This week: ESG for all, Duke Energy’s bad behavior, GE rips off 401k holders, State Street deepens ESG transparency
Conscious capitalism has clearly taken a hold on Wall Street. Environmental, Social and Governance (ESG) assets under management have risen 33% since 2014 and are approaching 9 million. Blackrock, Morningstar, Goldman Sach’s, Morgan Stanley – all have climbed on board.
“The big boys getting into ESG is a good thing, not so unlike many of the large car manufacturers getting into electric cars now that they see a growing demand,” Jeff Gitterman, Gitterman Wealth Management.
Now more and more smaller investors are interested in creating good with their investments.
The Global Head of ESG and Impact Investing for Goldman Sachs, Hugh J Lawson. says that there has been a dramatic increase in interest over the last four years from all sorts of clients.
Analysts now say there is also a growing demand from women and millennials to use their investment dollars to address problems such as water scarcity and gender equality, and predict an explosive growth of Socially Responsible Investing.
The Forum for Sustainable and Responsible Investment (USSIF) has published a guide for everyday investors who are interested in voting with their dollars.
Getting Started In Sustainable and Impact Investing, A Guide For Retail Investors, provides an overview of investment options and actions available for retail investors getting started in sustainable investing including mutual funds and exchange-traded funds (ETFs), direct ownership of stocks, and community-oriented cash and fixed income products.
For smaller investors and everyday folks who don’t have the funds to go through traditional brokers, the guide suggests investing through robo-advisors that focus on sustainable and impact investment options such as Aspiration or Swell.
Robo-advisors use digital platforms and technology. The automation and algorithms of these online wealth management services help develop a portfolio of funds that reflect your values, risk tolerance and investment goals and timeline without the fees of traditional brokers.
The ESG space is no longer restricted to the big boys. Now anyone with an internet connection can join the revolution, vote with their dollars and watch them grow.
Need more evidence that conscious capitalism has hit the mainstream?
This cool interactive graph reflects ESG explosion across investment platforms since 2005:
- Total ESG fund assets $460 billion as of September 3oth across 360 funds.
- Equity funds make up the majority with $400 billion.
- Fixed-income assets are $52 billion.
- Multi-asset funds, $8 billion.
- 360 ESG funds existed at the end of 2016: 300 were equity focused and 47 debt focused.
- ESG assets have grown on average 43% per year since 2010 and added $77 billion year-to-date as of the end of September.
This weeks Anti Conscious Capitalism award goes to Duke Energy.
WBTV news station of North Carolina recently requested emails and documents from two professors at the University of North Carolina, Charlotte, Dr. John Daniels and Dr. Bill Langley, Duke Energy to investigate scientific questions related to the company’s coal ash ponds.
The university, which has been paid over $1.071 million by Duke Energy for investigative research between February 2013 and August 2016, provided thousands of pages of emails and documents detailing years of the professors’ work on behalf of the company.
Duke Energy, who is being sued by locals living near the coal ash ponds for not providing a permanent and safe water supply as directed Under House Bill 630, which recently updated North Carolina’s Coal Ash Management Act, has been accused by WBTV of editing the scientific reports by professors Daniels and Langley, based upon the documents they received.
Environmental attorneys who reviewed the documents said the correspondence reveals neither professor operated independently in carrying out his work for the company and that Duke Energy executives actually re-wrote portions of a scientific report submitted by Langley.
Langley had been commissioned to predict the impact that three different coal ash pond closure options would have on long-term groundwater contamination at the Robinson Steam Station in Darlington, SC.
Emails produced by UNCC show that Langley first sent a final copy of the report to executives at Duke on October 16, 2015. However, the revision history of the document after that date show that Duke Energy personnel edited the document.
A review of the tracked changes in the PDF show that Duke executives deleted sentences, added full paragraphs, and made changes to both the executive summary and conclusions section of the report.
Many of the edits made by Duke appear to take out, or change, language addressing the very issues currently under scrutiny by environmental watchdogs and regulators.
DJ Gerken, an attorney at the Southern Environmental Law Center, which has active court cases against Duke Energy regarding its coal ash facilities, said the emails and documents uncovered by WBTV confirm a troubling and pre-existing suspicion that Daniels and Langley were working in consultation with Duke.
Neighbors of the coal ash ponds were not surprised either –
“We’ve known for a long time that Duke has not been very truthful. You can’t trust them. Trusting Duke is dangerous to our health on so many levels.”
General Electric, which nods its head at conscious capitalism in its supply chain, was slapped with a class action lawsuit in September for failing to uphold its fiduciary duty to its employee 401(k) participants.
The lawsuit alleges that GE managed the 401(k) for its own benefit by loading it with mutual funds owned by its own subsidiary, charging high fees while it underperformed in the investment markets and took employees for millions in potential gains.
The lawsuit asserts that of the $28.5 billion in assets in the 401(k), half was invested in mutual funds, and 56% of those mutual funds were GE owned funds. 80% of those GE funds underperformed its benchmark investment index.
The suit even states that GE would have to “scour the market to find an offering as poor-performing” as its international fund, but that GE had business and financial incentives in selecting and maintaining it.
GE profited by pocketing the investment management fees paid by its own employees and exploited its employees as a customer base for the funds. The employee customer base added value that contributed to the $485 million that GE collected when it sold its investment subsidiary, GE Asset Management, to State Street in 2016.
The lawsuit further states that GE selected its funds because they provided profits and revenue to the company rather than merits as investments. This is a breach of fiduciary duty.
“Fiduciary duty is the highest duty known in the law, and it’s a duty of prudence, loyalty and of the highest good faith.” says Charles Field, the San Diego lawyer who brought the suit. “The employer is a fiduciary to the plan and every man, woman and child in that plan.”
The GE case is one of a string of lawsuits in recent years targeting corporate management of 401(k) plans that allege that companies have allowed excessive fees to be charged to their employees’ accounts by their hand-picked investment managers, or have loaded the 401(k) choices with self-interested options, such as their own proprietary mutual funds, or funds owned by crony investment companies.
This September, Edison International paid out $13 billion for excessive plan fees.
While global ESG assets under management reached $23 trillion in 2016, many traditional barriers to ESG investing are fading. Still, according to a recent study by State Street, the one significant barrier that remains is the lack of transparent, standardized and quality data.
State Street Corporation (NYSE: STT), one of the world’s leading providers of financial services to institutional investors has $32.1 trillion in assets under custody and administration, and $2.67 trillion in assets under management and operates in more than 100 geographic markets worldwide, including the US, Canada, Europe, the Middle East and Asia.
In its goal to enhance its portfolio of (ESG) offerings, State Street has launched a new analytics tool designed to provide information to help clients bring transparency and standardization to their ESG investing.
ESGX is a web platform where clients can assess ESG factor exposure in their portfolios, such as a company’s carbon footprint, the type of labor used in a supply chain, and board diversity statistics. Algorithm-based technology can analyze the sustainability performance of the world’s largest listed corporations. Clients will also have the ability to review real time reports that show how the ESG profile of a portfolio has evolved over time.
“It’s critical that we bring new technologies to market that can provide added transparency for clients looking to better understand their investment portfolios through an ESG lens.” – John Plansky, global head of State Street Global Exchange.
image source: Eleni Ross Photography