Evolutions in Sustainable Investing

CARY KROSINSKY is coeditor of a previous book on this subject—Sustainable Investing: the Art of Long-Term Performance, also with Nick Robins. Cary is a Senior Vice President and member of the management team for Trucost, which has become the recognized global leader in corporate environmental data and analysis, including advising the respected Newsweek Green Rankings. He also teaches sustainability and investing at Columbia University's Earth Institute and an MBA course on the same subject at the University of Maryland's Robert H. Smith School of Business, and is also a frequent speaker on the intersection of sustainability and ownership. He was a member of the expert group that helped create the United Nations Principles for Responsible Investment.

"A genuinely comprehensive account... a clear road map for beginners and experienced investment practitioners alike." (Ethical Corporation)

• Acknowledgments xixAbout the Editor xxiAbout the Contributors xxiiiIntroduction xxxvChapter 1 The Sustainability Imperative 1David A. Lubin and Daniel C. EstySustainability: A Business Megatrend 1Getting the Vision Right 3Getting the Execution Right 4Building a Sustainability Performance System 6Summary 8Note 9Chapter 2 Jupiter Ecology 11Mark L. TrevittRoots of the Fund 11Jupiter Ecology’s Investment Process 12Good Governance 16Building a Following 17Building on Firm Foundations 18Assessing Companies for the Long Term 19Voting and Engagement: Participating in the Process of Change 20Finding Great Green Companies 21Fund Performance 24Notes 25Chapter 3 A Predictor of Performance 27Paul HawkenInvestment in Natural Capitalism 27Discovering Opportunities 28Identifying the Companies of the Future 30Summary 32Chapter 4 Highwater Global 35Alexis van Gelder, Dean Martucci, and Erika KimballHawken Takes on Domini 36Fund Drivers Based on Global Sustainable Themes 38Finding Investment Opportunities 38Sustainable Investing Is Responsible Investing 44Summary 45Notes 46Chapter 5 Further Context 47Cary KrosinskyStarting Point for Measuring Sustainability 48Sustainability 2.0’s Five Factors 49Summary 51Notes 51Chapter 6 Sustainable Asset Management 53Thomas O. Murtha and Ashley HamiltonSAM’s Origins and Evolution 54Building a Sustainable Investing Practice: Basic Business Segments 56Measuring Intangibles: Sustainability Research Methodology 57Sustainability Lens: Active Portfolio Management 62SAM and Performance 63SAM’s Extended Family: Dow Jones Sustainability Indexes 66Sustainability Advocacy and Company Engagement 74Summary 76Notes 77Chapter 7 Domini and BP 81Colm FayDomini Social Investments 83Safety, Environmental, and Ethical Concerns 84Domini Investment Philosophy 84Business Model Analysis: Key Performance Indicator Alignment Model 85Integrating Business Model Alignment and Stakeholder Relationship Strength 87Notes 90Chapter 8 The Story of Calvert 91Sam Brownell and Sara HeraldUnconventional History 91Calvert’s People 93Calvert’s Methodologies: Signature, Solution, and SAGE 96Calvert’s Performance 102Summary 105Notes 106Chapter 9 Winslow 107Amrita Vijay KumarBlazing a Trail 107Investment Process 108Performance Considerations 112Summary 112Notes 113Chapter 10 Portfolio 21 115Ashley HamiltonPortfolio 21: A History 116Theory of Sustainability and Change 117In Search of Forward-Looking Companies 119Results 120Summary 121Notes 122Chapter 11 Northwest and Ethical Investments 123Dana KrechowiczHumble Beginnings 124New Direction 124Evolving Investment Approach 126Corporate Engagement Program 128Key Products and Performance over Time 130Looking Forward: NEI’s Merger with Northwest Funds 131Note 132Chapter 12 Looking for a Green Century: Passive-Indexed versus Active Portfolio Management 133Fernando VianaBackground 134Green Century Funds 134Green Century Equity Fund 135Trillium Asset Management and the Balanced Fund 136Trillium Asset Management Corporation 137Carbon Footprint of the Balanced Fund 140Seeking Safer Packaging: The Bisphenol-A Report 140Shareholder Advocacy 141Summary 144Notes 144Chapter 13 Pictet Water 145Jenna Manheimer and Nancy DegnanEvolution of Investment Strategy over Time: Original versus Current Mission 147Founders and Key Decision Makers 148Methodology 149Metrics: What Is Important and Why 150Pictet’s Investments 151Companies Pictet Has Not Invested in, and Why 153Performance Review 154Summary 155Notes 155Chapter 14 Inflection Point Capital Management and Strategically Aware Investing 159Matthew J. KiernanStrategically Aware Investing 161Beyond Environmental, Social, and Governance toward a New Model of Corporate Sustainability 162Portfolio Construction 163Investment Process 164Summary 167Note 167Chapter 15 Environmental Metrics 169James SaloTheoretical and Practical Needs for Sustainable Investment 170Available Data and Metrics 172Challenges and Opportunities Moving Forward 175Summary 178Notes 179Chapter 16 Crawford Chemicals: Carbon Risk Management in an Uncertain Environment 181Thomas J. Nist, Pavel Yakovlev, and Becky WeisbergCrawford’s Environmental Dilemma 182Markets for Carbon Permits and Cap and Trade 185European Union Emissions Trading Scheme 188Pros and Cons of the Market for Carbon Permits 190Predicament of Sustainability in the Chemical Industry 193Summary 199Notes 199Chapter 17 Using Statistical Tools 203Sam BrownellUnderstanding the Trend 205Summary 206Notes 209Chapter 18 Barriers to Sustainable Investing 211Stephen ViedermanMissing Planet Problem 212Overcoming the Barriers 213Strategy and Tactics 214Notes 215Chapter 19 The Silent “S” in ESG 217Dan ViedermanAssessing Social Metrics to Increase Business Performance 218Risk Management 218Summary 220Chapter 20 Sustainable Investing: A Ten-Year Perspective 221Nancy DegnanThe New Normal 222Climate Change Mitigation, Adaptation, and Sustainability Research 222Adaptation as Key to Investment and Practice 224Ecosystem Services 226Making Use of Data and Findings 227Summary 230Notes 230Chapter 21 Bloomberg 235Curtis RavenelProviding Investor Insight and Increasing Transparency 236Summary 238Notes 239Chapter 22 Aviva 241Malte Griess-Nega and Nick RobinsAviva’s History and Investment Philosophy 242Aviva’s SRI Investment Process 242SRI Portfolio Construction 246Case Study 1: Green Tires 246Case Study 2: The Responsible Supply Chain 248Engagement Across All Asset Classes 249Conclusion 251Notes 251Chapter 23 Generation Investment Management 253Malte Griess-Nega and Nick RobinsA New Model for Global Equities 254Summary 258Notes 259Chapter 24 Insight Investment: Reflections and Lessons Learned from Integrating Sustainability 261Rory SullivanAbout Insight 262Investment Research on ESG Issues 263Case Study: Climate Change 266Case Study: European Electricity Utilities 267Case Study: Biofuels 268Reflections/Takeaways from the Case Studies 269Summary 274Notes 274Chapter 25 The Unexpected Role Model: Chinese Environmental and Energy Policy 277J. Jason MitchellChina’s Resource Scarcity and Its Empirical Need for Efficiency 280Shaping Chinese Energy-Efficiency Norms 288Chinese Policy Setting 290Translating China’s Environmental Policies into Industrial Opportunities 292Summary 296Notes 297Chapter 26 Ethical Asia 301Simon PowellReporting Is on the Rise 302CSR Works when Companies and Society Are Aligned 305Focuses in Asia: Labor and Environment 306Summary 310Chapter 27 Mitigating ESG Risk in Asian Portfolios 313Lucy Carmody and Laura DodgeThe Challenge: Lack of Disclosure 314ESG Integration in Asian Portfolios 315Funding ESG Research 317Building Institutional Capacity 318Use of Indexes, Benchmarking, and Screening 319Summary 320Notes 320Chapter 28 Sustainable Investing and Canada 323Dana Krechowicz and Alex WoodThe Basics 324Growth of Canada’s Sustainable Investment Industry 325Context and Trends 325Summary 327Notes 327Chapter 29 High-Risk Areas, Resources, and Sustainability 329N.A.J. TaylorBlacklisted 330Background 331Enter Rio Tinto 336Ordinary Business Activities 339Summary 342Notes 342Chapter 30 Sustainable Investing in Africa’s Frontier Markets 345Graham Sinclair and Roselyne YaoStronger Economics: The Case for Investing in Africa 346Sustainability Issues in Africa 348Role of Indexes 350International Exposure 350Future Trends: ESG, Media Coverage, and Networks 352Summary 353Notes 354Chapter 31 Evolution of ESG in India 359Sumantra SenSustainability Issues in India 359Opportunities in India’s Sustainable Investing Market 361Considering the Integration of ESG Factors 362Summary 363References 364Chapter 32 Indexes 365Graham SinclairThe “What” and “Why” of Indexes 366Index Architecture 369Research Quality and Independence 372Lessons from the Leading Sustainability Indexes 373Company Reactions to Indexes and Their Impacts 378Summary 380Notes 381Chapter 33 How Asset Owners Can Achieve a Sustainable Investing Framework 383Roger UrwinImportance of Values and Beliefs 384Integrated Allocations and Targeted Allocations 385Risk Factors and ESG Beta 386Quantitative Methods of Risk and Return 388Monitoring Framework 389Summary 391Notes 392Chapter 34 On Performance 393Bud Sturmak and Cary KrosinskySRI Techniques 394ESG Affects Investment Performance 395Trends from Performance Reports 396Summary 398Notes 398Chapter 35 Private Equity 401Graham SinclairPrivate Equity as a Niche of General Asset Management 402PE’s Fit within Sustainable Investing 404Development Finance Institutions Leverage of Emerging Markets Private Equity 405PE-Specific ESG Methods 406PE Best Practices and ESG Case Studies 408Contrasting PE and Listed Equity Investors 409New SI Activity in the PE Asset Class 410PE Allocations Increase 410Increased PE Funds Focused on Emerging Markets 411Future Sustainability Themes in PE 412Summary 413Notes 414Chapter 36 Blue Wolf: Implications for Private Equity 417Adam Blumenthal and Michael MusuracaChallenges and Opportunities 419Generating Results 420Labor Relations Coda 421Summary 422Chapter 37 New Business Models, Measurement, and Methodologies 423Howard BrownResources and Products versus Wealth 425Trend of Doing More with Less 426Improving Overall Performance 426Summary 427Chapter 38 Terminology and Intention 429Lloyd KurtzValues 430Financial Performance 432Fiduciary Duty: Universal Ownership 433Impact 435Mapping Techniques to Motivation 436Summary 437Notes 438Conclusion41Cary Krosinsky 4Notes 446Appendix A Sample Curriculum 447Syllabus 447Appendix B Investors 453Index 455