Exxon Mobil and the Carbon Tax: A Long Story

Posted on by Paul Ellis

In December the New York Times featured a story about Exxon Mobil leading the 5 largest oil and gas producers in announcing their expectation of a carbon tax.1 After years of rejecting any kind of tax, what are investors to think about this news?

Why is Exxon Mobil Leading the Way?

Actually, it’s a straightforward example of smart long-range planning. Here’s some background on how it happened: a confluence of investor demands, severe weather occurrences, and the growing probability of government regulation.
A recent report in Bloomberg Sustainability, “Investors Demand Climate-Risk Disclosure in 2013 Proxies,” presents an excellent summary of the pressure driving Exxon Mobil and the rest of the oil and gas industry. Rob Berridge, senior manager of investor programs for Ceres, a premiere environmental advocacy organization, says “investors want to know if oil and gas companies plan to move or fortify their coastal refineries due to sea level rise, and how much that will cost.” Just one example of government pressure includes the SEC decision last February requiring PNC Financial Services Group to allow a vote on a resolution to disclose the company’s exposure to climate change risks.2

Is There a Carbon Bubble?

And then there’s the bubble: the “carbon bubble” that is. To avoid catastrophic climate change, scientists have hypothesized that 80% of fossil fuel reserves cannot be burned. For oil and gas companies, this is a huge problem since approximately 50-80% of their valuation is in their reserves. Stranded assets is another way to think of it. Shareholders are asking how the carbon bubble may impact future cash flow.2

Exxon Mobil has been seeing the handwriting on the wall for a while, as shown when it bought its first natural gas production company in 2010. The company is now the largest producer of natural gas in the world. ExxonMobil now acknowledges that carbon pollution from fossil fuels contributes to climate change.3

Measuring Carbon Risk

In addition, 2013 saw the creation of new analytics tools for measuring the carbon emissions risk, not only for companies but also for portfolios diversified across the entire global economy. Bloomberg recently released the Carbon Risk Valuation Tool (CRVT) to 300,000 terminal users around the world.

Advisors who want to develop or maintain their competitive advantage in 2014 would be wise to introduce their clients to these recent developments in the investment and taxation landscape. Those who do so will likely be in the forward thinking minority for now. But something tells me that those smart, well paid executives in the oil and gas industry and their smart, well paid lobbyists in Washington, DC know at least as much about the future of energy policy as the average financial advisor.

1 “Large Companies Prepared to Pay Price on Carbon.” The New York Times, December 5, 2013: http://nyti.ms/1dRsTZ2.
2 “Investors Demand Climate-Risk Disclosure in 2013 Proxies.” Avery Fellow, Bloomberg.com, Feb 25, 2013: http://www.bloomberg.com/news/2013-02-25/investors-demand-climate-risk-disclosure-in-2013-proxies.html.
3 “The Carbon Time Bomb in Your Retirement Account.” Todd Woody, The Atlantic, Dec 9 2013: http://www.theatlantic.com/technology/archive/2013/12/the-carbon-time-bomb-in-your-retirement-account/282139.

Green Giants: A New Investment Opportunity

Posted on by Paul Ellis

Savvy advisors can take advantage of the expanding global green bond market while pricing is still competitive. Several SRI investment managers have underwritten the latest $1 billion IMF issue, which is being used to finance energy efficiency and alternative generating capacity in developing economies around the world.1This is good news, since we are way behind China, the UK and France in capitalizing this market opportunity for US investors.2

The Time Is Right

Competitive pricing won’t last long, however, as several giants of the financial services industry are awakening to the need for green bond debt. CERES raised the clarion call around this need in a May 2013 study, noting that relatively small (under $100 million) building retro-fit green bond issues have come to market in recent years through municipal and corporate issuers.3

These issues don’t raise large enough pools of capital market assets to attract the industry’s large fixed income buyers. But it’s just a matter of time. Green bonds have attracted the support of mayors from major cities in the US, who are publicizing the need for more of the same, not only in the US but around the world. The need could not be greater or more urgent for coastal communities facing rising sea levels during the next 50 years.4

Competitive Advantage

The opportunity in this situation for SRI advisors is to position retail clients in the green bond market alongside smaller institutional investors while pricing of these smaller issues is still competitive. Uncovering this kind of value in the financial markets is an advantage for SRI advisors, and another way you can position yourself as the “Go To” advisor for SRI strategies in your community.


1 “Central banks, corporates and SRI investors snap up new $1 billion IFC green bondds,” Daniel Brooksbank, Responsible Investor, November 6, 2013. http://www.responsible-investor.com/home/article/central_banks_and_corporates_ifc/
2 “Climate Bond Market Doubles to $346bn in 2012,” Business Green, June 14, 2013. www.businessgreen.com.
3 “Power Factor: Institutional Investors’ Policy Priorities Can Bring Energy Efficiency to Scale,” CERES, 2013. www.ceres.org.
4 “South Florida Faces Ominous Prospects From Rising Waters,” Nick Madigan, November 10, 2013. New York Times: http://nyti.ms/1gC0pCE.

Water is a challenge and opportunity for investors

Posted on by Guest Author

By Ellen Kennedy—Ellen is the Manager of Environment, Water and Climate Change for Calvert Investments.

As demand for water surges and infrastructure and natural water cycles deteriorate, shortages and stress are having a significant global impact on industry and drinking water availability. Advisors who understand the issues related to global fresh water supply and delivery can take advantage of investment strategies based on this sector of the economy.

The Challenge

There are several drivers to the current water crisis. First, water is strained by population growth. Water demand typically grows twice as fast as population growth, and is predicted to grow as much as 41% by 2030. About 800 million people today do not have access to clean drinking water and about 2.5 billion do not have access to sanitation.

One of the most troubling outcomes of increased water demand is over-extraction of aquifers and other groundwater. Aquifers may be depleted fairly quickly, but typically take a long time to recharge. For example, the Ogallala aquifer in central U.S. states has enabled large-scale agricultural production, but a recent study found that the aquifer has already been depleted by 30% and could be almost 70% depleted in 50 years. To recharge the aquifer is estimated to take between 500 and 1,300 years.1

Another contributor to the global water crisis is increased pollution and contamination of freshwater supplies. Eighty percent of sewage in developing countries is untreated, which then returns to local waterways or may be used to grow crops, posing health risks.

Climate change can also contribute both to water scarcity and flooding. A Texas extension service study found that the Texas drought starting in 2010 caused over $7 billion in damages to ranchers and crop farmers, and that 2011 was the driest on record. Most recently in 2013, damage from flooding in Boulder and other regions in Colorado caused approximately $2 billion in damages.2

Finally, years of poor water infrastructure management are catching up to us in the US and other countries. In the US, we have 700,000 miles of water pipes that we are replacing at a rate of less than 1% per year – so our replacement cycle is only every 250 years or so for pipes that are designed to last about a hundred years. Moreover, these old pipes leak water at astonishing rates, further driving inefficiencies in our distribution systems.

The Opportunity

Between 2005 and 2030, the world needs to invest about $22 trillion globally to meet our growing water needs. This investment will need to focus on infrastructure in the US and Europe, but also in China and elsewhere. Innovation will also be critical for managing water systems. For example, Xylem Inc. (XYL) is a US-based water technology company that manufactures pumps that were nicknamed “The Pumps that Saved New York” after they successfully cleared water from tunnels after Hurricane Sandy.

Calvert Investments offers the Calvert Global Water Fund (CFWAX)* to capture these opportunities and enhance global water sustainability. Unlike most water funds, Calvert’s fund has sustainability criteria; the fund does not invest in companies significantly involved in bottled water, and avoids companies that have significant operations in Sudan or Burma. The Fund also engages in advocacy with the companies it holds, as well as general policy work. For example, Calvert is a member of the CEO Water Mandate, a multi-stakeholder initiative that seeks to tackle thorny issues such as how to ensure the human right to water, and establishing guidelines for companies to disclose water risk.
1 Blair Fannin, “Updated 2011 Texas agricultural drought losses total $7.62 billion,” AgriLife Today, March 21, 2012. http://today.agrilife.org/2012/03/21/updated-2011-texas-agricultural-drought-losses-total-7-62-billion.
2 Veronica Linares, “Ogallala aquifer could dry up in 50 years.” Science News, Aug. 28, 2013. http://www.upi.com/Science_News/Blog/2013/08/28/Ogallala-Aquifer-could-dry-up-in-50-years/9221377716516.

* The Fund is subject to the risk that stocks that comprise the water sector may decline in value. In addition, shares of the companies involved in the water sector have been more volatile than shares of companies operating in other more established industries. Consequently, the Fund may tend to be more volatile than other mutual funds. In addition, foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations. For more information on any Calvert fund, please contact Calvert at 800.368.2748 for a free summary prospectus and/or prospectus. An investor should consider the investment objectives, risks, charges, and expenses of an investment carefully before investing. The summary prospectus and prospectus contain this and other information. Read them carefully before you invest or send money.

Calvert mutual funds are underwritten and distributed by Calvert Investment Distributors, Inc., member, FINRA, and subsidiary of Calvert Investments, Inc. 800.368.2748

Calvert Investment Management, Inc. serves as the investment advisor and provides sustainability research for the Calvert mutual funds and institutional investment strategies.

Women and Sustainable Investing Part 2

Posted on by Guest Author

By Julie Fox Gorte and Heather Smith—Julie is senior vice president for Sustainable Investing and Heather Smith is lead sustainability analyst at Pax World Investments.

Although gender diversity has long been promoted by institutional investors, in recent years, countries have launched a variety of policy initiatives to increase the number of women on corporate boards. These measures include the adoption of gender quotas and voluntary targets, stock exchange listing standards and corporate governance guidelines requiring varying levels of disclosure concerning board diversity policies, efforts and progress. Europe has made notable efforts on board diversity with nearly 10 countries having adopted gender quotas. Elsewhere, the Australian Stock Exchange has adopted “comply or explain” corporate governance guidelines requiring reporting on gender diversity and setting objectives for progress by listed companies, and the Hong Kong Stock Exchange recently adopted a similar provision. Yet investors still have a key role play in advancing gender equality and women’s empowerment, particularly in places where such aggressive regulatory action is unlikely, like in the United States. Here’s how they can:

Sustainable Investing

One of the tools available to anyone is sustainable investment, particularly investments that focus on diversity and women’s empowerment. There are many sustainable or socially responsible funds available to individual investors and on many retirement platforms, and many of those include criteria focusing on gender equality. A list of sustainable and responsible investment funds is available on the website of the US Forum for Sustainable and Responsible Investment website. At Pax World, we even offer a fund, the Pax World Global Women’s Equality Fund (PXWEX), that focuses on investing in companies around the world that are leaders in advancing women and promoting gender equality.

One of the easiest things investors who have their own portfolios can do is vote their proxies with an eye towards gender diversity. Rather than support the status quo, investors can withhold support from all male boards. At Pax World, we not only oppose corporate board slates that do not include any women, in most cases we require that at least two women be on the board before we consider supporting the slate, for the simple reason that the benefits women bring to boards are best realized when a critical mass of women are present. After withholding support for a board slate, we write directly to each company to explain the reason for our opposition and urge them to take concrete steps to diversify their boards. If you own a mutual fund, you can check its proxy voting guidelines to see if it has a policy that addresses board diversity, and you can also instruct your financial advisor to vote against all-male boards. Envision what might happen if a significant proportion of investors withheld support from board slates due to insufficient gender diversity—companies could no longer ignore the issue, and would have to be responsive to shareholder concerns.

Shareholder Advocacy

Investors can also join with other advocates of gender diversity to form a collective voice. With the formation of the Thirty Percent Coalition in 2011, institutional investors, national women’s groups, business leaders and corporate governance experts came together for the first time to press companies on board diversity. The Coalition, of which Pax World is a founding member, seeks to assure that women hold 30% of board seats across public companies in the US by the end of 2015. Representing over $1.2 trillion in assets under management, the Coalition has written to more than 160 companies in the S&P 500 and Russell 1000 indices that do not have any women board members. The effort has resulted in dialogues with nearly 40 companies, and some have amended their corporate documents to better articulate board diversity policies in response to the concerns raised by the Coalition. Since the Coalition began this campaign in the summer of 2012, we have learned from six companies that women were recently added to their boards.

How Are We Doing?

Shareholder proposals are another tool investors can use to advocate for greater board and management diversity. During the most recent proxy season, investors filed 24 resolutions on board diversity and over half were withdrawn based on agreements reached with the companies in question. Two board diversity proposals went to a vote in 2013, and a proposal filed by the New York City Pension Funds at CF Industries won 50.7% support, a very strong showing. For its part, Pax World filed and successfully withdrew board diversity proposals at Stericycle, Inc.* and Hospitality Properties Trust* after receiving positive responses from both companies in which they agreed to amend their corporate governance documents to include gender and ethnicity as criteria for selection of any new director, and to periodically review board composition.

Women interested in other aspects of sustainability can wield many of the same tools: voting proxies with an eye to sustainability, joining with other investors and advocates of sustainable investing, and using a financial planner or advisor who is knowledgeable about sustainable and responsible investing choices, or willing to learn about it in order to help clients. Financial advisors are particularly helpful to investors in sorting through the at-times overwhelming volume of information available on investment choices. But one piece of financial advice that women never have to listen to any more is “get married.”

*Stericycle, Inc. and Hospitality Properties Trust are currently held in the Pax World Funds. As of 6/30/2013, the Pax World Balanced Fund’s investments in Stericycle, Inc., and Hospitality Properties Trust comprised 0.4% and 0.4% of the fund’s assets, and the Pax World Global Environmental Markets Fund’s investments in Stericycle, Inc., comprised 2.8% of the fund’s assets. Holdings are subject to change.

Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. Emerging market and international investments involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, economic or political instability in other nations or increased volatility and lower trading volume.

You should consider Pax World Funds’ investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus by calling 800.767.1729 or visit www.paxworld.com. Please read it carefully before investing. Copyright © 2013 Pax World Management LLC. All rights reserved.

Pax World Funds are distributed by ALPS Distributors, Inc.
PAX003439 (7/31/2014)

Women and Sustainable Investing Part 1

Posted on by Guest Author

By Julie Fox Gorte and Heather Smith—Julie is senior vice president for Sustainable Investing and Heather Smith is lead sustainability analyst at Pax World Investments.

The days when the best advice women received with respect to assuring their financial future was “get married” are over for good. Today, women are increasingly likely to be breadwinners, and increasingly likely to be responsible for some, if not all, of the financial decision-making for their families. According to the Pew Research Center, four in ten households with children below the age of 18 are headed by a mother who is the sole or primary earner.1

The Business Case

Not only do women have a greater stake in our economy, but the literature suggests that our businesses may be stronger as well with more women in leadership positions. For example, based on a study of 2,360 companies over a six-year period, a 2012 report from Credit Suisse found that “it would on average have been better to have invested in corporates with women on their management boards than in those without…[C]ompanies with one or more women on the board have delivered higher average returns on equity, lower gearing, better average growth and higher price/book value multiples over the course of the last six years.”2

The report also advances several reasons why this might be so, including the fact—supported by many academic studies—that heterogeneous groups tend to do a better job of decision-making than homogeneous ones. Women tend to be more diligent, or at least they bring that quality to the boards they serve regardless of personal persuasion. Boards with more women on them also tend to be more careful and exacting monitors of management, which is exactly what boards are supposed to do.

Women As Decisionmakers

One of the more intriguing subplots in the Credit Suisse report is that almost all of the outperformance came after 2008—that is, during the great recession. We don’t really understand completely why that is, but it is consistent with some of the other literature on the effect of having women in the decision-making structures of companies: women tend to be somewhat more conservative than men when it comes to finance and investment, which might make them less prone to taking risks. And that, in turn, shows up in financial results: two studies reported that companies with more women in senior management have higher earnings quality as well.3 Financial markets tend to prefer companies whose reported earnings are both trustworthy and conservative.

Women also appear to be more interested in sustainability, both as investors and as decisionmakers. A study published last year showed that women retail investors are more interested than their male counterparts in corporate social responsibility.4 At the company level, firms whose management structures—boards and executive management—include women tend to have superior environmental performance than companies with male-dominated decisionmakers.5

Tango Anyone?

None of this means that women are better than men. It really does take two to tango; women and men together do a better job on a whole lot of things than either gender alone. But women have been largely excluded—or at least discriminated against—for so many decades in corporate management and investment that sometimes it seems like finance and economics were an exception to everything else in nature, where both genders have critical things to contribute to overall success. Things are perhaps improving, though arguably at a glacial pace. Between 2009 and 2012, the share of board seats held by women globally barely moved from 9.3% to 11% across over 4,300 companies in 45 countries.6 In its 2012 Census of Fortune 500 companies, Catalyst reported that women held just 16.6% of board seats in 2012 compared to 16.1% in 2011, and data on female executives and top earners indicates that women have made little progress over the past seven years.7

Part 2 of Women and Sustainable Investing considers the key role investors can play in advancing gender equality and women’s empowerment, particularly in places where regulatory requirements to drive progress are not and are not likely to be enacted, like the U.S.
1 Catherine Rampell, “U.S. Women on the Rise as Family Breadwinner,” New York Times, May 29, 2013.
2 Credit Suisse Research Institute, “Gender diversity and corporate performance,” August 2012.
3 Linda M. Parsons and Gopal V. Krishnan, “Getting to the Bottom Line: An Exploration of Gender and Earnings Quality,” Social Science Research Network, January 2006; and Ferdinand A. Gul, Bin Srinidhi and Judy Tsui, Do Female Directors Enhance Corporate Board Monitoring? Some Evidence from Earnings Quality,” September 2007.
4 Leda Nath, Lori Holder-Webb and Jeffrey R. Cohen, “Will Women Lead the Way? Differences in Demand for Corporate Social Responsibility Information for Investment Decisions,” Social Science Research Network, November 18, 2012.
5 Amanda Kimball, Donald Palmer and Chris Marquis, “The Impact of Women Top Managers and Directors in Corporate Environmental Performance,” Social Science Research Network, October 4, 2012.
6 “2013 Women on Boards Survey,” Governance Metrics International, April, 2013.
7 “Census of Fortune 500 Women Board Directors, Executive Officers and Top Earners,” Catalyst, December 2012.

Equity investments are subject to market fluctuations, the fund’s share price can fall because of weakness in the broad market, a particular industry, or specific holdings. Emerging market and international investments involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, economic or political instability in other nations or increased volatility and lower trading volume.

You should consider Pax World Funds’ investment objectives, risks, and charges and expenses carefully before investing. For this and other important information, please obtain a fund prospectus by calling 800.767.1729 or visit www.paxworld.com. Please read it carefully before investing. Copyright © 2013 Pax World Management LLC. All rights reserved.

Pax World Funds are distributed by ALPS Distributors, Inc.
PAX003439 (7/31/2014)

Mayors innovate ahead of markets

Posted on by Paul Ellis

There may be political gridlock regarding climate change inside the beltway, but not at city hall. Thanks to a partnership with the Carbon Disclosure Project (CDP), the mayors of 110 global cities are focused on reducing GHG emissions at the city-wide level.

Metropolitan political leaders in Atlanta, Las Vegas, Houston, Los Angeles, New York and Washington, DC, among others, have discovered that taking action on climate change is making their cities richer, more attractive to new businesses and healthier places for citizens to live and work—an average $40 million in savings yearly.1

It Adds Up

A few examples: Los Angeles retrofitted 4,400 traffic signals and 100,000 plus streetlights, saving $11 million per year in electricity and repair costs. And Washington, DC’s Housing Authority has retrofitted 5,400 of its 8,700 residential building units, for a yearly savings of $3.9 million in electricity costs and $2.4 million in operations and maintenance costs.2

Investment Opportunity

Let’s look at the big picture for investors: In the US, existing buildings account for nearly 40 percent of total energy use.3 This means we have the investment opportunity and we have the technology to make these buildings more energy efficient. Industry analysts have estimated the potential energy efficiency investment opportunity in the hundreds of billions of dollars.3

I, for one, would like to see these mayors lead the utility regulatory and finance-enabling policy initiatives that together can help create the fixed income securities market for energy efficiency loans. In fact, their leadership is prompting the capital markets to consider the opportunity to syndicate energy efficiency retrofit loans for commercial real estate investment portfolios.

Then advisors can use the awesome power of our capital markets to position institutional and retail investors in high quality, climate change focused fixed income portfolios that create wealth and manage risk at the same time.

Stay tuned for updates on this exciting opportunity for expanding the fixed income investment options that will contribute to making our cities richer, more attractive to new businesses and healthier places for citizens to live and work.

1,3 “Wealthier, healthier cities: How climate change action is giving us wealthier, healthier cities,” CDP cities 2013 report, www.cdp.net.
2 U.S. Department of Energy, Buildings Energy Data Book, 2011, Table 1.1.3, http://buildingsdatabook.eren.doe.gov.

What motivates affluent women investors?

Posted on by Paul Ellis

Women are controlling more wealth and exercising more economic influence In the United States: women will inherit 70% of the projected $41 trillion intergenerational wealth transfer expected over the next 40 years.* And of particular importance to advisors, one study shows more than 53% of affluent women interviewed are interested in environmentally responsible investments.** So advisors who want to grow their practices through an SRI niche need to understand the best ways to reach women who are looking to invest with their values.


But as all advisors know, the gap between “I’m interested” and “Where do I sign” can sometimes seem as wide as the Grand Canyon. What is it that tips the scales in favor of using SRI strategies with women clients? It’s the relationship—that complicated alchemy of trust, respect, and the confidence to engage the risks and opportunities of the future based on shared values. Recent research shows that women investors are clear that they want to know and trust their advisor on a personal as well as a professional level.*** And as an added bonus, women are almost twice as loyal to their advisor as men are during difficult periods in the economy and financial markets.****

And More Relationships

I’m not suggesting that advisors abandon data and performance in positioning SRI with women clients. On the contrary, women expect to be informed and educated. But the important thing to remember is that you don’t have to be an SRI expert to bring tremendous value to your women clients. As an advisor, I counted on the expertise of my SRI business partners. They supported me in so many ways: helping me develop my knowledge of SRI, joining me in client meetings, and speaking at the many events I held for my clients. And my clients loved the fact that I brought so many experts to the table. The knowledge that they had access to products and services that satisfied their sense of purpose and mission in life strengthened our financial planning relationship.

What advisors should remember is that women clients expect you to bring the value of expertise to the relationship, but not always to be the expert yourself.
*“Women’s Views of Wealth and the Planning Process: It’s Values That Matter, Not Just Value,” Kristen Wojner and Chuck Meek, Advisor Perspectives, 3/1/11.
***Unleashing Potential: Women’s Initiative Annual Report, Deloitte Development LLC, 2010.
****Fidelity millionaire wealth and women executive summary, November 2012.