ISSUE 9 | DECEMBER 2012
In this issue:
- Big Bucks Now in ESG/SRI Assets Under Management
- Accounting: Eyes Wide...Shut
- Looking at Reporting -Year 2012
- Investors to Public Sector: It's Climate Change, Stupid
- Watch Your Supply Chain -- It's Vulnerability Time
- Disney Hears the Supply Chain Chatter and Acts
- Does Sustainability Pay? Let's Ask Wal-Mart Stores, Inc.
- Silly Season Stuff: Chevron Targets NYS Comptroller
- Lockheed Martin Shows the Sustainability Way
- G&A Institute -- Your Source for Information, Strategy, Advice & Sustainability Knowledge
BIG BUCKS NOW IN ESG/SRI ASSETS UNDER MANAGEMENT
Every two years the trade association for sustainable & responsible investors (SRI) tallies the level of assets under management (AUM) that are guided by SRI principles. At the end of calendar year 2011, the latest survey conducted by US SIF: The Forum for Sustainable & Responsible Investment (released November 15th) found:
- US$3.31 trillion in US-domiciled assets were held by 443 institutional investors, 272 money managers and more than 1,000 community investing organizations that select or analyze their portfolios using a variety of ESG criteria (ESG = environmental, social issue and governance factors).
- That's 11% of all Assets Under Management (AUM) professionally managed in the USA (which totals US$33.3 trillion, held by individuals, mutual funds, investment companies, endowments, foundations, pension funds, money managers, etc.)
- As for investor activism -- US$1.54 trillion in US AUM was held by 200+ institutions or money managers that filed/co-filed shareholder resolutions on ESG issues from 2010 through 2012.
- Combined, the two segments have a total of US$3.74 trillion AUM. Consider then that $1 of every $8 or $9 in professionally managed AUM in the United States is now focused on "sustainable investment."
The trend line is up -- this is an every-other-year survey of the financial community conducted by US SIF; the totals reflect an increase of 22% since year-end 2009 in ESG issues in managers' investment activities. The move to adopt ESG approaches, frameworks, systems, could be a viewed as a flight-to-safety by asset managers as they emerged from the 2008 financial debacle, mostly self-inflicted by the major investment houses with their risky (and unsustainable) decision-making.
"The 2012 Trends report demonstrates that we are moving closer to a sustainable and equitable economy," said Lisa Woll, the CEO of US SIF. "SRI strategies are on the rise in the USA."
The Trends report was sponsored by Bloomberg, TIAA-CREF, BlackRock, Breckinridge, Legg Mason, Neuberger Berman, and several other organizations.
The "Report on Sustainable and Responsible Investment Trends in the United States" is available from US SIF. For information: http://ussif.org/
ACCOUNTING: EYES WIDE...SHUT
Intriguing results from GMI Ratings researchers in a report entitled, Eyes Wide Shut -- Behind the Masks of Accounting Fraud. Just as GMI published its first "Black Swan Risk List," the "biggest accounting scandal" in memory "burst into national news." That was the dramatic story of Hewlett-Packard writing down the acquisition of Autonomy. The Black Swan Risk List is a focused list of 40 high-risk companies in North America (in GMI's opinion) that have "the most aggressive" accounting practices based on the GMI "AGR" model. (AGR = Accounting & Governance Ratings.) The companies were in such sectors as technology, industrial and healthcare. In its report, GMI looked at 16 specific risk metrics that are most common before the "precipitous loss of shareholder wealth..." In the list of 40 these risk metrics dominate, says GMI Ratings. GMI Ratings is the merged organization of Governance Metrics International, The Corporate Library, and Audit Integrity. For information: www.gmiratings.com
LOOKING AT REPORTING -YEAR 2012
In January and February G&A Institute, the exclusive Data Partner in the United States, United Kingdom and Republic of Ireland for the Global Reporting Initiative, will be sharing the results of its monitoring and analysis of sustainability and corporate responsibility reporting for the year 2012. A significant amount of research and analysis goes into this effort. Believe it or not, some companies go to great lengths to generate a report and then do not make it easily accessible or do not announce the report's availability.
The G&A team searches for "missing" reports at year end and we will bring the results over the opening weeks of the new year. If you know of a report that has been published and is not now on the United States, United Kingdom or Ireland roster of reports, please do let us know. Thanks!
You can access the current roster on our premium knowledge management platform: www.sustainabilityhq/reports
INVESTORS TO PUBLIC SECTOR:
IT'S CLIMATE CHANGE, STUPID
Pssst: If you have not gotten the word yet, and if Hurricane Sandy did not help to deliver the message, these investors have some advice for you if you head a governmental unit -- or, manage a large company: It is really about climate change, stupid! A collection of groups of the largest investors in the world signed a letter to the leaders of the world's economies to begin a new dialogue, focused on climate change policy..."to avert dangerous climate change and its resulting economic impacts..." The letter was delivered before the start of international climate change negotiations in Doha in late-November.
The investor groups included these coalitions:
- CERES (USA), managers of Investor Network on Climate Risk (INCR)
- [The European] Institutional Investors Group on Climate Change (IIGCC)
- Australia/New Zealand Investor Group on Climate Change
- Asia Institutional Investors Group on Climate Change (AIGCC)
- United Nations Environment Programme Finance Initiative (UNEP FI)
- and supported by the Principles for Responsible Investment Initiative (PRI)
Their combined AUM totals in the many trillions' of US dollars. The four regional climate change investor groups (IIGCC, INCR, IGCC, AIGCC) have formed the Global Investor Coalition on Climate Change (GIC) to represent the global investment community on climate change policy and investment issues. The GIC will work with other networks -- UNEP, PRI, the Carbon Disclosure Project (CDP) to provide "a focal point" for engagement with international policy-making bodies.
WATCH YOUR SUPPLY CHAIN -- IT'S VULNERABILITY TIME
The wonderful thing for corporate managers is...the Cold War has really wound down from the Mutual Destruction ("MADD") policies of yesteryear. Globalization is here to stay (and the trade isolationists, are well, really isolated by the Trade Warriors, for better or worse) And along with these benefits and advantages of a more globalized and competitive sourcing environment comes...vulnerability.
A case in point is the focus on Apple, and its flying-off-the-shelf products, mostly made these days in China. Taiwanese-owned FoxConn is a major electronics supplier in China; working conditions there are very much in focus in the USA and elsewhere in the developed world as Apple works to assure stakeholders it is aware of and addressing the issues (such as workers jumping to their deaths). And as Apple addresses the China / Asian workforce issues, here comes another focus: smartphones such as made by Apple and Samsung may contain tin from Indonesia, where mining is destroying forests, farmland and coral reefs.
Friends of the Earth research, as reported by 2 Degrees, outlined this as the number of smartphones in use passes the 1 billion mark. "Our research shows that mining tin to manufacture [Apple and Samsung] phones may come as a terrible cost to people and the environment," the group says. Click here for more information.
And we write this, the news comes in via CNN: Apple announces it will move some Mac computer production back to the USA, and is fixing up a production line in its California facility. Is this part of the trend of onshoring production in the USA by American companies? Read the December 2012 issue of Atlantic magazine -- cover story is, "Why the Future of Industry is in America," with articles by national correspondent James Fallows (article, "Mr. China Comes to America") and author Charles Fishman (his article is "The Insourcing Boom").
DISNEY HEARS THE SUPPLY CHAIN CHATTER & ACTS
The Walt Disney Company (NYSE:WDW) announced in October that it will be eliminating paper that has a connection to the destruction of endangered forests and animals from its operations and licensees. Instead, WDW will "maximize" recycled content and fiber sourced from Forest Stewardship Council's certified forestry operations worldwide. No more paper products from High Conservation Value Areas (endangered and old growth forests). And no more from paper fiber sourced from areas where the rights of indigenous peoples depend on their forests; or, from forests converted to plantations after 1994. And no more from forests using genetically-modified trees. Of importance: No more such paper will be coming from Asia Pulp and Paper, and Asia Pacific Resources International, two of the largest paper suppliers in Asia (and suppliers worldwide).
Game changer: Disney is the biggest publisher of children's books in the world and the paper policy applies to all of its publishing business lines. And the paper in theme parks. And paper in other business, such as the broadcast operations (ABC Network). And the new policy will be enforced with all of the 3700 licensees using Disney's familiar and beloved characters. Talk about sweeping changes in sourcing and supply chain!
Disney worked out the policies with the Rainforest Action Network (RAN) over a two year period. It is now the 9th US publisher to sign on; others include Macmillan, Random House. Simon & Schuster.
DOES SUSTAINABILITY PAY?
LET'S ASK WALMART STORES, INC.
WalMart Stores, Inc (NYSE: WMT) announced that the company will add US$150 million in benefits straight to the bottom line from its various sustainability initiatives in FY 2013 -- from solar and wind energy projects, fuel cell installation, and zero waste programs. The news was delivered at the annual meeting and is in addition to the US$231 million saved last year from waste reduction and recycling. In the company's 2012 Global Responsibility Report, WMT said it kept 81% of waste from its US operations out of landfills (in 2011) and saved money through increased recycling and decreased expenses.
Keep this in mind, retailing competitors: WMT will eliminate landfill waste from U.S. stores and Sam's Club by the year 2025. That's raising the bar for the competition! One way to do this is by eliminating plastic shopping bag waste by 3.1 billion bags in 2011 (down 35% from the baseline set back in 2007) -- this was ahead of the goal of reducing such waste by 33% by 2013. Wonder what that is doing for the plastic shopping bag industry -- WMT is the largest retailer in the USA, and a pace setter in its industry. Game change!
SILLY SEASON STUFF:
CHEVRON TARGETS NYS COMPTROLLER
Big Oil certainly has had some unusual thinkers in its midst. Swashbucklers abound in oil industry legend (finding oil used to be a very risky business). Big Oil was brutally profiled in muckraker Upton Sinclair's novel, "Oil," published in the 1920s and adapted for the big screen as "There Will Be Blood," starting Daniel Day Lewis.
More recently, the Big Oil lawyers seem to have taken the lead in swashbuckling and so we are seeing some Silly Season antics. Most recently, there is an attack on a single individual in public service (the Hon. Thomas DiNapoli) who by nature of being elected statewide is the sole trustee of the US$150+ billion New York State Common Fund (the pension system for more than one million beneficiaries). He is now a target for Big Oil. Chevron filed an ethics charge against the Comptroller because of Mr. DiNapoli's shareholder advocacy on issues related to Chevron's activities in Ecuador (which are the subject of a massive class action lawsuit separate of the pension fund advocacy). A court in Argentina froze US$2 billion in Chevron assets.
Is this intimidation of a prominent and effective shareholder advocate? An attempt to divert attention away from South America and the Chevron troubles there? NYS Common Fund and other investors challenged Chevron at its annual meeting in May 2012 with a resolution to separate chair and CEO (38% voted in favor) and called for appointment of an independent director with environmental expertise (30%). NYS holds 7.2 million shares in Chevron (US$700 million value at the time of the meeting). Joining with 39 other US, Canadian and European investors, DiNapoli called on Chevron to settle its legal battle with the indigenous peoples in the Amazon rainforests. Evidently, investors, even biggies, are not to have the temerity to tell Big Oil management what to do! You can see Comptroller DiNapoli's statement at: https://www.osc.state.ny.us.press/releases/nov12/112012d.htm.
For Comptroller Tom DiNapoli, the Chevron mud-slinging may become something akin to the "Enemies List" drawn up by the vengeful president, Richard Nixon, as he identified those whom he thought were "against him." Guess who came out on top, the list maker or those on the list!
The 2013 Proxy Season for Chevron: Meanwhile, Simon Billeness of CSR Strategy Group reminded investors that the deadline for filing resolutions for the coming annual elections at Chevron is Thursday, December 13th. A number of shareholders are keeping the pressure on the company over its "poor governance practices" and "mismanagement of legal liability" in Ecuador with now potential losses of US$19 billion. In 2012, a group of investors called on SEC to help them investigate whether Chevron fully disclosed risks to investors. Will be an interesting proxy season coming at Chevron. Information at www.csrstrategygroup.com.
LOCKHEED MARTIN SHOWS THE SUSTAINABILITY WAY
The big defense contractor regularly reports on its sustainability efforts. The Gartner consulting organization recently published a case study that explains how Lockheed Martin, building on best practices from McKinsey and WalMart, to quantify its direct and supply chain environmental impacts -- and the related costs and risks. LM also identified high ROI products to address costs and impacts (US$30 million in savings were identified.) The report is available from Enviance -- "Counting the Costs and Benefits of Supply Chain Sustainability and Associated Environmental Impacts" -- www.enviance.com.
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G&A Institute's Sustainability UpdateTM is published by the team at Governance & Accountability Institute in New York City, and is distributed as a public service to share information, insights and knowledge among members of the investment and corporate communities. For more information about G&A and our services, we invite you to visit our corporate web site: www.ga-institute.com. Please credit the source if quoted from this newsletter.
Happy New Year 2013 to all of our friends and colleagues!
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