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Evolutions in Sustainable Investing: Strategies, Funds and Thought Leadership



Evolutions in Sustainable Investing: Strategies, Funds and Thought Leadership

Cary Krosinsky, Nick Robins, Stephen Viederman

ISBN: 978-1-118-15792-3 October 2011 512 Pages

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Sustainable Investing is fast becoming an essential method of generating long-term returns, moving beyond the negative approaches to socially responsible investing that have dominated the field.  This book, our second on the subject, provides over 15 case studies of leading global investors and companies demonstrating how they successfully apply sustainability aspects to their core strategies.  Learn from prominent thought leaders Dan Esty and Paul Hawken among others who have contributed key chapters.  Our chapter on performance shows clearly how these strategies have been working once negative approaches are parsed out by those examining fund returns.  This book also examines in great depth what data exists, and what's on the horizon, to best measure & capture sustainability successfully.  Regional perspectives, including 3 chapters on Asia, and focuses on Canada, Australia, Africa & India are also included, as is a look across asset classes.   

Sustainable Investing, when performed with a positive perspective, has been outperforming the mainstream, unlike negative approaches designed to match benchmark returns.  From eco-efficiency to sustainability-driven innovation and beyond, investors of all shapes & sizes need to know how best to position themselves for the radical market shifts underway.

Acknowledgments xix

About the Editor xxi

About the Contributors xxiii

Introduction xxxv

CHAPTER 1 The Sustainability Imperative 1
David A. Lubin and Daniel C. Esty

Sustainability: A Business Megatrend 1

Getting the Vision Right 3

Getting the Execution Right 4

Building a Sustainability Performance System 6

Summary 8

Note 9

CHAPTER 2 Jupiter Ecology 11
Mark L. Trevitt

Roots of the Fund 11

Jupiter Ecology’s Investment Process 12

Good Governance 16

Building a Following 17

Building on Firm Foundations 18

Assessing Companies for the Long Term 19

Voting and Engagement: Participating in the Process of Change 20

Finding Great Green Companies 21

Fund Performance 24

Notes 25

CHAPTER 3 A Predictor of Performance 27
Paul Hawken

Investment in Natural Capitalism 27

Discovering Opportunities 28

Identifying the Companies of the Future 30

Summary 32

CHAPTER 4 Highwater Global 35
Alexis van Gelder, Dean Martucci, and Erika Kimball

Hawken Takes on Domini 36

Fund Drivers Based on Global Sustainable Themes 38

Finding Investment Opportunities 38

Sustainable Investing Is Responsible Investing 44

Summary 45

Notes 46

CHAPTER 5 Further Context 47
Cary Krosinsky

Starting Point for Measuring Sustainability 48

Sustainability 2.0’s Five Factors 49

Summary 51

Notes 51

CHAPTER 6 Sustainable Asset Management 53
Thomas O. Murtha and Ashley Hamilton

SAM’s Origins and Evolution 54

Building a Sustainable Investing Practice: Basic Business Segments 56

Measuring Intangibles: Sustainability Research Methodology 57

Sustainability Lens: Active Portfolio Management 62

SAM and Performance 63

SAM’s Extended Family: Dow Jones Sustainability Indexes 66

Sustainability Advocacy and Company Engagement 74

Summary 76

Notes 77

CHAPTER 7 Domini and BP 81
Colm Fay

Domini Social Investments 83

Safety, Environmental, and Ethical Concerns 84

Domini Investment Philosophy 84

Business Model Analysis: Key Performance Indicator Alignment Model 85

Integrating Business Model Alignment and Stakeholder Relationship Strength 87

Notes 90

CHAPTER 8 The Story of Calvert 91
Sam Brownell and Sara Herald

Unconventional History 91

Calvert’s People 93

Calvert’s Methodologies: Signature, Solution, and SAGE 96

Calvert’s Performance 102

Summary 105

Notes 106

CHAPTER 9 Winslow 107
Amrita Vijay Kumar

Blazing a Trail 107

Investment Process 108

Performance Considerations 112

Summary 112

Notes 113

CHAPTER 10 Portfolio 21 115
Ashley Hamilton

Portfolio 21: A History 116

Theory of Sustainability and Change 117

In Search of Forward-Looking Companies 119

Results 120

Summary 121

Notes 122

CHAPTER 11 Northwest and Ethical Investments 123
Dana Krechowicz

Humble Beginnings 124

New Direction 124

Evolving Investment Approach 126

Corporate Engagement Program 128

Key Products and Performance over Time 130

Looking Forward: NEI’s Merger with Northwest Funds 131

Note 132

CHAPTER 12 Looking for a Green Century: Passive-Indexed versus Active Portfolio Management 133
Fernando Viana

Background 134

Green Century Funds 134

Green Century Equity Fund 135

Trillium Asset Management and the Balanced Fund 136

Trillium Asset Management Corporation 137

Carbon Footprint of the Balanced Fund 140

Seeking Safer Packaging: The Bisphenol-A Report 140

Shareholder Advocacy 141

Summary 144

Notes 144

CHAPTER 13 Pictet Water 145
Jenna Manheimer and Nancy Degnan

Evolution of Investment Strategy over Time: Original versus Current Mission 147

Founders and Key Decision Makers 148

Methodology 149

Metrics: What Is Important and Why 150

Pictet’s Investments 151

Companies Pictet Has Not Invested in, and Why 153

Performance Review 154

Summary 155

Notes 155

CHAPTER 14 Inflection Point Capital Management and Strategically Aware Investing 159
Matthew J. Kiernan

Strategically Aware Investing 161

Beyond Environmental, Social, and Governance toward a New Model of Corporate Sustainability 162

Portfolio Construction 163

Investment Process 164

Summary 167

Note 167

CHAPTER 15 Environmental Metrics 169
James Salo

Theoretical and Practical Needs for Sustainable Investment 170

Available Data and Metrics 172

Challenges and Opportunities Moving Forward 175

Summary 178

Notes 179

CHAPTER 16 Crawford Chemicals: Carbon Risk Management in an Uncertain Environment 181
Thomas J. Nist, Pavel Yakovlev, and Becky Weisberg

Crawford’s Environmental Dilemma 182

Markets for Carbon Permits and Cap and Trade 185

European Union Emissions Trading Scheme 188

Pros and Cons of the Market for Carbon Permits 190

Predicament of Sustainability in the Chemical Industry 193

Summary 199

Notes 199

CHAPTER 17 Using Statistical Tools 203
Sam Brownell

Understanding the Trend 205

Summary 206

Notes 209

CHAPTER 18 Barriers to Sustainable Investing 211
Stephen Viederman

Missing Planet Problem 212

Overcoming the Barriers 213

Strategy and Tactics 214

Notes 215

CHAPTER 19 The Silent “S” in ESG 217
Dan Viederman

Assessing Social Metrics to Increase Business Performance 218

Risk Management 218

Summary 220

CHAPTER 20 Sustainable Investing: A Ten-Year Perspective 221
Nancy Degnan

The New Normal 222

Climate Change Mitigation, Adaptation, and Sustainability Research 222

Adaptation as Key to Investment and Practice 224

Ecosystem Services 226

Making Use of Data and Findings 227

Summary 230

Notes 230

CHAPTER 21 Bloomberg 235
Curtis Ravenel

Providing Investor Insight and Increasing Transparency 236

Summary 238

Notes 239

CHAPTER 22 Aviva 241
Malte Griess-Nega and Nick Robins

Aviva’s History and Investment Philosophy 242

Aviva’s SRI Investment Process 242

SRI Portfolio Construction 246

Case Study 1: Green Tires 246

Case Study 2: The Responsible Supply Chain 248

Engagement Across All Asset Classes 249

Conclusion 251

Notes 251

CHAPTER 23 Generation Investment Management 253
Malte Griess-Nega and Nick Robins

A New Model for Global Equities 254

Summary 258

Notes 259

CHAPTER 24 Insight Investment: Reflections and Lessons Learned from Integrating Sustainability 261
Rory Sullivan

About Insight 262

Investment Research on ESG Issues 263

Case Study: Climate Change 266

Case Study: European Electricity Utilities 267

Case Study: Biofuels 268

Reflections/Takeaways from the Case Studies 269

Summary 274

Notes 274

CHAPTER 25 The Unexpected Role Model: Chinese Environmental and Energy Policy 277
J. Jason Mitchell

China’s Resource Scarcity and Its Empirical Need for Efficiency 280

Shaping Chinese Energy-Efficiency Norms 288

Chinese Policy Setting 290

Translating China’s Environmental Policies into Industrial Opportunities 292

Summary 296

Notes 297

CHAPTER 26 Ethical Asia 301
Simon Powell

Reporting Is on the Rise 302

CSR Works when Companies and Society Are Aligned 305

Focuses in Asia: Labor and Environment 306

Summary 310

CHAPTER 27 Mitigating ESG Risk in Asian Portfolios 313
Lucy Carmody and Laura Dodge

The Challenge: Lack of Disclosure 314

ESG Integration in Asian Portfolios 315

Funding ESG Research 317

Building Institutional Capacity 318

Use of Indexes, Benchmarking, and Screening 319

Summary 320

Notes 320

CHAPTER 28 Sustainable Investing and Canada 323
Dana Krechowicz and Alex Wood

The Basics 324

Growth of Canada’s Sustainable Investment Industry 325

Context and Trends 325

Summary 327

Notes 327

CHAPTER 29 High-Risk Areas, Resources, and Sustainability 329
N.A.J. Taylor

Blacklisted 330

Background 331

Enter Rio Tinto 336

Ordinary Business Activities 339

Summary 342

Notes 342

CHAPTER 30 Sustainable Investing in Africa’s Frontier Markets 345
Graham Sinclair and Roselyne Yao

Stronger Economics: The Case for Investing in Africa 346

Sustainability Issues in Africa 348

Role of Indexes 350

International Exposure 350

Future Trends: ESG, Media Coverage, and Networks 352

Summary 353

Notes 354

CHAPTER 31 Evolution of ESG in India 359
Sumantra Sen

Sustainability Issues in India 359

Opportunities in India’s Sustainable Investing Market 361

Considering the Integration of ESG Factors 362

Summary 363

References 364

CHAPTER 32 Indexes 365
Graham Sinclair

The “What” and “Why” of Indexes 366

Index Architecture 369

Research Quality and Independence 372

Lessons from the Leading Sustainability Indexes 373

Company Reactions to Indexes and Their Impacts 378

Summary 380

Notes 381

CHAPTER 33 How Asset Owners Can Achieve a Sustainable Investing Framework 383
Roger Urwin

Importance of Values and Beliefs 384

Integrated Allocations and Targeted Allocations 385

Risk Factors and ESG Beta 386

Quantitative Methods of Risk and Return 388

Monitoring Framework 389

Summary 391

Notes 392

CHAPTER 34 On Performance 393
Bud Sturmak and Cary Krosinsky

SRI Techniques 394

ESG Affects Investment Performance 395

Trends from Performance Reports 396

Summary 398

Notes 398

CHAPTER 35 Private Equity 401
Graham Sinclair

Private Equity as a Niche of General Asset Management 402

PE’s Fit within Sustainable Investing 404

Development Finance Institutions Leverage of Emerging Markets Private Equity 405

PE-Specific ESG Methods 406

PE Best Practices and ESG Case Studies 408

Contrasting PE and Listed Equity Investors 409

New SI Activity in the PE Asset Class 410

PE Allocations Increase 410

Increased PE Funds Focused on Emerging Markets 411

Future Sustainability Themes in PE 412

Summary 413

Notes 414

CHAPTER 36 Blue Wolf: Implications for Private Equity 417
Adam Blumenthal and Michael Musuraca

Challenges and Opportunities 419

Generating Results 420

Labor Relations Coda 421

Summary 422

CHAPTER 37 New Business Models, Measurement, and Methodologies 423
Howard Brown

Resources and Products versus Wealth 425

Trend of Doing More with Less 426

Improving Overall Performance 426

Summary 427

CHAPTER 38 Terminology and Intention 429
Lloyd Kurtz

Values 430

Financial Performance 432

Fiduciary Duty: Universal Ownership 433

Impact 435

Mapping Techniques to Motivation 436

Summary 437

Notes 438

Cary Krosinsky 441

Notes 446

APPENDIX A Sample Curriculum 447

Syllabus 447

APPENDIX B Investors 453

Index 455