Corporate Governance

From the Pages of The Pomerantz Monitor

By Carolyn Moskowitz

            Pomerantz Partner Adam Prussin recently reported on the hottest development in "socially responsible" investing: "ESG" ratings on environmental, social and governance issues. An increasing number of firms are using ratings formulas for picking stocks that take into account -- in addition to the "sin" quotient of a company's products (such as alcohol, tobacco and firearms) -- such factors as executive pay, carbon emissions, workplace diversity, and community relations. These firms include:

            Pax World Management, which developed a "sin" rating system 36 years ago, and now uses both financial and ESG metrics in deciding where to invest;

            Northern Trust Corporation, which expects to introduce a mutual fund soon that will base investment decisions in part on the new Global Sustainability Index, which includes 686 stocks rated on a series of ESG related factors developed by KLD Research & Analytics;

            Goldman Sachs, which issued a lengthy report a few months ago that recommended 44 stocks based on financial performance and ESG ratings; 

            State Street Global Advisors, which is doing its own ESG research and is using ESG metrics for some of its investment accounts;

            Merrill Lynch, which is using analytic tools developed by Asset4 AG as part of its investment research;

            PowerShares Capital Management, whose WilderHill Clean Energy ETF is up more than 40% this year;

            Scudder, which has set up its DWS Climate Change Fund, and JSBC Investment, which plans on doing the same soon; and

            TrueCost PLC, a London research company, which will soon be issuing ratings on mutual funds based on the carbon footprints of companies they invest in.

            These companies have stated that focusing on socially responsible issues makes sound business sense, at least over the long term. As for immediate gratification, by using  ESG ratings, they are establishing their reputations in a burgeoning niche of socially responsible investors.

Full post as published by PomTalk on January 07, 2008 (boomark / email).