Weekly News Round-Up: September 29th, 2017

Upcoming Events
  • IEN Webinar: Student Managed Fund Story - Dwight Hall at Yale SRI Fund l October 6th, 2017, 3:30 p.m.
    • In this webinar, we will be joined by two students who manage The Dwight Hall socially responsible investment (SRI) fund at Yale, Russell Heller and Gabe Malek. They will discuss the origin, history, and mission of the fund, as well as how the fund is organized and managed. Please join us for this presentation followed by a facilitated dialogue with audience questions.
 
 
New Reports
 

Lead From the Top: Building Sustainability Competence On Corporate Boards l Ceres

  • In a climate of increasing investor focus and company attention on the role of the board for sustainability, the report makes the business case for sustainability-competent corporate boards by arguing that factoring in these material risks in decision-making is key for boards to meet their fiduciary responsibilities, drive strong long-term financial performance goals, and help companies increase their competitive advantage. The report addresses three main ways to build sustainability competence on corporate boards: the proactive integration of sustainability into board recruitment, the importance of board education, and the need for directors to engage proactively with investors and other stakeholders on ESG.
EDF Releases Guidebook to Accelerate Investment in Sustainable Infrastructure l Business Insider
  • The Environmental Defense Fund (EDF) released a new framework that will help state and local governments mobilize private investment to repair existing and build new infrastructure that can help mitigate the effects of extreme weather events. The "Investment Design Framework" is part of a larger report, Unlocking Private Capital to Finance Sustainable Infrastructure, that introduces the first-ever roadmap for increasing collaboration with the private sector to fill critical public funding gaps.

 
Sustainable, Responsible, Impact & ESG Investing

Bloomberg Brief l Sustainable Finance
  • This week's Bloomberg Brief highlights how a federal trade panel concluded cheap foreign solar imports are hurting manufacturers, teeing up an opportunity for President Donald Trump to impose tariffs; California considers a ban on fossil-fuel vehicles; and women are missing from Asian boardrooms.
Passive Aggressive: The World of Index Investing is in Flux as Integration into Passive on Course to Become the Norm for New Mandates l Top 1,000 Funds
  • In the last year there has been a quiet revolution taking place as asset owners have been moving to integrate ESG into index designs for new mandates on core passive portfolios. Integrating sustainability into investment strategies was a “minority sport” when David Harris joined FTSE 15 years ago. “For many years all the action on ESG integration has been in active asset management, whilst for passive, the focus has been limited to engagement and voting – in the last year that has all changed – for new mandates integrating climate and sustainability parameters into index design is being applied at scale and to core portfolios,” said Harris.
  • Morningstar, a data-tracking firm, places any fund that uses terms such as sustainable investing, ESG and so on in its prospectus into a category that now has 204 members with $77bn in collective assets. The oldest fund in the Morningstar group dates back to 1971. But nearly half have been launched in the past three years. Two perennial questions have accompanied the deluge of money. The first is whether the approach comes with special costs: ie, is there a virtue discount? Second is the question of what should be measured. This article explores a few answers to each of the above questions.
The Future Role of Philanthropy: Mission-Aligned Investing l Local Investing for Impact
  • Innovative foundations such as Ford, Heron, Kresge, Gates and Rockefeller are leading the way, investing a percentage of their assets in affordable housing, enterprises that create employment in low-income communities and other revenue-producing ventures that serve a philanthropic purpose. What lofty purposes might we accomplish, should this nascent trend catch fire with charitable foundations more broadly? How would communities be transformed if place-focused foundations starting using more of their assets to invest locally to build vibrant, prosperous places?
Schroders: Sustainable Investment on the Rise as ESG Issues Gain Prominence l Investment Week
  • Sustainable investments are becoming an increasing part of investors' portfolios with over half of UK investors raising their allocations over the past five years, according to a global study conducted by Schroders. The study, which surveyed over 22,000 investors globally, including over 1,000 in the UK, found 54% of UK investors had increased their allocation to sustainable investments, while some 67% said sustainable investment was becoming more important to them.
  • A group of 12 investment consultants is publicly backing guidance by the U.K. Pensions Regulator stating that retirement plans should take environmental, social and governance factors into account in investment portfolios. The regulator said in guidance in March that most investments are exposed to long-term financial risks such as climate change and corporate governance. "We expect you to assess the financial materiality of these factors and to allow for them accordingly in the development and implementation of your investment strategy," said the regulator.
Silver Lining for ESG Seen in U.S. Withdrawal From Paris Accord l Pensions & Investments
  • The decision by President Donald Trump to withdraw the U.S. from a global climate pact and the U.K.'s departure from the European Union might not be as bearish for responsible investing as they appear. Glenn Davis, director of research at the Council of Institutional Investors, said while on the face of it the withdrawal looks like it has been a blow to sustainable investing, it is important to consider the attention from the investor community in terms of it being an "impetus" and leading to investors taking charge. Mr. Davis added this is "not as bearish" a situation as it might seem on the surface.
PRI in Person: Stewardship, ESG Policy, Climate Action l Investments & Pensions Europe
  • Japan’s financial services regulator expects the country’s investors to start working together on engagement with companies, according to the deputy director of its corporate accounting and disclosure division. Speaking at the PRI in Person conference in Berlin this week, Amame Fujimoto said the Financial Services Agency’s (FSA) original stewardship code did not explicitly mention collaborative engagement, meaning some Japanese investors might have misunderstood it to not be permitted. The FSA’s first stewardship code was launched in 2014. It was revised this year to remedy certain perceived shortcomings, including that some investors were felt to be engaging with companies only on a superficial level.
ESG or Else Clients Warn Pension Clients l Institutional Investor
  • Some of the U.K.'s largest pension consultants have have agreed to pressure asset owners to consider ESG factors in their investment decisions. In total, 12 major U.K. consultants signed on to remind schemes of the Pensions Regulator's ESG Guidance, where such factors are financially material.
The Real Impact of Impact Investing l GreenBiz
  • Whether it concerns climate change, supply chains, human rights or corruption, investors increasingly seek to better understand the impact that their investments are having. One recent Bank of America press release states that three-quarters of investors want to work with an advisor who offers investment strategies that result in competitive returns and positive impact. An even higher percentage of millennials want to make a connection between financial and societal outcomes — as high as 86 percent, according to a recent Morgan Stanley analysis. But can investors really have a positive impact with their investment dollars while also maximizing financial returns? This is no small matter. It is more than a trillion-dollar opportunity — consider that Bank of America alone has a client base representing over $2 trillion in assets. It is important is for investors to understand, arguably for the first time, how they can maximize their own positive impact — and that maximizing positive impact doesn’t mean having sacrificed financial performance at all.
Supply Chain and the Circular Economy
 
  • This is a story about an extraordinary effort to transform an ordinary piece of clothing. In June, C&A, the international Dutch chain of retail clothing stores, launched a line of T-shirts certified to the Cradle to Cradle standard, meaning that they were designed and manufactured in a way that is benign to the environment and human health, and whose materials can be recirculated safely back into industrial materials or composted into the soil.
Investment Manager News
 
MSCI Launches Four ESG Factor Indices l Investment Week
  • MSCI has launched four ESG factor target indices in response to increasing demand from clients. The MSCI Minimum Volatility, Quality, Value and Multiple-Factor ESG Target indices are designed for investors to gain exposure to the firm's existing factor indices, on which they are based, while integrating an ESG focus into their strategy. Rebalancing twice a year, the indices will look to mitigate short-term and long-term ESG risks by not investing in controversial weapons, while the framework enables client specific customization.
Sustainable Portfolio Building Blocks: 2 ESG Funds at the Top of Their Games l Morningstar
  • Interest in sustainable investing is growing, but many investors don’t know where to begin. This article shares two ESG funds–one stock, one bond–that would be solid building blocks for any sustainable portfolio.
Shareholder Engagement
 
Commentary: CHOICE Act Gives Investors No Voice l Pensions & Investments
  • The Financial CHOICE Act, which the House of Representatives passed in June on a largely party line vote, weakens many important provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and introduces a slew of changes that would harm U.S. capital markets, consumers and investors.  One of the most concerning aspects of the CHOICE Act is its treatment of the shareholder proposal rule, Section 14a-8 of the Securities Exchange Act of 1934. As long-term investors will attest, shareholder proposals are a vitally important, market-based mechanism for communicating with companies, directors and other shareholders. For decades now, the shareholder proposal rule has been highly constructive in facilitating dialogue between shareholders and companies. Yet, the CHOICE Act would eviscerate the rights of nearly all shareholders.
Climate Risk, Science & Regulation
 
Climate Shocks May Cost U.S. $1 Billion a Day l Bloomberg
  • Stronger hurricanes, hotter heat waves, more frequent wildfires and more severe public-health issues are all adding to the costs of climate change, which will reach almost $1 billion a day in the U.S. within a decade, according to a report released Wednesday. Total costs to address the impact of rising temperatures will swell 50 percent by 2027, to $360 billion annually, according to the study from the Universal Ecological Fund. That equates to about 55 percent of expected economic growth in the U.S.
  • Coming two years after the Paris Agreement, the initial public offering (IPO) of Saudi Aramco will be strongly shaped by climate change. Most analysts believe that Crown Prince Muhammad bin Salman’s US $2 trillion estimate of Aramco’s value was unrealistic, reckoning instead on somewhere in the range $1 to 1.5 trillion. But there has been a gap in commentary, on how moves to decarbonise the energy system will affect the IPO’s valuation. The report discussed in this article found that, compared to a base-case estimate of around $1.5 trillion, the value of Aramco could be between 25% to 40% lower in the IEA’s safer-climate scenarios (which correspond to the absolute minimum ambition within the range of the Paris goals); and if oil prices stay at $50 in real terms, Aramco’s value could be reduced to less than $700 billion, 55% below the base case.The IPO is thus a real test of whether investors are thinking seriously about climate change.
Commentary: Investing in Oil for Now, the Next Year and the Next Decade l Pensions & Investments
  • Although focusing on ESG-conscious oil businesses is beneficial for now, the secular decline in demand that is likely to stem from the wave of changes in policy and in public perception means investors need to look more broadly at their oil allocation. The cultural shift away from carbon-intensive energy production is already underway, with approximately 40% of Denmark's energy supply now coming from renewable sources. In this context, the decline in demand over the next two decades could be substantial. With the lead time on some projects extending across several decades, it is prudent for investors to look at the duration of businesses' projects alongside their sustainability. By investing in businesses with a shorter duration portfolio of projects, investors can benefit from the drivers now supporting the oil industry, without exposing themselves to businesses leveraged for an uncertain future.
  • $52 billion is invested in global environmental conservation annually, but research shows at least six times that sum is necessary to preserve the world's ecosystems. The Forest Resilience Bond could help meet this challenge. In their inaugural report, "Fighting Fire with Finance: A Roadmap for Collective Action," the FRB team details how conservation finance can be applied not just to forest restoration, but to other environmental contexts across the globe. With fire seasons getting longer and more severe, relying on public funds to maintain forest health is increasingly unsustainable. Instead, collaborative approaches like the FRB represent an alternate path forward that redefines how conservation is funded. It may be too late for the 2017 fire season, but there is still hope for the tens of millions of acres in need.
Nine Countries Agree to Reduce Deforestation by 80 Percent l Netral English
  • Members of the Governors' Climate and Forest Task Force (GCF) have agreed to reduce deforestation by 80 percent by 2020 which had been declared in the Rio Branco Declaration and signed at the 2014 GCF Annual Meeting. A quarter of the world's tropical forests are represented by GCF members consisting of 35 provinces in nine countries. To achieve the target, international funding and financing mechanisms are required to maximize investment quality.
General Endowment News
 
10 Universities With the Biggest Endowments l U.S. News
  • Among the 10 colleges with the largest endowments at the end of fiscal year 2016, the average endowment was $16.6 billion – this represents a drop of around $300 million compared with the prior year. The median U.S. college endowment among ranked institutions at the end of fiscal year 2016 was $56.7 million. All of the colleges with the largest endowments are National Universities, schools that emphasize research and offer not only bachelor's degrees but also master's and doctoral degrees. Below is a list of the 10 universities with the largest endowments at the end of fiscal year 2016. Endowments were examined by campus, not across public university systems. Unranked schools, which did not meet certain criteria required by U.S. News to be numerically ranked, were not considered for this report.
  • University of Missouri System's $1.5 billion endowment pool returned a net 13.7% in the fiscal year ended June 30, said Thomas Richards, treasurer and chief investment officer of the Columbia-based university system, in an e-mail. The return exceeded the policy benchmark of 10.9%. The best-performing asset class was global equity, which returned a net 21.5% in the fiscal year ended June 30, exceeding its 18.1% benchmark, followed by private equity, at 15.6%, above its 12.5% benchmark.
University of Houston Foundation Chalks up 16.06% Return l Pensions & Investments
  • University of Houston Foundation returned a net 16.06% on its approximately $129 million endowment for the year ended June 30, topping its 10.87% benchmark, said a performance report provided by Erik P. Littlejohn, senior vice president, wealth management, at Merrill Lynch, Pierce, Fenner & Smith, investment consultant to the foundation. By asset class, domestic equities returned 21.01% (vs. its 17.9% benchmark); global balanced (unconstrained domestic and foreign stocks, bonds, gold or gold-related securities and cash/cash equivalents), 13.4% (10.87%); global long/short equity hedge funds, 12.88% (3.66%); and total return fixed income, 9.61% (-0.13%).
Penn's 14.3% Return Was Boosted by 'Notable' Stock Performance l Bloomberg
  • The University of Pennsylvania’s endowment posted a 14.3 percent investment return for the 12 months through June, with equities fueling gains just like at other large college funds. The value of the endowment rose 14 percent to $12.2 billion. The fund’s growth of $1.5 billion includes investment returns and new gifts, the Ivy League school in Philadelphia said Thursday in a statement.
Caltech Gains 17.8%, Among Highest Endowment Returns l Bloomberg
  • California Institute of Technology’s endowment gained 17.8 percent in the year through June, placing it among the top performing college funds. The returns helped boost the value of Caltech’s fund to $2.6 billion as of June 30, according to a person with knowledge of the matter, who asked not to be identified because the information isn’t public. Only Grinnell College has posted a better return so far, at 18.8 percent, among at least two dozen of the largest college funds that began reporting, according to data compiled by Bloomberg. Grinnell’s endowment had a preliminary value of $1.8 billion at June 30. Harvard University has the lowest gain at 8.1 percent.
 
 
Fossil Fuel Divestment
 
Divestment From Fossil Fuels has not Caused Syracuse University’s Endowment to Suffer, Official Says l The Daily Orange
  • More than two years after Syracuse University announced it would divest from fossil fuel companies, the university’s chief financial officer said there is no evidence the endowment has suffered as a result of divestment. Amir Rahnamay-Azar, SU’s senior vice president and chief financial officer, said in an email that SU’s $1.25 billion endowment has increased investment performance by 12 percent in fiscal year 2017. The endowment is a pool of money collected from donors that is invested in the stock market. The funds are then used for scholarships and academic programs on campus. The university’s growing endowment, in the wake of its headline-grabbing decision to divest from fossil fuels, may be a signal to other schools that divestment is a viable option, experts said.
Friendship and Divestment at Amherst College l The Amherst Student
  • In this opinion piece, an Amherst College student discusses the College's Direct Action Coordinating Committee's campaign pressing for divestment from fossil fuels and private prisons, and how it relates to one of the three pillars of community life at Amherst: friendship.