- 1. Responsible Investing Responsible Investing Professor Hector
R Rodriguez School of Business Mount Ida College Business, Society
& Environment
2.
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- The Corporation and Its Stakeholders
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- People for the Ethical Treatment of Animals
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- The Social Responsibility of Business
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- The Shareholder Primacy Norm
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- CSR, Citizenship and Sustainability Reporting
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- The Community and the Corporation
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- Taxation and Corporate Citizenship
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- Corporate Philanthropy Programs
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- Employees and the Corporation
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- Managing a Diverse Workforce
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- A Balanced Look at Climate Change
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- Non-anthropogenic Causes of Climate Change
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- Sulfates, Urban Warming and Permafrost
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- Green Information Technology
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- Transportation, Electric Vehicles and the Environment
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- Carbon Capture and Storage
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- Solid, Toxic and Hazardous Waste
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- Forests, Paper and Carbon Sinks
Course Map Topics Covered in Course 3.
- Stockholders (also called shareholders)
- The legal owners of business corporations
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- Individual stockholdersare people who directly own shares of
stock issued by companies
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- Institutions , such as pension funds, mutual funds, insurance
companies, and university endowments
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- Calledinstitutional investors
Some Background 4.
- To produce a return greater than they could receivefrom
alternative investments
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- Stockholders make money when the price of the stock rises (
capital appreciation ) and when they receive their share of the
companys earnings (calleddividends )
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- Bull markets(in which share prices rise overall) alternate
withbear market(in which share prices fall overall)
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- Although stock prices can be volatile, stocks historically have
produced a higher return over the long run than many other types of
investments
- Some investors use stock ownership to achieve social or ethical
objectives; this is known as Responsible Investing or RI
Objectives of Stock Ownership 5.
- An investment process that considers the environmental, social,
and governance consequences of corporate policies and practices,
both positive and negative, within the context of rigorous
financial analysis.
- Responsible investing takes a longer term perspective,
recognizing that environmental and social benefits and costs are
rarely expressed on a quarterly cycle.
Source: Socially Responsible Investing: an Introduction,
Calvert: (2003) What is Responsible Investing? 6.
- Environmental issues are becoming more important with regard to
economic development, trade, and worldwide demand for goods and
services. Among the factors driving this change are:
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- A growing political consensus that action is warranted to
address the problems of global warming and climate change.
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- Increasing world population, growing rates of prosperity and
consumption among some segments of society, and the associated
demand for goods and services.
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- Escalating demand for closed-loop, zero-impact processes and
technologies, as opposed to the use of end-of-pipe controls.
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- Expanding demands on a limited natural resource base, and the
resulting pressure to improve resource productivity.
- The industry believes these trends will affect virtually every
aspect of the economy and change how companies conduct
business.
Source: Environmental Drivers & Shareholder Value,
ClearBridge Advisors: (2008) Underlying Thesis 7.
- Social investing has long historical roots in the U.S., dating
back to the late 1600s, when religious investors elected to invest
in accordance with their beliefs in human equality and
nonviolence.
Origins of Social Investing 1920s 1960s 1980s Sin Stocks 8.
Typical Decision Process Pax World US$ 2.53Bi Environment Climate
change Community Indigenous People Welfare Labor Relations Product
Safety and Integrity Diversity Workplace healthy and safety
Corporate governance Gender Empowerment Human Rights Double
Diligence Financial Analysis Social Analysis Calvert US$ 3.17Bi
Governance and Ethics Workplace Environment Product Safety &
Impact International Operations and Human Rights Indigenous peoples
rights Community relations 9.
- Looking over the various screens that are commonly used, firms
wishing to pass muster with those managing such funds should eschew
lines of business that involve alcohol, gambling, nuclear power,
defense contracting, animal testing, etc.
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- It should be clear that there is some ambiguity here.For
instance, medical research suggests that alcohol in the form of one
glass of wine a day is good for ones health.Nuclear power, with all
of its challenges, is free of carbon dioxide, the predominant
greenhouse gas.Dilemmas with defense contracting and animal testing
also exist.
- Rather, firms should embrace shareholder advocacy, R&D,
renewable energy, strong union relationships, employee empowerment
and diversity.
RI Indexes 10. Source: 2007 Report on Socially Responsible
Investing Trends in the United States;Social Investment Forum 2007
$2.7 trillion the amount invested in RI-screened accounts (mutual
funds, institutional investors and high-net-worth individuals) The
RI Market: Exhibiting Solid Growth 11.
- Three major responsible investing (RI) indices,
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- Dow Jones Sustainability Indexes (DJSI), and the
- Weighting Systems - Each of the three firms weight various
aspects of financial and non-financial performance
differently.
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- KLD puts only 20% of its explicit points on environmental
issues; the ultimate decision is made subjectively by a
committee.
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- Dow Jones typically puts a third of its points on environmental
issues
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- FTSE4Good includes environmental performance as part of its
criteria, but does not assign it a weight.
Source: Aaron Chatterji, Breaking Down the Wall of Codes, UC
Berkeley: (2005) RI Indexes 12.
- Integrated assessment of economic, environmental and social
criteria with a strong focus on long-term shareholder value.
- Consistent rules-based methodology, primary research (direct
contact to companies).
- Focus on best-in-class companies. Yearly review and continuous
monitoring of companies.
- Assurance of the assessment process by Deloitte.
Dow Jones Sustainability Index 13. DJSI Assets (in million USD)
14. DJSI Assessment Criteria 15.
- Research has found that on average, RI funds do not perform any
better or worse than their conventional peers why is that?
RI Performance 16.
- Why?Recall from the lists of screens that investments in
R&D are seen as a good thing when screening for good companies,
so too are the absence of pollution problems and the presence of
stock ownership plans for employees.
- These tend to be characteristics of so-called high tech firms,
especially those organized around the internet and other
communications and information technologies.
- This means that many RI-managed funds tend to be tech-heavy,
struggling along with NASDAQ over the last few years.
Lackluster RI Performance 17. Responsible Investing - Domini
Investments Live Link