Many families and organizations have, for years restricted certain companies. Things like “We are in the healthcare business so we should not own any tobacco stocks”, or during Apartheid, companies that did business in South Africa. These types of exclusions were a step in the direction of aligning investments with investor’s personal views and in many cases their missions. Today this philosophy has evolved even further to the point where investors can choose strategies that look for positive attributes, now referred to as sustainable investing in companies that may match their missions. In 2006, the Principles for Responsible Investment (PRI) initiative convened by the United Nations Environmental Program Finance Initiative and the UN Global Compact announced after its first anniversary that it had achieved over 180 institutional signatories from all around the Globe. This represents over $8 Trillion in assets under management. This has grown, by the end of 2012 to over 1,119 U.N. signatories with collective assets over $35 Trillion in assets aspiring to invest sustainably. These are truly “Thought Leaders” that now have a lot of investable assets behind their sustainable beliefs.
The United Nations has lists of companies that comply with Environmentally, Socially Conscious and Good Governance principles (ESG). This has been a much talked about topic at the World Economic Forum in Davos over the past few years, in fact one group, “The Global 100”Most Sustainable Companies list is announced annually at the World Economic Forum in Davos. Michael Dieschbourg, one of the attendees at Davos, and a member of the “Council of Experts” states that sustainable investing is the key to identifying new risks and is part of the future of investing. The adoption by Bloomberg, MSCI, Reuters, Morgan Stanley and Credit Suisse, to name a few, has proven the importance of providing this information to the investment industry. In fact, the Global 100 index has outperformed the MSCI index since its inception in 2005. (See Global 100.org performance-2005-2012). Other groups have shown the same positive effect on bonds and other strategies.
The Global 100 homepage has a compelling story on why the work has been done on this:
“Why we do it”
“If all corporations are not the same, which ones are better?” The purpose of the Global 100 is to reinforce, raise awareness and highlight annually the leaders in “clean capitalism”, laying out in one clear page the global firms most willing and able to deal with the key social and environmental factors they face in their everyday operations.”
“We want to maintain sustainability in the business community. By applying objective corporate social and environmental measures that clearly show which companies stand above their peers, our aim is to create a virtuous cycle where the most sustainable companies attract the most capital and earn the best returns. The Global 100 companies deserve to be recognized because they are models for the art of the possible, living proof of how Billion dollar entities can squeeze more wealth from less material resources while honoring the social contract.”
“We believe that a company’s ability to manage its environmental, social and governance (ESG) file is a powerful proxy for its overall management quality. Management quality, in turn, is an important determinant of corporate financial performance, both in accounting measures and in terms of shareholder returns. The aim of this initiative is thus to promote better managed and better performing companies.”
“In a competitive market, there’s little doubt that businesses can derive a range of benefits from sound management of their environmental, social and governance (ESG) areas, such as reputational advantages, license to operate, and employee recruitment and retention benefits, among others. In an age of information overload, it is important that stakeholders, including shareholders, policy-makers, employees and consumers be provided with a way pick out the true leaders from the pack.”
“There is also a growing investment case for strong management of extra-financial risks and opportunities. As we move deeper and deeper into the era of knowledge-value based on sustainability issues, conventional methods of company analysis will capture and reflect less and less of a company’s true value and competitive potential. These sustainability value drivers are difficult to measure, but they are absolutely central to companies’ competitiveness and profitability going forward.”
There are funds, asset managers and ETF’s today whose managers identify and invest only in companies that comply with ESG criteria. There are funds that lend in their communities to promote projects by non-profits, for low income housing and other qualified “mission related
investments”. Most importantly, there is an evolving body of evidence that an investor that wants to align their investments with their mission may not have to give up good investment performance to do so. The evidence shows that many companies that focus on sound operating principles in the communities that they operate and with their own employees, and that adhere to sound corporate governance principles actually have better performing stocks. If your organization focuses on improving the lives of people in your community or in the World, it may be a natural step to look at aligning your investments to be consistent with that mission and investing alongside of $35 Trillion in other assets that will bring attention and change for us and those that will come after us.
(Source Michael Dieschbourg-Global 100 Council of Experts)
Norman Nabhan CIMA is a Managing Director of Morgan Stanley Graystone and an Institutional Consulting Director in their Houston Galleria Office. 713-499-3024 email@example.com www.morganstanleygc.com/norman.e.nabhan
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. As of May 30, 2011, the MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. An investment cannot be made directly in a market index.
The Global 100 is an Index of the 100 most Sustainable Companies created by Global Knights in conjunction with its Global 100 Council of Experts. It begins with a universe of 3,000 Global Stocks and the top 10% are isolated based on financial health and qualitative sustainability ratings. Companies are then ranked on 10 indicators with data sourced from Bloomberg and Asset4, a Thomson Reuters business. The list is announced annually at the World Economic Forum in Davos.
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Mr. Nabhan is an Institutional Consulting Director of Graystone Consulting at Morgan Stanley and a member of Graystone Consulting, Houston, Texas. He is a Managing Director of Morgan Stanley. He has more than thirty years of experience helping institutional investors design spending and investment policy, asset allocation strategies, select appropriate investment management firms and conduct regular rebalancing and portfolio reviews. Additionally, he has extensive experience assisting defined contribution & defined benefit plan sponsors meeting regulatory standards established by ERISA and the U.S. Department of Labor.
Mr. Nabhan began his career in financial services as an Account Executive in 1973 in Chicago. He joined E. F. Hutton in 1977, in Chicago. He has served in numerous management positions with the Consulting Group including Director of Institutional and portfolio Advisory Services. In 2004 he was National Director of Investment Consulting and was made a Managing Director of Citigroup. He served as President of Citigroup Investment Advisory Services (CIAS) which managed $6 Billion in assets in a discretionary manager of managers program and $10 Billion in assets in series of registered mutual funds managed by independent managers. He has completed the course of study at the Wharton School of Business offered in conjunction with the Investment Management Consultants Association that has resulted in certification as a Certified Investment Management Analyst (CIMA). He has also completed the Accredited Investment Fiduciary (AIF) certification granted by the Center for Fiduciary Studies.
Mr. Nabhan is a graduate of Purdue University with a B. A. His Professional associations include the Investment Management Consultants Association, where he served on the Board of Directors for 8 years, and served two years as President. He has been conferred the title of Director Emeritus. He has served as Chairman of the Certification committee. He is the Past President of the Association of Professional Investment Consultants. He has served as a Director and National President of Sigma Phi Epsilon Fraternity. He served on the Alternative Investment Advisory Board for the Purdue University Endowment and was on the Advisory Board of the Center for Wealth and Philanthropy at Boston College. He has been a speaker at numerous industry and Philanthropic conferences at the Indiana University Center of Philanthropy, Boston College, Johns Hopkins University Center for Non Profit Management, Arizona State University, the Michigan and Minnesota Councils of Foundations, University of Texas Law School Non Profit Institute, as well as the Association of Small Foundations and NACUBO. He has also appeared on CNBC.