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.

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.

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

 

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.

Lighting Retrofits: Low Hanging Fruit

For some time now, we have been hearing a politically-charged and nonsensical debate in Washington over new standards for light bulb efficiency.  These standards while new, completely follow past precident to advance the industry and improve efficiency while giving manufacturers clarity from which to make investment decisions.

Less interesting to many, but more impactful to companies and to society, are the efficiency gains that are being realized every day through lighting retrofits.  The cost savings are often staggering.

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.