend series for additional information.)
Going forward, I continue to expect ETFs to grow quickly as well as Social Venture Capital and Private Equity.  As you know, I’m no fan of ETFs or of Private Equity.   However, Social Venture Capital (and Social Enterprise) are areas I believe SRI can really make a difference in society.
The question is:  Would you rather help society, or make a quick-buck investing in an ETF ?
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SRI Trends, Part V: Growth of ETFs and Community Investing.

The below article is the last in our 5 part series on SRI Trends:
4.  Growth of Exchange Traded Funds (ETFs).  This is an area that may well need little, if any introduction.  Though a recent addition to investment portfolios during the last decade, ETFs have become an overnight sensation. 
Definition:  ETFs offer public investors an undivided interest in a pool of securities and other assets and thus are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on an exchange through a broker- dealer.  ETFs therefore possess characteristics of traditional mutual funds, which issue redeemable shares, and of closed-end investment companies, which generally issue shares that trade at negotiated market prices on a national securities exchange and are not redeemable (Source: Securities and Exchange Commission).
History: In the beginning, ETFs were more simplified investment vehicles utilized to mimic the S&P 500 index.  The first major product, SPDRs (introduced in 1993) was nicknamed “Spiders.”  As you can see, the ETF industry had creative marketing popularizing them since Day 1.  However, ETFs took off in the early 2000s, when Barclays Global Investors launched the ishares line.  Within 5 years, iShares surpassed all of its competitors.  Since then, new competitors have entered the market slicing and dicing industries and sectors into a thousand pieces.  According to the Investment Company Institute (ICI) the number of ETFs grew from just 29 in 1998 to 797 by 2009, representing $777Bn in assets.
It was only a matter of time that ETFs would move out of its humble beginnings as a broadly based index fund, to a mimicker of certain Socially Responsible Indices, such as those following the popular, and longest-running Domini Social Index (now called FTSE KLD 400).  According to Morningstar, there were over $3.2Bn in about two dozen SRI related ETFs as of mid-2010.
This website will not advocate investing in ETFs for a variety of reasons.  For starters, they attract a speculative nature (e.g., animal spirits) in people.  I just can’t reconcile the “making of a quick buck” with ethically-based SRI.  Other negatives include:  Tracking error, Index Composition, sometimes-high management expenses, opaque operating structure, and hidden fees.  Hmm, maybe the ETF holding company itself should be analyzed for ESG criteria!
SRI ETFs, given their niche nature only exacerbate these potential disadvantages.  For example, by default, an ETF tracking the S&P500 will likely have much lower fees and little tracking error, compared to a small, new, exotic ETF tracking solar energy.  Besides, nearly all of the SRI ETFs are invested in “Green-Energy” indices, rather than indices of socially responsible corporations (regardless of whether they’re in green industries or not).  Also, much has been written about surprise investments within ETFs including shares of Halliburton, and BP/Transocean.  As I’ve stated previously, but bears repeating, the individual investor’s desires and moral suasions become disconnected from the ETF’s investment process, and hence, positions.
If you must invest in pooled assets, I recommend screening MorningStar for SRI-based mutual funds.  Morningstar actually uses another name for SRI, calling it Socially Conscious funds.  It defines them as,

“Any fund that invests according to non-economic guidelines. Such funds may make investments based on such issues as environmental responsibility, human rights, or religious views. A socially conscious fund may take a pro-active stance by selectively investing in, for example, environmentally friendly companies, or firms with good employee relations. This group also includes funds that avoid investing in companies involved in promoting alcohol, tobacco, or gambling, or in the defense industry.”   

The most popular include some of the better-known fund families in this area:  Parnassus, Ariel, Pax World, Amana, Calvert, Domini and Sentinel.  Similar to ETFs, SRI mutual funds have grown at a rapid clip.  As of 2007, there were 260 socially screened mutual fund products in the US, with assets of $201.8 billion. By contrast, there were just 55 SRI funds in 1995 with $12 billion in assets (Socialinvest.org).

5.  Community investing is directing capital from investors and lenders to communities that are underserved by traditional lenders.  According to the Social Investment Forum “Community investing provides access to credit, equity, and basic banking products that these communities would otherwise lack.”  Assets in community investing institutions rose about 32% from $19.6Bn in 2005 to $25.8Bn in 2007.  I am a great believer of this type of investing; however, it is out of the scope of this website, hence the quick description.  Interested readers are urged to link to Communityinvest.org.
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