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December 26, 2012

Top Sustainable Investment Stories of 2012, Part 1
    by Robert Kropp

Assets allocated to sustainable investment continue to rise, with increasing amounts focusing on positive screening strategies; however, mainstream mutual funds continue to lag in supporting shareowner resolutions addressing climate change and corporate political spending.

SocialFunds.com -- By my count I will have logged 300 stories on SocialFunds.com during 2012. A leisurely scroll through the headlines revealed for me a number of important and ongoing issues, which I will highlight, but in no particular order. Several of the issues— hydraulic fracturing, regulatory actions, and, of course, climate change—found their way onto the 2011 list of top stories as well, demonstrating the incremental progress on these initiatives by sustainable investors and other advocates for environmental and social justice.

US SIF Publishes Biennial Sustainable Investment Trends Report

Assets allocated to sustainable investment strategies continue to rise, as they have throughout the past decade, according to the 2012 Report on Sustainable and Responsible Investing Trends in the US by US SIF: The Forum for Sustainable and Responsible Investment. By the end of 2011, the report found, $3.74 trillion were invested by means of such strategies as incorporation of environmental, social, and corporate governance (ESG) criteria and shareowner engagement, representing a 22% increase over sustainable investment at year end 2009.

Sustainable Investment Forums to Produce Global Trends Report

In April, UK Sustainable Investment and Finance (UKSIF) announced that eight sustainable investment organizations will collaborate for the first time on a report identifying global trends in sustainable investment. The report, originally scheduled for release this month, has not yet been published.

In a potentially important development for the transition to a low-carbon economy and other issues relating to growing resource scarcity, US SIF also found that while negative screening continues to be the predominant ESG incorporation strategy, "a larger number of money managers also disclosed incorporating ESG issues in $812 billion in assets using positive or inclusionary strategies or ESG integration."

FairPensions Calls on UK Ethical Funds to Adopt Positive Screening and Increase Corporate Engagement

A survey by the UK-based FairPensions clarified the importance of positive screening by sustainable funds. Finding that most ethical funds in the UK continue to focus on negative screening of so-called sin stocks as the basis of their investment strategies, FairPensions stated, "Human rights and environmental protection now feature much more prominently in most surveys of people's ethical priorities."

"Too much of the industry appears to be characterized by the unthinking application of a traditional screening approach to an outdated set of ethical priorities," the report found.

Mutual Funds Slow to Engage on Political Spending
Proxy Voting on Climate Change by Mutual Funds Fails to Account for Materiality

If sustainable funds are not allocating enough to move the global economy toward sustainability, what then can be said about mainstream mutual funds, which in the US account for almost $12 trillion in assets under management? One study undertaken this year by Fund Votes suggests that the proxy voting activities of most funds fail to account for the financial relevance of climate change; in fact, the three largest mutual fund companies—American Funds, Fidelity, and Vanguard, which manage a total of $1.6 trillion in US securities—did not vote in favor of a single resolution addressing climate change in 2011.

Another study by Fund Votes found that "the three largest mutual fund families in the United States failed to support a single political spending disclosure resolution" in 2011. "Fidelity continues to abstain on all political spending resolutions. Vanguard voted against five resolutions in the 2012 proxy season (abstaining on all others), breaking a long record of abstentions. American opposed all 29 resolutions it voted on during the 2012 proxy season."

Newtown Tragedy Galvanizes Debate on Corporate Responsibility

One of 2011's top stories was the endorsement by the UN Human Rights Council of Professor John Ruggies's Guiding Principles on Business and Human Rights, which recommended that corporate responsibility should include addressing adverse impacts on communities of their activities. In the wake of this month's tragedy in Newtown, CT, Robert Zevin of Zevin Asset Management stated, "Investors do have a role to play in social change."

The response of Vanguard was not so enlightened. Mutual funds, a spokesperson said, "Are not optimal agents to address social change."

Next: shareowner action on corporate political spending expands to include lobbying activities, and Wal-mart is alleged to have engaged in widespread bribery in Mexico.

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