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Socially Responsible Investing Gets Legitimized With CSRIC Designation for Financial Planners

2 min read
17 Nov, 2022
By Sultan White

Financial advisors aim to provide their clients with less risky, higher returns in the equity markets than the client would achieve on their own— even after the professional fees. The financial planning industry places a lot of emphasis on the client-advisor relationship, which is something that’s sometimes lacking with new technologies like robo-advising and self-directed trading apps. Many investors prefer the friendly and cordial relationships they form with licensed professionals, which could be why wealth managers handle over $103 trillion in assets under management worldwide. 

But lately, clients have begun demanding other types of returns on their investments, namely, environmental and social impact. This demand is pushing financial advisors to increase exposure to Environmental, Social, and Governance (ESG) investments, while others are simply rebranding existing funds as sustainable. As a younger, more socially-responsible generation of investors entrust their money with financial advisors and expect ESG returns, it is important that they know which financial professionals are qualified to give advice. 

The Certified Financial Planner (CFP) Certification is one of the most recognized designations in the field, with 35% of professional advisors holding the certification according to The College of Financial Planning’s recent survey. According to the survey, certifications like the CFP help financial professionals develop a deeper understanding of their work, a higher client pool, increased earning potential, and greater career satisfaction. But the CFP is just one type of certification. And as client demands transform over time — like the growing demand for ESG investing — new certifications are helping financial advisors stay with the times.

The Chartered Socially Responsible Investing Counselor (CSRIC®) Designation was developed in partnership with the Forum for Sustainable and Responsible Investment and is meant to market an advisor’s ability to identify growth trends in sustainable investment, engage in shareholder advocacy, and apply ESG strategies across a mix of asset classes. To qualify for this mark, candidates must successfully complete the specialized course and pass a test, abide by ethical standards, comply with self-disclosure requirements, and complete continuing education within the two-year authorization period.

Currently, only 2% of advisors hold the CSRIC designation, signaling an extraordinary opportunity for advisors to capitalize on outsized consumer demand for ESG guidance. The market is already adjusting as CSRIC certified graduates have grown 122% annually since 2019. While there are many financial professionals well-versed in ESG who do not hold the CSRIC designation, if you are a potential client looking for trained advisors with shared values, the designation could aid in your search. In fact, some wealth management firms have truly leaned into the ESG movement by boasting fully-CSRIC-credentialled teams and company-level sustainability designations like the B Corp. 

Beyond pairing impact investors with SRI advisors, these credentials help advance the movement by legitimizing and socializing ESG concepts into the industry mainstream.

 

∙ ∙ ∙

The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.

Expand your knowledge further

<p><em>With financial markets around the world still reeling from muddled efforts to curb a global pandemic, one financial notion seems to be gaining fresh support: ESG. However, much about ESG remains unexplored. Are ESG and risk management practices related? How can ESG be used to benefit organizations and investors from a risk standpoint? Does one of the three ESG pillars play a bigger role in terms of generating financial returns, utility, and risk management?</em></p> <p>&nbsp;</p> <p>Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term, and this has been exemplified in the past couple of years. ESG investments, indices, and companies that keep considerations of the three factors at the forefront of their culture have bounced back higher than unbothered counterparts; for example, the S&amp;P 500 ESG Index has beat the S&amp;P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, sustainable bonds have seen <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance in the year 2021</a>, and organizations with good ESG ratings <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">have displayed strong financial resilience</a> since the economic downturn.</p> <p>How can this phenomenon be explained? The answer lies in the fact that <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">ESG can work as a risk management strategy</a>; not just in financial terms, but also in view of management conditions and meeting regulatory requirements.</p> <p>A <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">report published by McKinsey</a> tells us that good ESG practices could potentially lead to positive cash flows, as well as hedge financial and reputational risks due to the following reasons:</p> <ul> <li>ESG drives consumer preference as some customers are <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. McKinsey also found that companies that use sustainable practices in their supply chain are able to cut costs.</li> <li>Responsible reporting minimizes regulatory and legal interventions, which generates less negative publicity for an organization.</li> <li>Having generous social policies in place helps motivate and retain staff, as well as increase employee productivity, which has been found to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">positively correlate with shareholder returns.</a></li> <li>ESG practices help optimize investments and capital expenditures. One way to get ahead of the curve is to consider making investments into assets that take advantage of sustainability tailwinds. For example, China&rsquo;s efforts to curb air pollution is estimated to create <a href="http://www.chinadaily.com.cn/a/201804/18/WS5ad69dc6a3105cdcf6518f2c.html">over $3 trillion in investment opportunities across various industries</a> through 2030.</li> </ul> <p>&nbsp;</p> <h4><strong>Integrating ESG in business practices doubles as good risk management, which goes on to generate brand equity for companies and attract investors.</strong></h4> <p>Research has <a href="https://www.mdpi.com/2071-1050/12/1/254">found a positive relationship</a> between ESG scores and brand equity value of S&amp;P 500 companies. Good ESG incorporation mitigates reputational risks for an organization, and that is where investor confidence is built. In turn, investors manage financial risks by keeping exposures to ESG investments in their portfolios, which also helps them derive utility as they are inclined to feel that their investment decisions are part of a bigger movement to do better for the world.</p> <p>&nbsp;</p> <h4><strong>It's the Social and Governance factors that actually push away the risks.</strong></h4> <p>We constantly hear a lot of buzz surrounding the Environmental aspect which dominates sustainable investment allocations, but the value of the Social and Governance aspects which have a determining impact on sustainable practices, and as a result, risk management within an organization, are rarely ever given recognition.</p> <p>Taking a deep-dive into how the &ldquo;S&rdquo; and &ldquo;G&rdquo; areas are equally at play as the &ldquo;E&rdquo; in contributing to sound risk management within a company and yielding positive returns for investors, we delve into some research on how the three factors impact financial performance on an absolute basis.</p> <p>A <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=&amp;ved=2ahUKEwi9kr_i48b3AhWTQc0KHfB2DUAQFnoECAYQAQ&amp;url=https%3A%2F%2Fjournals.vgtu.lt%2Findex.php%2FJBEM%2Farticle%2Fdownload%2F12725%2F9980&amp;usg=AOvVaw1dAd8rRWX31GFeB0IY3x9v">recent study</a> examined the overall and individual influences of corporate E, S, and G conduct on economic performance of S&amp;P 500 firms. A breakdown of the scores for each aspect across companies from different industries and their correlation with the respective companies&rsquo; economic performances were looked at. The results may be surprising at first look: Corporate &ldquo;E&rdquo; conduct does not have any significant effect on firm economic performance, while conduct for &ldquo;S&rdquo; and &ldquo;G&rdquo; significantly influences firm economic performance.</p> <p>The Social and Governance components are key to the general practices of risk management; aiming to do justice to these elements in the day-to-day course of running a business ensures responsible and skilled management structures, risk ownership, and compliance with regulatory requirements.</p> <p>Here we covered reasons to explain these occurrences in the market &mdash; that ESG is an exceptional risk management tool for organizations internally, and also for investors in financial terms. More importantly, we saw that &ldquo;S&rdquo; and &ldquo;G&rdquo; are crucial to building optimal risk practices within a firm, which when combined with &ldquo;E&rdquo;, enhance the attractiveness of businesses and generate solid returns over the long term for investors.</p> <p>&nbsp;</p> <p><strong><u>References</u></strong></p> <p>Ajour, E. et al. (2020). <em>The Role of Sustainability in Brand Equity Value in the Financial Sector. </em>MDPI. Retrieved April 29, 2022, from <a href="https://www.mdpi.com/2071-1050/12/1/254">https://www.mdpi.com/2071-1050/12/1/254</a></p> <p>BNP Paribas SA Group (2021). <em>BNP Paribas recognized by EcoVadis and FTSE4Good extra-financial ratings. </em>BNP Paribas. Retrieved May 06, 2022, from https://group.bnpparibas/en/news/bnp-paribas-recognized-by-ecovadis-and-ftse4good-extra-financial-ratings</p> <p>Cek, K. &amp; Eyupoglu, S. (2020). <em>Does environmental, social and governance performance influence economic performance? </em>Scopus. Retrieved April 29, 2022, from <a href="https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&amp;origin=inward&amp;txGid=4864f78cdc725470874f18fec147c309&amp;featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1">https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&amp;origin=inward&amp;txGid=4864f78cdc725470874f18fec147c309&amp;featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1</a></p> <p>Cheasty, G. (2019). <em>Asset Management: Integrating ESG Risk into a Risk Management Framework.</em> Deloitte. Retrieved April 22, 2022, from <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html</a></p> <p>Dorobantu, S., Henisz, W. &amp; Nartey, L. (2022). <em>Spinning gold: The financial returns to stakeholder engagement. </em>Wiley Online Library. Retrieved May 09, 2022, from <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180">https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180</a></p> <p>Edmans, A. (2011). <em>Does the stock market fully value intangibles? Employee satisfaction and equity prices. </em>ScienceDirect. Retrieved May 09, 2022, from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869</a><br /><br />Henisz, W., Koller, T., and Nuttall, R. (2019). <em>Five ways that ESG creates value. </em>McKinsey Quarterly. Retrieved May 09, 2022, from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx</p> <p>Lawrence, E., &amp; Zlatkova, S. (2020). <em>Managing risk with ESG investing - CFA society chicago</em>. Northern Trust Asset Management. Retrieved April 26, 2022, from <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf</a></p> <p>Murugaboopathy, P., &amp; Dogra, G. (2021). <em>Global sustainable bonds see record issuance in Jan-Sept 2021</em>. Reuters. Retrieved April 26, 2022, from <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/</a></p> <p>S&amp;P Global. (2022). <em>S&amp;P 500 ESG Index</em>. S&amp;P Dow Jones Indices. Retrieved April 22, 2022, from <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview</a></p> <p>&nbsp;</p> <p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p> <p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member&nbsp;</em><a href="https://www.finra.org/"><em>FINRA</em></a><em>&nbsp;</em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Investing
How Does ESG Relate to Risk Management?

Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term.

Shivani Hemnani
25 Aug, 2022
4 min read
<p id="44d3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">I arrived at Harvard as a first-year student in the fall of 2018. I was passionate about climate justice even as an incoming freshman. So you can imagine my surprise when I found out that my own university was also a corporation actively investing in the destruction of the homes of me and my peers, and the future of our society.</p> <p id="1cd3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">This is not hyperbole. Harvard is governed by the <a class="au li" href="https://www.harvard.edu/about/leadership-and-governance/harvard-corporation/" target="_blank" rel="noopener ugc nofollow">Harvard Corporation</a>, which manages a $52 billion endowment fund that up until recently included holdings in the fossil fuel companies driving the climate crisis.</p> <p id="966c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Like me, many students enter college with little to no idea of what endowments are or just how vast a social and political impact universities have through them. Endowments are large pots of money that universities invest to generate income. They are <a class="au li" href="https://www.insidephilanthropy.com/explainers/what-is-an-endowment" target="_blank" rel="noopener ugc nofollow">set up to ensure the financial future of a university</a> and enable it to provide for generations of students, faculty, and community members to come. But when invested in fossil fuel companies, the only futures these funds safeguard effectively are those of the extractive industries wrecking our planet, as well as the vested interests behind them.</p> <p id="3149" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Divestment, or the act of removing one&rsquo;s investment, <a class="au li" href="https://www.theguardian.com/environment/2015/jun/23/a-beginners-guide-to-fossil-fuel-divestment" target="_blank" rel="noopener ugc nofollow">works</a> to change that paradigm. It helps transform endowments from instruments of corporate finance into reflections of the needs, interests, and concerns of the university and broader community. Simply put, an institution of higher education cannot realize its espoused commitments to climate action, social justice, and preparing young people to be tomorrow&rsquo;s leaders while investing in a status quo that prevents this from happening.</p> <p id="911d" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Prestigious and wealthy universities have a unique responsibility to be leaders in divestment, and some have taken steps towards doing so. Harvard finally <a class="au li" href="https://www.thenation.com/article/activism/harvard-fossil-fuel-divestment-won/" target="_blank" rel="noopener ugc nofollow">moved</a> to divest in fall 2021 after years of tireless student organizing and massive public pressure. But other well-known universities, <a class="au li" href="https://www.washingtonpost.com/education/2022/02/16/college-fossil-fuel-divest-legal-action/" target="_blank" rel="noopener ugc nofollow">like Stanford</a>, have yet to divest.</p> <p id="b58c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Fossil fuel investments and other ties to the fossil fuel industry also <a class="au li" href="https://www.teenvogue.com/story/fossil-fuel-divest-harvard-complaint" target="_blank" rel="noopener ugc nofollow">create</a> an inherent conflict of interest that <a class="au li" href="https://www.project-syndicate.org/commentary/institutional-investors-must-divest-from-fossil-fuels-by-bevis-longstreth-1-and-connor-chung-2021-11" target="_blank" rel="noopener ugc nofollow">jeopardizes</a> universities&rsquo; core academic and <a class="au li" href="https://fossilfreeresearch.com/" target="_blank" rel="noopener ugc nofollow">research missions</a>. Consider, for instance, how many universities continue to <a class="au li" href="http://www.unkochmycampus.org/rsc-report" target="_blank" rel="noopener ugc nofollow">accept</a> <a class="au li" href="https://www.theguardian.com/education/2021/dec/11/uk-universities-took-89m-from-oil-firms-in-last-four-years" target="_blank" rel="noopener ugc nofollow">vast sums</a> of fossil fuel <a class="au li" href="https://tinyurl.com/fossilfuelties" target="_blank" rel="noopener ugc nofollow">funding</a> for climate change-related research, despite a <a class="au li" href="https://pubmed.ncbi.nlm.nih.gov/9605902/" target="_blank" rel="noopener ugc nofollow">well-documented</a> <a class="au li" href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6187765/" target="_blank" rel="noopener ugc nofollow">pattern</a> of <a class="au li" href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1360-0443.1997.tb02863.x#references-section" target="_blank" rel="noopener ugc nofollow">distorted</a> research outcomes resulting from funding by companies with an oppositional agenda. <a class="au li" href="https://www.ft.com/content/16091645-98b3-4041-9ca2-053fb60181ba" target="_blank" rel="noopener ugc nofollow">No</a> major fossil fuel company is <a class="au li" href="https://priceofoil.org/2020/09/23/big-oil-reality-check/" target="_blank" rel="noopener ugc nofollow">truly aligned</a> with the demands of climate science or justice. Many continue to launch concerted campaigns <a class="au li" href="https://www.climatechangecommunication.org/america-misled/" target="_blank" rel="noopener ugc nofollow">spreading</a> climate misinformation and <a class="au li" href="https://unearthed.greenpeace.org/2021/06/30/exxon-climate-change-undercover/" target="_blank" rel="noopener ugc nofollow">opposing</a> climate action. So it is clear that the industry cannot be a trustworthy partner in the production of public knowledge and ultimately, policy, on climate. By <a class="au li" href="https://www.latimes.com/opinion/story/2022-04-03/climate-change-research-funding-fossil-fuels" target="_blank" rel="noopener ugc nofollow">allowing</a> fossil fuel companies to use their credibility &mdash; whether through investments that sustain these companies&rsquo; core business model or research partnerships that <a class="au li" href="https://www.thenation.com/article/environment/university-climate-research-fossil-fuels/" target="_blank" rel="noopener ugc nofollow">bolster</a> their <a class="au li" href="https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes" target="_blank" rel="noopener ugc nofollow">greenwashing</a> &mdash; universities make themselves complicit in climate breakdown and <a class="au li" href="https://www.timeshighereducation.com/blog/fossil-fuel-research-ties-undermine-universities-climate-change-response" target="_blank" rel="noopener ugc nofollow">undermine</a> their own potential for urgently-needed climate leadership.</p> <p id="3b5a" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Already, asset managers controlling nearly <a class="au li" href="https://www.stand.earth/advisory/divestment-40-trillion" target="_blank" rel="noopener ugc nofollow">$40 trillion</a> worth of funds have pledged to divest from fossil fuels because they recognize the need to align their financial practices with their principles. They also recognize the overwhelming <a class="au li" href="https://ieefa.org/major-investment-advisors-blackrock-and-meketa-provide-a-fiduciary-path-through-the-energy-transition/" target="_blank" rel="noopener ugc nofollow">evidence</a> that divestment <a class="au li" href="https://www.nytimes.com/2021/10/26/opinion/climate-change-divestment-fossil-fuels.html" target="_blank" rel="noopener ugc nofollow">works</a>. And they know that without taking a bold stance against fossil fuels and other industries undermining our sustainable future, they&rsquo;ll lose the chance to have young people like myself as potential customers, employees, supporters, and so on. Regardless of the reason, the choice to divest must be applauded. But to truly lead on climate, institutions like Harvard must take the next step of severing remaining fossil fuel industry ties, by doing things like banning fossil fuel research money and recruitment on campus, or <a class="au li" href="https://www.thenation.com/article/environment/harvard-yale-fossil-fuel-divestment/" target="_blank" rel="noopener ugc nofollow">reinvesting</a> in community-based and renewable energy solutions.</p> <p id="0bbe" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Still, some asset managers and fund trustees (unsurprisingly, some with <a class="au li" href="https://yaledailynews.com/blog/2022/02/24/four-yale-trustees-accused-of-conflict-of-interest-for-fossil-fuel-ties/" target="_blank" rel="noopener ugc nofollow">personal</a> <a class="au li" href="http://harvardcorplovesfossilfuels.divestharvard.com/" target="_blank" rel="noopener ugc nofollow">ties</a> to the fossil fuel industry) continue to make the same tired and bad faith arguments about the value of engaging with the fossil fuel industry as shareholders. We know that such engagement <a class="au li" href="https://impakter.com/harvard-from-apartheid-to-the-climate-crisis-the-limits-of-shareholder-engagement/" target="_blank" rel="noopener ugc nofollow">does not</a> <a class="au li" href="https://www.commondreams.org/views/2021/11/22/shareholder-engagement-fossil-fuel-companies-failure-climate-change" target="_blank" rel="noopener ugc nofollow">work</a> when the core business model is the problem. And it cannot work when the fossil fuel industry makes it <a class="au li" href="https://www.newsweek.com/fossil-fuel-companies-are-undermining-our-future-opinion-1609813" target="_blank" rel="noopener ugc nofollow">abundantly clear</a> that it&rsquo;s unwilling to let this model go so long as any potential profit remains &mdash; no matter the cost to the environment or human life. That is why young people must continue leading the way in calling for total divestment. It is not <em class="lh">an option</em> but the <em class="lh">only option</em> for moneyed institutions to play a positive role in combating climate change.</p> <p id="02bd" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Actions and dollars, too, speak louder than words. Ending fossil fuel finance and other forms of social license-giving to the fossil fuel industry is vital for remaking our energy and economic systems in favor of people and the planet. The case is as strong as ever: with Russia&rsquo;s war on Ukraine <a class="au li" href="https://www.newyorker.com/news/daily-comment/this-earth-day-we-could-be-helping-the-environment-and-ukraine" target="_blank" rel="noopener ugc nofollow">making</a> the instability of a global fossil fuel economy uniquely clear, we need to push our institutions to be champions of this remaking, instead of dragging their heels.</p> <p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">&nbsp;</p> <p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" style="padding-left: 440px;" data-selectable-paragraph=""><strong>∙ ∙ ∙</strong></p> <div class="ir is it iu iv"> <p id="48f3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""><em class="lh">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a class="au li" href="https://www.finra.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">FINRA</em></a><em class="lh"> </em><a class="au li" href="https://www.sipc.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">SIPC</em></a><em class="lh">.</em></p> </div>
Environmental
Investing
Why Are Students Pushing Universities To Divest?

Some universities are using endowment funds to invest in the oil industry.

Ilana Cohen
06 Sep, 2022
5 min read
<p><span style="font-weight: 400;">Are you an investor who cares not only about the performance of your portfolio, but also how your investments affect the environment, society, or humanity as a whole?</span></p> <p><span style="font-weight: 400;">If you do, you&rsquo;re not alone. There are many investors who invest based on their own morals, what they think is ethical, or to achieve a certain social goal. In fact, this type of investing is so popular that there are a handful of different terms that refer to the practice of aligning your investments with your values.</span></p> <p><span style="font-weight: 400;">You may have heard of impact investing, sustainable investing, socially-responsible investing, or ESG, but what do all these terms actually mean? And how do they differ?</span></p> <p>&nbsp;</p> <p><span style="font-weight: 400;">Let&rsquo;s define some of the commonly used terms:</span></p> <p>&nbsp;</p> <p><strong>ESG &mdash; </strong><span style="font-weight: 400;">Stands for </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">Environmental, Social, and Governance</span></a><span style="font-weight: 400;">. A framework for assessing companies beyond solely financial data, by looking at that company&rsquo;s impact on the environment, its impact on society, and how that company is organized. ESG is about better understanding a company by taking into account this information.</span></p> <p>&nbsp;</p> <p><strong>ESG investing &mdash; </strong><span style="font-weight: 400;">Involves incorporating ESG data in order to make investment decisions. Traditionally, ESG investing is </span><a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management"><span style="font-weight: 400;">viewed as a form of risk management</span></a><span style="font-weight: 400;">, where ESG is used to identify companies that are managed sustainably and avoid those that could face regulatory scrutiny. However, ESG investing is often grouped together with socially responsible investing or sustainable investing &mdash; even though technically those refer to different strategies.</span></p> <p>&nbsp;</p> <p><strong>Ethical investing &mdash; </strong><span style="font-weight: 400;">Using your personal code of ethics to determine what to invest in. This differs from investor to investor. One person may think ethical investing involves divesting from companies that test on animals, while another person may not care about animal testing and instead focus on avoiding companies that benefit from child labor.</span></p> <p>&nbsp;</p> <p><strong>Impact investing &mdash;</strong><span style="font-weight: 400;"> According to the </span><a href="https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing"><span style="font-weight: 400;">Global Impact Investing Network</span></a><span style="font-weight: 400;">, impact investing refers to making investments &ldquo;with the intention to generate positive, measurable social and environmental impact alongside a financial return.&rdquo;</span></p> <p><span style="font-weight: 400;">Impact investing is a broad term, but in order to qualify as impact investing the investor should have the desire to create a positive, the ability to measure that impact, the evidence to inform that investment decision, and the goal of also generating returns in the end.</span></p> <p>&nbsp;</p> <p><strong>Socially responsible investing (SRI) &mdash;</strong><span style="font-weight: 400;"> Involves investing in something based on how that investment impacts the environment, society, or the greater good. The concept of SRI has been around for decades (at least) and is sometimes used interchangeably with ethical investing and sustainable investing.</span></p> <p>&nbsp;</p> <p><strong>Sustainable investing &mdash;</strong><span style="font-weight: 400;"> According to </span><a href="https://online.hbs.edu/blog/post/sustainable-investing"><span style="font-weight: 400;">Harvard Business School</span></a><span style="font-weight: 400;">, sustainable investing refers to &ldquo;a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value&rdquo; &mdash; emphasis on </span><em><span style="font-weight: 400;">long-term</span></em><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">Sustainable investing often is associated with investing in green energy or environmentally-friendly practices because the word &ldquo;sustainable&rdquo; is often used in that setting</span></p> <p>&nbsp;</p> <p><strong>Values-based investing &mdash;</strong><span style="font-weight: 400;"> Similar to ethical investing, values-based investing involves making investment decisions based on a person&rsquo;s own set of values. Sometimes those values reflect a person&rsquo;s morals or religion, and other times they reflect a more generalized set of beliefs. Regardless of what those beliefs are, a values-based approach depends on the individual investor.&nbsp;</span></p> <p>&nbsp;</p> <h4><strong>Which approach is best for you?</strong></h4> <p><span style="font-weight: 400;">After going through all of these terms, you may have noticed that there are a lot of similarities. Sometimes the differences between these approaches depend on the intention or end goal, other times it just comes down to semantics.</span></p> <p><span style="font-weight: 400;">Hopefully, next time you hear one of these terms get tossed around you&rsquo;ll have a better understanding of what it means. This understanding may help you make your own investing decisions going forward.</span></p> <p>&nbsp;</p> <p style="padding-left: 440px;"><strong>* * *</strong></p> <p><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></p>
ESG
Investing
ESG vs SRI: What Do All the Terms Mean?

There are a lot of terms used in the world of impact investing, what do they all mean?

Fennel
01 Nov, 2022
2 min read
<p><span style="font-weight: 400;">When investors want to understand the way a market is performing, they often look at a market index. An index is a tool that is used to measure the performance of a certain group of assets, typically by taking the weighted average of those assets in order to create a representative sample.</span></p> <p><span style="font-weight: 400;">There are many different types of indices. One that has been in the news a lot recently is the </span><a href="https://www.bls.gov/cpi/#:~:text=The%20Consumer%20Price%20Index%20(CPI,U.S.%20and%20various%20geographic%20areas."><span style="font-weight: 400;">Consumer Price Index</span></a><span style="font-weight: 400;">, which measures the average price change over time for a select group of consumer goods and services. People have been paying attention to this index because it provides a useful way to measure inflation in the US, especially in terms of how it&rsquo;s felt by your average consumer.</span></p> <p><span style="font-weight: 400;">Some other indices you may have heard of are the </span><a href="https://www.britannica.com/topic/SandP-500"><span style="font-weight: 400;">S&amp;P 500</span></a><span style="font-weight: 400;"> and </span><a href="https://www.britannica.com/topic/Dow-Jones-average"><span style="font-weight: 400;">Dow Jones Industrial Average</span></a><span style="font-weight: 400;">, which both measure stock market performance by looking at either a group of 500 American publicly traded companies (S&amp;P 500) or a basket of 30 industrial stocks (DJIA).</span></p> <p><span style="font-weight: 400;">Indices are popular tools to help track markets, regardless of whether those markets are broad or more niche. So it should come as no surprise that some investors use ESG indices in order to follow the performance of companies that prioritize their </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">environmental, social, and governance</span></a><span style="font-weight: 400;"> practices.</span></p> <p>&nbsp;</p> <h4><strong>What is an ESG index?</strong></h4> <p><span style="font-weight: 400;">An ESG index is a collection of stocks of companies that exhibit high ESG performance. Like other indices, an ESG index is designed to act as a market benchmark, specifically for companies that prioritize ESG within their business operations.</span></p> <p><span style="font-weight: 400;">These ESG indices can help investors track high-performing ESG companies, compare those companies to the broader market, or provide an investment opportunity through an affiliated ETF or mutual fund.</span></p> <p><span style="font-weight: 400;">ESG indices are often put together by a company that provides its own ESG rating system, or by a financial institution that tracks the market. Each ESG index has its own method of picking stocks to be included, rebalancing over time, weighing underlying assets, and taking averages. So each ESG index provides a unique benchmark.</span></p> <p>&nbsp;</p> <p><strong>Here are some examples of different ESG indices, as well as what makes them unique.</strong></p> <p><em><span style="font-weight: 400;">(This list is intended for educational purposes only, and should not be seen as an endorsement to invest. Employing ESG strategies may not result in favorable investment performance.)</span></em></p> <p>&nbsp;</p> <p><strong>S&amp;P 500 ESG Index</strong></p> <p><span style="font-weight: 400;">S&amp;P Global&rsquo;s S&amp;P 500 index provides a market cap-weighted index of 500 large publicly traded companies. As mentioned before, it&rsquo;s a popular index for investors who want a snapshot of the US stock market.</span></p> <p><span style="font-weight: 400;">But to turn the S&amp;P 500 into an ESG index, S&amp;P Global analyzed its list of 500 companies to find the top ESG performers and filter out the companies involved in controversial weapons, tobacco, coal production, or companies that had disqualifying UN Global Compact scores. As of 2022, around 300 of the original 500 companies are included in the S&amp;P 500 ESG index.</span></p> <p><span style="font-weight: 400;">This makes the S&amp;P 500 ESG index a more exclusive list than its parent index. And since the S&amp;P 500 ESG index has significant overlap with the S&amp;P 500, some investors like to compare the two indices to see if companies that prioritize ESG actually outperform their counterparts.</span></p> <p>&nbsp;</p> <p><strong>S&amp;P SmallCap 600 ESG Index</strong></p> <p><span style="font-weight: 400;">Similar to how S&amp;P Global took its S&amp;P 500 benchmark and refined it using an ESG lens, the organization did the same thing for its index tracking small cap companies.</span></p> <p><span style="font-weight: 400;">While the S&amp;P 500 tracks 500 public companies with large market capitalizations, the S&amp;P SmallCap 600 index tracks companies with a market capitalization between $850 million and $3.7 billion. So the S&amp;P SmallCap 600 ESG index uses S&amp;P Global&rsquo;s same methodology to pick out the top ESG performers from the SmallCap index and exclude companies involved in controversial practices.</span></p> <p><span style="font-weight: 400;">S&amp;P Global actually has </span><a href="https://www.spglobal.com/spdji/en/documents/methodologies/methodology-sp-esg-index-series.pdf"><span style="font-weight: 400;">a number of different ESG indices</span></a><span style="font-weight: 400;"> that it creates by refining one of its parent indices, or by compiling different ESG indices to create a composite index. These indices are meant to provide benchmarking for companies based on their market cap, geography, and more (as well as their ESG performance).</span></p> <p>&nbsp;</p> <p><strong>Refinitiv/S-Network ESG Best Practices Indices</strong></p> <p><span style="font-weight: 400;">ESG data provider Refinitiv has developed a handful of ESG indices that fall under its Refinitiv/S-Network ESG Best Practices Indices umbrella. This includes the Refinitiv/S-Network US Large-Cap ESG Best Practices Index, Refinitiv/S-Network US Large-Cap Environmental Best Practices Index, Refinitiv/S-Network US Large-Cap Social Best Practices Index, Refinitiv/S-Network US Large-Cap Governance Best Practices Index, Refinitiv/S-Network Emerging markets ESG Best Practices Index, and a handful of others.</span></p> <p><span style="font-weight: 400;">These indices take the ESG rating system developed by Refinitiv and S-Network in order to provide a benchmark that tracks the top ESG performers. Altogether, these indices represent over 11,000 companies, which have been analyzed across more than 630 ESG performance indicators.</span></p> <p>&nbsp;</p> <p><strong>The Refinitiv Global Resource Protection Select Index</strong></p> <p><span style="font-weight: 400;">While the Refinitiv/S-Network ESG Best Practices Indices look at ESG performance across more than 630 indicators, the Refinitiv Global Resource Protection Select Index narrows its scope by focusing on companies that perform well under Refinitiv&rsquo;s &ldquo;Resource Use&rdquo; category.</span></p> <p><span style="font-weight: 400;">This means that companies included in the index have displayed efforts to reduce their materials, energy, or water usage, as well as made an effort to implement more sustainable efforts in their supply chain management.</span></p> <p>&nbsp;</p> <p><strong>MSCI USA ESG Select Index</strong></p> <p><span style="font-weight: 400;">Morgan Stanley Capital International put together its MSCI USA ESG Select Index by compiling companies with positive environmental, social, and governance factors that display similar risk and returns metrics to its more broad MSCI USA Index. The index is designed to maximize exposure to ESG factors by providing more weight to companies with high ESG ratings, and less to companies with low ESG ratings.</span></p> <p>&nbsp;</p> <p><strong>MSCI KLD 400 Social Index</strong></p> <p><span style="font-weight: 400;">An honorable mention goes to the MSCI KLD 400 Social Index, which evolved from the Domini 400 Social Index &mdash; one of the oldest ESG indices that still exists.</span></p> <p><span style="font-weight: 400;">The Domini 400 Social Index was created in 1990, over a decade before the term &ldquo;ESG&rdquo; </span><a href="https://www.euromoney.com/article/294dqz2h1pqywgbyh3zls/esg/the-united-nations-free-thinkers-who-coined-the-term-esg-and-changed-the-world"><span style="font-weight: 400;">was coined</span></a><span style="font-weight: 400;">. This index was designed to track companies suitable for the &ldquo;socially-responsible investing&rdquo; movement, and has since evolved to incorporate the more standardized criteria that ESG provides.</span></p> <p>&nbsp;</p> <p><strong>Morningstar Global Markets Sustainability Index</strong></p> <p><span style="font-weight: 400;">Financial services company Morningstar has a handful of ESG indices. Among them is its Morningstar Global Markets Sustainability Index, which is designed to reduce the risk caused by issues related to poor performance in environmental, social, and governance factors. Companies included in the list are from the Morningstar Global Markets Large-Mid Index.</span></p> <p>&nbsp;</p> <p><strong>Nasdaq-100 ESG Index</strong></p> <p><span style="font-weight: 400;">The Nasdaq-100 ESG Index is an ESG screened version of the Nasdaq-100, which is a basket of 100 of the largest companies traded on the Nasdaq stock exchange. In order to turn the Nasdaq-100 Index into the Nasdaq-100 ESG Index, the financial organization says it looks at 15 potentially problematic areas of business and excludes them from the ESG index.</span></p> <p><span style="font-weight: 400;">But Nasdaq also admits that most of the companies in the Nasdaq-100 parent index take ESG seriously. So only 6% of companies in the original index get filtered out to create the Nasdaq-100 ESG Index.</span></p> <p>&nbsp;</p> <p style="text-align: center;"><strong>∙ ∙ ∙</strong></p> <p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member </span></em><a href="http://finra.org/"><em><span style="font-weight: 400;">FINRA</span></em></a><em><span style="font-weight: 400;"> </span></em><a href="https://www.sipc.org/"><em><span style="font-weight: 400;">SIPC</span></em></a><em><span style="font-weight: 400;">.&nbsp;</span></em></p>
ESG
Investing
ESG Index: What Is It and What Are Some Examples?

An ESG index can help you track the performance of certain ESG-vetted companies over time.

Fennel
22 Feb, 2023
5 min read
<p class="p1"><a href="https://fennel.com/blog/proxy-season-2023-is-coming-up-heres-what-you-need-to-know" target="_blank" rel="noopener">Proxy season 2023</a> is coming up, which means investors are getting ready to exercise their rights as shareholders and vote on important business decisions. But before the annual general meetings of 2023 really kick off, let&rsquo;s take a look back at last year and pick out some of the trends we saw in proxy season 2022. That way, we might have a better idea of what to expect in 2023.</p> <p class="p1">Here are some of the highlights from last year&rsquo;s proxy season:</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>There was a record number of shareholder proposals in 2022</strong></p> <p class="p1">If your favorite part of proxy season is voting on shareholder proposals, 2022 was your year. Last year broke records in not only the number of shareholder proposals that were submitted to public companies, but also the number of proposals that made it to the ballot and were voted on.</p> <p class="p1">According to <a href="https://corpgov.law.harvard.edu/2022/10/27/boardroom-recap-the-2022-proxy-season/"><span class="s1">a PricewaterhouseCoopers study</span></a>, there were 555 shareholder proposals among Russell 3000 companies that were voted on &mdash; a 25% increase compared to the previous year.</p> <p class="p1">The study says that this is the result of two factors. One, a 17% increase in the number of shareholder proposals that were submitted to these companies. And two, a 40% decrease in no-action requests granted by the SEC (these requests allow companies to drop certain shareholder proposals from their proxy statements).</p> <p class="p1">With this record number of proposals being voted on, a record number of proposals also received the majority of votes.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Lots of these proposals centered around ESG issues</strong></p> <p class="p1">In this record year of shareholder proposals, there were plenty that were related to ESG. Proxy Preview Project <a href="https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/record-number-of-shareholder-esg-proposals-in-2022-defies-gop-political-backlash-71181308"><span class="s1">found</span></a> 607 instances of shareholder resolutions related to ESG topics in the first half of 2022, which it said was a 22% increase from the year before.</p> <p class="p1">This uptick came despite the fact that a 2020 SEC rule made it relatively harder to file and refile shareholder proposals.</p> <p class="p1">"The attempt to silence shareholder voices has, instead, prompted them to get louder," Andrew Behar, CEO of As You Sow, wrote in <a href="https://www.proxypreview.org/2022/report-blog"><span class="s1">the Proxy Preview report</span></a>. "This uprising is occurring while investors and fiduciaries increasingly understand that systemic risk affects all players in the capital markets, inspiring leading companies onto the path of serving all stakeholders."</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Some of the top ESG issues were: DEI, climate change, and political spending</strong></p> <p class="p1">While governance issues remained a popular topic for shareholder proposals, there number of shareholder proposals surrounding environmental and social issues almost doubled among Russell 3000 companies, according to the PwC study mentioned before.</p> <p class="p1">However, the study points out that only 41 of the 288 E and S related proposals received the majority of votes. This is a slight uptick from the 36 proposals that got the majority of votes in 2021, but still represents a decline in the percentage of proposals reaching the majority benchmark.</p> <p class="p1">The study found that the number of environment-related proposals doubled compared to the year before. These proposals included topics like measuring direct emissions, climate risk management, measuring indirect emissions, and implementing sustainable packaging. Proposals that dealt with direct emissions like greenhouse gas emissions and net-zero targets were more likely to pass (7 out of 14 did) than proposals that dealt with indirect emissions</p> <p class="p1">The study also found that shareholder proposals asking for racial equity audits were surprisingly popular, with average support going from 33% in 2021 to 45% in 2022. 8 out of 22 of these proposals passed with the majority of votes.</p> <p class="p1">These environmental and social trends build off of what we&rsquo;ve seen in the past few years. US SIF <a href="https://www.ussif.org//Files/Trends/2022/Trends%25202022%2520Executive%2520Summary.pdf"><span class="s1">analyzed</span></a> shareholder proposals spanning 2020 to 2022 and found that the issues that prompted the most proposals were: labor and equal employment opportunity (with 311 proposals), corporate political activity (with 288 proposals), and climate change (with 265 proposals).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Notable vote: Jack in the Box&rsquo;s sustainable packaging</strong></p> <p class="p1">Speaking of breaking records, one especially notable vote came from the shareholders of Jack in the Box. Investor Green Century Funds put together a shareholder proposal asking Jack in the Box to speed up its sustainable packaging efforts, arguing that the company had fallen behind the sustainable packaging initiatives of other fast food companies.</p> <p class="p1">What makes this vote notable is that it passed with 95% of the vote <em>despite</em> Jack in the Box recommending that shareholders vote against it. This is <a href="https://www.greencentury.com/majority-of-jack-in-the-box-shareholders-support-green-century-packaging-proposal/"><span class="s1">the largest margin</span></a> that an environmental- or social-related proposal has passed with a company opposing it &mdash; showing that certain investors really care about environmental impact, and are willing to push companies that drag their feet on these issues.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Investors paying close attention to governance</strong></p> <p class="p1">Environmental and social issues were in the spotlight, but so was governance. According to <a href="https://www.ey.com/en_us/board-matters/four-key-takeaways-from-the-2022-proxy-season#accordion-content-1941053843-0"><span class="s1">EY</span></a>, shareholders asked for more board oversight and disclosures when it came to ESG issues, and some companies responded by citing ESG in director qualifications.</p> <p class="p1">EY also notes that despite the signals that activist investors would challenge more company-picked board nominations, the opposition only went up by a small percentage. The average vote <em>against</em> S&amp;P 500 directors was 4.2% in 2022, which was only up a little bit compared to the 3.9% average in 2021.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Say on pay decline</strong></p> <p class="p1">One particularly interesting trend in governance is the decrease in support for company &ldquo;say on pay&rdquo; votes. If you look at previous proxy years, you&rsquo;ll notice that in general, say on pay votes received overwhelming support. But that may be starting to chip away.</p> <p class="p1">According to PwC, &ldquo;Average support at companies in the S&amp;P 500 and Russell 3000 hit record lows since the vote was introduced 11 years ago, at 87% and 90% respectively. In the S&amp;P 500, 21 companies failed their say-on-pay vote, with 207 companies receiving below 70% support. The number of failed votes at Russell 3000 companies hit 71.&rdquo;</p> <p class="p1">While 70% may still seem like a high percentage of the vote, this represents a stark contrast when compared to before.</p> <p class="p1">This trend is exemplified by the controversy surrounding Apple&rsquo;s 2022 say on pay vote for its CEO Tim Cook. Last year, Institutional Shareholder Services (ISS), one of the largest proxy advisory firms, <a href="https://www.reuters.com/technology/apple-shareholder-iss-urges-vote-against-ceo-cooks-bonus-2022-02-16/"><span class="s1">asked Apple investors to vote against</span></a> Tim Cook&rsquo;s compensation, saying there were issues with how his equity was awarded.</p> <p class="p1">Apple&rsquo;s say on pay vote still received a majority with 64% approval, but this was down from 95% in 2021. In response, Cook <a href="https://www.cnbc.com/2023/01/12/apple-ceo-tim-cook-receives-a-40percent-pay-cut-after-shareholder-vote.html"><span class="s1">voluntarily cut his own salary by 40%</span></a> at the start of 2023.</p> <p class="p1">This is potentially a big deal, because if Tim Cook isn&rsquo;t safe from say on pay opposition &mdash; the same Tim Cook that leads the largest US company by market cap, that grew his company&rsquo;s share price by around 1,000% since becoming CEO in 2011 &mdash; this could have big implications for the compensation of other CEOs if their shareholders believe they are being unfairly paid.</p> <p class="p1">It could be interesting to see how support for say on pay changes in 2023, or if it changes at all. But all of these trends from 2022 could be worth keeping an eye on in 2023. These trends could just be symptoms of what investors are thinking about during a specific year, or they could be hinting at a larger movement.</p> <p class="p2">&nbsp;</p> <p class="p3" style="text-align: center;"><strong>&bull; &bull; &bull;</strong></p> <p class="p4"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member</em><a href="http://finra.org/"><em> </em><span class="s2"><em>FINRA</em></span></a><a href="https://www.sipc.org/"><em> </em><span class="s2"><em>SIPC</em></span></a><em>. </em></p> <p class="p5">&nbsp;</p>
Shareholder Activism
ESG
Investing
Highlights From Proxy Season 2022

Let's take a look back at some of the things that happened during last year's AGM season.

Fennel
21 Mar, 2023
5 min read
<p class="p1">At Fennel, we believe that individual investors should have access to as much data as the traders on Wall Street do. That&rsquo;s why we&rsquo;ve packed all that ESG, financial, and shareholder voting information into our app.</p> <p class="p1">But, we also acknowledge that&nbsp;<em>a lot</em>&nbsp;of data can be overwhelming at times, especially when it comes to financial data. This data can tell you about the health of a company&rsquo;s business or the performance of its stock, but it also involves understanding a fair amount of terms and numbers.</p> <p class="p1">That&rsquo;s why we&rsquo;ve put together this glossary as a cheat sheet to help you remember what all the financial terms measure and mean. With this glossary, we hope you feel well-equipped to invest based on the metrics that matter to you.</p> <p class="p1">(For a rundown on Fennel&rsquo;s ESG data, you can&nbsp;<a href="https://fennel.com/fennel101/4"><span class="s1">read our explainer here</span></a>.)</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Annual Revenue</strong></p> <p class="p1">Annual revenue tells you how much money a company generates by selling its products or services over the course of a year. Fennel gets this information by looking at the net revenue or net sales that a company generated in its most recent fiscal year.</p> <p class="p1">Revenue differs from profit because it doesn&rsquo;t include the expenses that a company had to pay in order to generate that revenue. If you subtract a company&rsquo;s expenses from its revenue you&rsquo;ll get its&nbsp;<strong>net income</strong>&nbsp;or&nbsp;<strong>net profit</strong>.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Beta</strong></p> <p class="p1">Beta is a measurement that represents a stock or ETF&rsquo;s volatility.</p> <p class="p1">To measure this, beta compares how much the price of that security changes relative to the broader market on average. The market, which is usually represented by a benchmark like the S&amp;P 500 or Russell 1000, is given a beta value of 1.0.</p> <p class="p1">For example, if the security&rsquo;s price tends to experience similar percentage changes as the broader market (on both up and down days), it&rsquo;ll have a beta value close to 1.0. If the security&rsquo;s price swings more wildly than the broader market, it&rsquo;ll have a beta value greater than 1.0 &mdash; the higher the value, the greater the variance. But if the security moves less than the broader market on average, its beta value will be less than 1.0.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Change on Day</strong></p> <p class="p1">This measures how much the price of a stock or ETF has changed between the close of the prior trading day and where the price is currently. This change can be represented by either a dollar amount ($) or by a percentage (%).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Dividend</strong></p> <p class="p1">A dividend is a sum of money that a company pays out to its shareholders in regular intervals (often quarterly) as a way to share its profits.</p> <p class="p1">If an investor is interested in collecting dividends, they may also want to know about a company&rsquo;s&nbsp;<strong>dividend rate&nbsp;</strong>and&nbsp;<strong>dividend yield.</strong></p> <p class="p1">The dividend rate is the company&rsquo;s annual dividend payment per share (as determined by the company). Sometimes, if you hear an investor talk about a company&rsquo;s &ldquo;dividend&rdquo; in terms of dollars per share &mdash; as in, &ldquo;this company pays a dividend of $1.22 per share&rdquo; &mdash; they are actually talking about its dividend rate.</p> <p class="p1">The dividend yield, on the other hand, is a ratio that describes how much the dividend pays out relative to that company&rsquo;s share price (as a percentage). So, if a company&rsquo;s share price is $10, and its dividend rate is $1.22 per share per year, the dividend yield is 12.2%.</p> <p class="p1">Some ETFs pay out dividends too if the underlying assets in that ETF pay dividends.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Earnings Per Share (EPS)</strong></p> <p class="p1">Earnings per share is a calculation used to help estimate a company&rsquo;s value. EPS takes a company&rsquo;s&nbsp;<strong>net profits</strong>&nbsp;(which, as mentioned above, is&nbsp;<strong>annual revenue</strong>&nbsp;minus expenses), then subtracts the company&rsquo;s&nbsp;<strong>dividends</strong>&nbsp;(also mentioned above), and then divides that total by the number of outstanding shares. Thus, this calculation gives investors an estimate of how much the company is earning per share.</p> <p class="p1">The Fennel app includes both&nbsp;<strong>actual earnings per share</strong>, which uses company reported earnings from previous fiscal years to calculate EPS, as well as&nbsp;<strong>estimated earnings per share</strong>, which calculates EPS for the current and next fiscal year based on what analysts estimate earnings will be. (These analyst estimates are provided by FactSheet).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Enterprise Value</strong></p> <p class="p1">Enterprise value is another calculation that can help investors figure out how much a company is worth. A company&rsquo;s enterprise value is equal to its&nbsp;<strong>market capitalization</strong>&nbsp;(the number of shares times the share price), plus the company&rsquo;s debt and minority interest, then minus the company&rsquo;s cash. It can be seen as slightly more comprehensive than&nbsp;<strong>market cap</strong>&nbsp;because it takes a company&rsquo;s debt and in hand cash into account.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Last Price</strong></p> <p class="p1">This is a stock&rsquo;s or ETF&rsquo;s most recent share price, either from the current or most recent trading session at close.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Market Capitalization</strong></p> <p class="p1">Market Capitalization (often shortened to &ldquo;market cap&rdquo;) aims to calculate a company&rsquo;s total equity value. It does this by multiplying the company&rsquo;s share price by the number of outstanding shares.</p> <p class="p1">Sometimes, investors classify companies by size using market cap. Companies are split into&nbsp;<strong>small cap</strong>&nbsp;(when market cap is less than $2 billion),&nbsp;<strong>mid cap</strong>&nbsp;(when market cap is between $2 billion and $10 billion), and&nbsp;<strong>large cap</strong>&nbsp;(when market cap is greater than $10 billion).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Open / High / Low</strong></p> <p class="p1">These are three different price measurements for the current, or most recent trading session.&nbsp;<strong>Open</strong>&nbsp;refers to the share price at market open.&nbsp;<strong>High</strong>&nbsp;refers to the highest value that the share price reached during the trading session. And&nbsp;<strong>low</strong>&nbsp;refers to the lowest value that the share price reached.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Price</strong></p> <p class="p1">This one may seem self-explanatory, but price refers to the current or most recent share price in US dollars. It&rsquo;s often used to calculate other financial metrics, such as&nbsp;<strong>market capitalization</strong>&nbsp;or&nbsp;<strong>price-to-book</strong>.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Price-to-Book (P/B)</strong></p> <p class="p1">A ratio that is used to compare a company&rsquo;s market value (the price that its shares are trading at) to its book value (the value of the assets on its balance sheet minus liabilities). P/B is calculated by dividing the company&rsquo;s current share price by the most recently reported book-value-per-share.</p> <p class="p1">P/B can also be calculated for ETFs by taking the weighted average of the P/B values for that ETF&rsquo;s underlying holdings (i.e, stocks).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Price-to-Earnings (P/E)</strong></p> <p class="p1">Another ratio, price-to-earning compares the company&rsquo;s share price to its annual earnings per share (EPS). Another way to think about P/E is to view it as how much an investor pays to get a dollar&rsquo;s worth of company earnings. It&rsquo;s also sometimes referred to as the &ldquo;earnings multiple.&rdquo;</p> <p class="p1">P/E can be calculated as&nbsp;<strong>trailing P/E</strong>&nbsp;(which uses a company&rsquo;s reported EPS from its most recent fiscal year), or as&nbsp;<strong>forward P/E</strong>&nbsp;(which uses EPS estimates calculated by analysts for the current fiscal year).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Sector</strong></p> <p class="p1">A way of classifying companies by the industry they operate in (or where their revenue comes from). The Global Industry Classification Standard (GICS) is responsible for classifying companies by their sector.</p> <p class="p1">To learn more about the 11 different sectors, you can&nbsp;<a href="https://fennel.com/fennel101/5"><span class="s1">read our blog post here</span></a>.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Theme</strong></p> <p class="p1">Another way of classifying companies based on the area they operate in. While&nbsp;<strong>sector</strong>&nbsp;can be seen as the type of business a company is, the theme has more to do with industry trends and the company&rsquo;s area of focus. Themes may be more specific than sectors.</p> <p class="p1">For example, Information Technology is one of the 11 sectors, but Cybersecurity is one of the themes listed in the Fennel app.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Total Debt to Equity Ratio</strong></p> <p class="p1">As hinted in the name, this ratio is calculated by dividing the total debt a company has by the most recent value of the shareholders&rsquo; total equity, and then multiplying by 100. This measurement can also be used to tell investors more about how leveraged a company is (since it compares how much the company owes in relation to its equity value).</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Volume</strong></p> <p class="p1">Volume refers to the total number of shares that are being traded. Volume can be calculated for the current trading period (referred to as&nbsp;<strong>today&rsquo;s volume</strong>), the most recent trading period, or can be averaged out over time. For example, Fennel calculates a security&rsquo;s&nbsp;<strong>average daily volume</strong>&nbsp;by taking the mean of a security&rsquo;s volume over the most recent 30 days.</p> <p class="p1">Some investors look at a security&rsquo;s volume as an indicator of its activity or momentum. It stocks are being trading more frequently, that may tell you more about the popularity of that stock, or if large transactions are being placed.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>52-Week Range</strong></p> <p class="p1">The 52-week range tells you how much a security&rsquo;s price has moved (roughly) over the past year. It&rsquo;s calculated by comparing the highest price that security reached over the past 52 weeks (the&nbsp;<strong>52-week high</strong>) to the lowest price (the&nbsp;<strong>52-week low</strong>).</p> <p class="p2">&nbsp;</p> <p class="p3"><strong>*ETF Terms*</strong></p> <p class="p1"><em>Fennel allows investors to buy and sell both stocks and ETFs. While stocks represent shares of a single publicly traded company, exchange-traded funds (ETFs) act as a pooled investment, which can represent several different underlying stocks or assets.</em></p> <p class="p2">&nbsp;</p> <p class="p1"><em>Since ETFs differ from stocks, we&rsquo;ve included a few terms that are used in the Fennel app to provide data about ETFs.</em><span class="s2"><strong>&nbsp;</strong></span><strong><em>Investors should consider carefully information contained in an ETF&rsquo;s prospectus or, if available, the summary prospectus, including information about investment objectives, risks, charges, and expenses. You can request a&nbsp;</em></strong><a href="https://www.schwab.com/etfs/investor-information"><span class="s3"><strong><em>prospectus</em></strong></span></a><strong><em>&nbsp;by contacting customer support. Please read the prospectus carefully before investing.</em></strong></p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Assets Under Management</strong></p> <p class="p1">Sometimes abbreviated as AUM, this refers to the total market value of all an ETF&rsquo;s holdings.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Expense Ratio</strong></p> <p class="p1">ETFs don&rsquo;t just appear out of thin air, they are usually created and managed by some organization. The expense ratio refers to the operating costs that it takes to manage an ETF&rsquo;s portfolio (for things like management fees, marketing, distribution, administration, distribution, and other expenses). These expenses are then expressed as a percentage of the fund&rsquo;s average net assets.</p> <p class="p2">&nbsp;</p> <p class="p1"><strong>Number of Holdings</strong></p> <p class="p1">This refers to the number of underlying securities held in an ETF. Some ETFs consist of many different underlying stocks, others may have less, while some ETFs only have one (known as&nbsp;<strong>single-stock ETFs</strong>).</p> <p class="p2">&nbsp;</p> <p class="p2">&nbsp;</p> <p class="p2" style="text-align: center;"><strong>∙ ∙ ∙</strong></p> <p class="p1"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member</em><a href="http://finra.org/"><span class="s1"><em>&nbsp;FINRA</em></span></a><a href="https://www.sipc.org/"><span class="s1"><em>&nbsp;SIPC</em></span></a><em>.</em></p>
Investing
Fennel’s Glossary of Financial Terms

Beta, enterprise value, expense ratio ... what does it all mean? Here are definitions for the terms you'll see in the Fennel app.

Fennel
30 May, 2023
5 min

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