Climate Action May Impact Dividend Growth

B. Scott Sadler, CFA -- President, Boardwalk Capital Management

Out-of-control firestorms in Colorado and 100-degree heat index in the nation's capital served as an apt backdrop for an important court ruling on climate risk... And an important marker for investors that their world is changing in ways they may not yet understand.

Earlier this week, the U.S. Court of Appeals for the District of Columbia found that the EPA's interpretation of the Clean Air Act to regulate carbon dioxide regulations is "unambiguously correct." The three-judge panel unanimously agreed with the Environmental Protection Agency's finding that carbon dioxide is a public danger.

According to David Doniger of the Natural Resources Defense Council, "These rulings clear the way for EPA to keep moving forward under the Clean Air Act to limit carbon pollution from motor vehicles, new power plants, and other big industrial sources."

Three Characteristics of Responsible Corporate Citizens

This post authored by Daniel Baylis, Director of Content for N/A (the actual name). It appears courtesy of FastCompany.com.

To be "good" in the past meant a variety of things. Perhaps a company's product made people's lives easier. Or maybe they provided jobs in economically challenging times. But chances are the environmental effects of manufacturing were never considered, and overseas production was a financially intelligent decision free from ethical implications. Big businesses and marketing agencies were focused on selling the American Dream. Problematic environmental and social consequences hadn't yet come on the radar.

In the 1970s, a new marketing movement was born. It was called "cause marketing" and it matched for-profit businesses with charitable endeavors. Over the next few decades, the measure of doing good was how much your foundation gave to cancer, AIDS, dolphins, or any other topical issue. Cause marketing had its tangible benefits, but would prove to be trendy and lacking actual commitment.

Today there is an increased consumer value in supporting businesses that don't simply do well, but that do good. Cultural values are shifting, and this sea change is catalyzing corporations to revisit the choices they are making. And this will continue. But we are far from a world where corporations are making choices based upon the triple-bottom line: profits, people, and planet.

Managing the Unmeasurable -- Where are My Risks?

B. Scott Sadler, CFA -- President, Boardwalk Capital Management

Investors for decades have equated risk with volatility. But as we learned in the economic crisis of 2008-09, unseen and external factors can wreak havoc on portfolios. 


So, what do we investors do with our newfound concern over risk? 


If the past is any guide, we dutifully build our concern over those past risks into our portfolio thoughts and allocations (knowing full well that the past seldom repeats itself in exactly the same way...)

THAT is a recipe for failure.

So, what risks are we missing?  What actions should we be taking now to protect from those risks?

There is a new school of thought called Integrated Risk analysis that refuses to ignore risks just because we can't quantify them.


Take ecological risk:  We know that society is consuming more of the earth's resources than it can replenish.  Our activities are even inhibiting the planet's ability to produce at the earlier rate and same cost.  And we are painfully learning that the available quantities of potable water and arable land are insufficient to support the growth forecasts that underpin our valuations.

Something in this equation is incorrect -- either valuations or growth -- and as fiduciaries, we have a responsibility to manage this risk.

THIS is What "Serious About Sustainability" Looks Like

If you are a company who wants to do business with the big guys, you often to have do it their way. Today, that can mean doing business sustainably.  Large companies are held accountable for the impact of their suppliers.  So, those suppliers must play by the new rules of the game. 

In other words, it just got serious.

As a sustainable investor, you may feel good knowing that your portfolio companies are moving the needle on environmental issues.  But have you considered the risk that your small cap investments may become increasingly uncompetitive if they can't meet these increasingly higher standards? 

There is a real risk that the measurement and documentation of these issues may render some firms "out of the loop" when it comes to earning the business of a Procter and Gamble or a Microsoft.

Water Stress: A World Wide Problem

Sustainable investors should be particularly concerned about how their portfolio holdings are addressing one of the most critical issues of our time:  Water.
 

Unsustainable water use is threatening agriculture, other business and populations in China, India and the US, according to a study by risk analysis company Maplecroft.  Companies who fail to manage this issue stand to lose sales, and even the right to operate in certain countries.

Boardwalk Portfolios: Top Rankings for Ethics and Climate

Last month, global watchdog Ethisphere released its World's Most Ethical Companies list.  This month, research firm Maplecroft disclosed its Climate Innovation Index.  In both cases, Boardwalk's model portfolio holdings were well represented.

Among those considered most ethical, General Electric and Starbucks have made the grade for all six years of the study's existence. 

UPS, Cisco, Intel, Alcoa, and Pepsico were also among the domestic honorees in our models, while Accenture (Ireland), National Grid (UK) and Westpac Banking (Australia) were among the foreign holdings recognized.

The Carbon Innovation Index recognizes companies who "successfully innovate and manage climate-related opportunities and risks and are better equipped to operate in this future growth environment." Many of the same "ethical" companies are also making a serious effort to prepare for climate change.  Boardwalk holdings GE, Alcoa, Intel, Hess, Praxair and Ford are among the top ten ranked firms.

For more on the Boardwalk model portfolios click Global ESG Titans or ESG 50 USA.

Mounting Challenges for the World's Food Supply

With an expanding and increasingly urban, meat consuming world population, how will farming co-exist with climate change and water/energy/land scarcity?

Agriculture already consumes 70% of the world's water supply.  And by 2030, farmers will need 45% more water to feed the almost 9 billion people on the planet by then.  Where will it come from? 

Meanwhile, food production, and getting food to the consumer, both use vast amounts of energy.  And traditional energy sources aren't getting cheaper.  These inputs, and more volatile weather, are resulting in large fluctuations in food prices.  And as the author points out, this has often been associated with social unrest.

As a society, how will we deal with this issue?

There is much food for thought in the attached article from Environmental Leader.  Well worth a read.

My Sustainability Talk with Corporate America

Earlier this month, I had the pleasure of addressing the Atlanta chapter of the National Investor Relations Institute (NIRI) on the subject of sustainability. Investor relations reps are a company's connection to its shareholders -- answering investor questions, providing information, etc. It is hardly glamorous work, but requires a great deal of effort, and knowledge, to do it well.

Increasingly, questions come to them from investors like Boardwalk, asking about emissions, water usage, diversity, etc.  And many IR representatives are doing a yeoman's job of trying to meet the disparate needs of the investor community. At the end of the day, however, if your company is doing little to address the core issues that bother your shareholders, there ain't much that a pretty face or articulate voice are going to do to fix that.

The good news is that many companies are doing much more, and are using "sustainability" to improve nearly every aspect of their business.

Impact Investing: The Trillion Dollar Investment Opportunity

If you are familiar with Boardwalk Capital, then you know that our firm provides a different type of investment management. We focus on sustainable investing --building investment strategies from what may be called "exemplary corporate citizens". 

We think this is pretty important stuff, but to be honest, it's usually just part of the story. To create a full sustainable portfolio, however, one must bring in other asset types such as bonds, commodities, and an array of "specialty" investments -- all with an overarching theme of responsible and profitable investing.

Within the catch-all "specialty" category listed above, one finds what are now called Impact Investments. These are often truly unique enterprises -- companies organized to meet a societal need -- and turn a profit while doing so.

This new and remarkable business model was described by JPMorgan as the next big asset class.  They called it A One Trillion Dollar Investment Opportunity.

Why the World's Largest Investors are Embracing Sustainable and Responsible Investing

Pension plans, college endowments and charitable organizations are some of the largest and most astute investors in the world. As individuals, should we take lessons from their actions?

In recent years, institutions who manage trillions of dollars have begun to take a new approach to investing. They have determined that resource scarcity, climate change, activist consumers and even the speed of social media have changed the investment landscape.

Company reputations are damaged in an instant, and billions of dollars can be wiped away by reckless actions. These institutional investors are increasingly employing a "Sustainable and Responsible Investment" model to help them manage this array of new risks, while positioning themselves to pursue additional opportunities...

Read more

 

Companies are Climate Change Believers (even when politicians are not)

Without question, some companies stand to be harmed by climate change. Yet there are many firms who could benefit and are already seizing new opportunities.

Others worry of being impacted by a raft of regulatory changes that seem increasingly likely -- and are lobbying furiously to delay or derail these efforts.

While the impacts will surely vary, no company will be untouched by this issue that sustainable investors increasingly study...

US Buildings need $280bn investment in energy efficiency -- for a $1 trillion return

Buildings account for nearly half of US energy consumption, consume 3/4 of the electricity and, excluding residential, are responsible for more than 45 percent of carbon emissions. The EPA suggests that some 30% of this energy is wasted. 

New research from the Rockefeller Foundation and Deutsche Bank reveals that such inefficiency creates a mammoth investment opportunity --  $279bn investment is needed, and the payback in energy efficiency could yield more than $1 trillion in cost savings over the next decade.  Such a surge of activity stands to employ millions of workers, substantially reduce carbon emissions and provide investors with a handsome return on investment.

Intel Takes Green Mindedness to the Bank

One never knows where they will find evidence of good corporate citizenship, operational excellence and environmental stewardship.  This time, it's the lawyers...

Law.com/Corporate Counsel magazine recently interviewed several corporate attorneys at Intel, revealing much about the depth and breadth of the sustainability programs at the world's largest manufacturer of semiconductor chips.

15 Companies Tell Congress To Renew Key Wind Power Tax Credit

In a recent letter to Congress, fifteen of the country's largest consumers of alternative energy, including Starbucks, Yahoo! and Campbell's Soup, voiced their support for renewing the Production Tax Credit, (PTC) set to expire in December 2012.

The letter states that the "PTC has enabled the industry to slash wind energy costs by some 90% since 1980..." 

Apple Takes It Up a Notch

Investor and consumer pressure can move mountains. Finally, Apple has agreed to take a hard look at the working conditions in its factories around the world.

Apple Inc., now the world's largest company by market value, has dazzled consumers by essentially reinventing how we buy music, how we use our phones and how we access the web.  The company has similarly dazzled investors with a share price that seems impervious to global economic challenges and bear markets.

For responsible investors, Apple has been a conundrum:  Environmentally conscious but practically devoid of philanthropic activity.  Meticulously managed by a visionary leader but with a supply chain notorious for poor working conditions. The company didn't even disclose who its suppliers were.

The Dollar Payoff from CSR and Sustainability

If investors needed proof of the financial value from sustainability -- it's here.

Researchers at the Harvard Business School reviewed 18 years of data on more than 700 companies. Their findings were remarkable. "High sustainability" companies have not only been more profitable than their less responsible peers, their shares have performed significantly better. 

A Slowly Boiling Frog... Investor Summit on Climate Risk

On January 12, 2012, Boardwalk Capital joined nearly 500 of the world’s investors and most powerful financial players at the United Nations.

Collectively, more than $20 trillion in assets were present, united by a desire to catalyze the large-scale investment needed to reduce carbon emissions and mitigate potentially catastrophic climate impacts. This was the fourth Investor Summit on Climate Risk and Energy Solutions.

Particularly interesting were the opportunities presented in financing energy infrastructure and low carbon equity management that were supported by some of the world's largest pension plans -- CalPERS, British Telecom and California Teachers along with State Treasurers from North Carolina, Connecticut, Pennsylvania and Maryland.

Perhaps the most poinient moment was when Rob McCord, Pennsylvania State Treasurer likened investors to a frog in a pot of hot water. A slow change is difficult to detect, until it is too late.

The investors in the room are choosing not to wait for governments to act. They are pressuring companies and political actors to move swiftly to combat this growing threat, repositioning portfolios away from high risk enterprises and seeking investment opportunities in emerging industries and from mitigation beneficiaries. The reason is clear: Literally trillions will be spent on clean energy solutions and on amending old ones.

Read more at Ceres.org

Leveling the (Carbon) Playing Field

The International Energy Agency’s annual World Energy Outlook, released in November, sent a stark message to the participants at the climate negotiations in Durban:  "The world is locking itself into an insecure, inefficient and high-carbon energy system. And time is running out to take action before changes become irreversible".

While such talk of "irreversible changes" may be subject to debate, no one is questioning whether or not a lower carbon future is preferable.  All things equal, clean energy sources lack the emission, national security and trade balance challenges of higher carbon alternatives.


Europe has blazed the lower carbon trail, but China and Brazil are both working to contain CO2 emissions.  And last year, Australia became one of the first countries to enact a carbon tax on its largest emitters, with the proceeds being used for tax cuts and pension enhancements for the population at large.

The concept of "polluter pays" is well established in solid waste (ask any construction company about the cost of landfill access).  Now it is merely being applied to gaseous pollutants. 

In the United States, The Save Our Climate Act (H.R, 3242) was introduced last year to place a revenue-neutral tax on carbon at the source (with these funds then returned to each citizen in the form of a "dividend".)  The affect of such legislation would be to provide businesses and consumers with a predictable carbon cost on which to base decisions.  Lower carbon choices become relatively less expensive to investors and consumers, and carbon dioxide levels would eventually decline from the inevitable behavioral shift.

The benefits to the USA of such legislation are potentially numerous.  The American Solar Energy Association estimates that carbon legislation of this type would add 4.2 million new jobs to the US economy over ten years. Technological leadership would more easily follow from clear and transparent policies.  And any reduction in the $200 billion spent annually on imported oil would improve our national security and trade deficits.

While the likelihood of such legislation being enacted in an election year is quite modest, the direction is clear:  A lower carbon future awaits.

Google Invests $94 Million in Solar Energy

Dispense with your concerns that Google's interest in alternative energy is waning.

While the firm did recently close a high profile energy research group, Google just announced it has made a new $94 million investment in a portfolio of four solar photovoltaic projects currently under construction by Recurrent Energy near Sacramento, CA.

“This investment represents our first investment in the U.S. in larger scale solar PV power plants that generate energy for the grid—instead of on individual rooftops. These projects have a total capacity of 88 MW, equivalent to the electricity consumed by more than 13,000 homes”, Google said on its blog.

The internet giant said this new investment brings its total alternative energy investments to more than $915 million. In 2011 it helped more than 10,000 homeowners to install solar PV panels on their rooftops.

Read more at CleanTechies.com