Sector strategy neutral, regional strategy neutral to negative, consistent with our broader concern about the equity outlook.
Sector strategy neutral, regional strategy neutral to negative, consistent with our broader concern about the equity outlook.
For most sectors, the likelihood of adverse ESG events and their potential financial impacts evolve through a lifecycle. ESG lifecycles determine the time it takes for a sustainability issue to become relevant to a sector as well as the magnitude of the financial impact. We believe the ability to anticipate ESG lifecycles can enhance the investment decision-making process.
We maintain a cautious sector strategy, with most sectors experiencing earnings estimate reductions. Our regional strategy is also selective.
Our earnings momentum metric has been refined. In addition, we have also introduced a methodology for weighting ESG factors in sectors and regions. These modifications have resulted in an unusually large number of changes in recommendations.
Building on the recent analysis in our Regional and Sector Strategy: Monthly Update, we continue to embrace an outlook for just a single-digit increase in profits in 2016, which is in contrast to consensus estimates that imply a 21% gain in earnings.
We remain Overweight Information Technology (largest weighting in Overweight North America region) and Consumer Discretionary (largest weighting in Japan, our other Overweight). We continue to avoid regions with heavy exposure to commodities, most notably Latin America (Underweight), South Africa and Russia (both ranked Neutral).
On February 9, 2016, the US Supreme Court (SCOTUS) granted a stay to the implementation of the CPP rule by the US Environmental Protection Agency (EPA). In our view, the intensity of the challenge from the states and certain industries, and the SCOTUS ruling that CPP should be halted while being litigated, demonstrates that the CPP has significant implications for the sector.
A key question for investors is whether YieldCos’ interests align with their own. We assess the governance structures of a comparable set of YieldCos in this report.
As a complement to our Regional and Sector Strategy: Monthly Update we introduce a new publication that will examine in detail the outlook for global earnings on a regular basis.
We are becoming a little more cyclical once again. We are now upgrading the Industrials sector to Neutral from Underweight, largely reflecting improved valuation. We remain Neutral on the two sectors that are widely considered the most defensive: Consumer Staples and Health Care.
As we continue our research on sustainability factors that play a role in market outcomes, we embrace a more nuanced view. ESG factors that impact different sectors are not static, and are determined by a wide range of lifecycles.
We are Underweight Energy, Materials, and Industrials. Our only Overweight is in Financials. We upgrade China and Russia to Neutral from Underweight.
We believe that the rising electricity prices forecast by the US Energy Information Agency (EIA) in their Annual Energy Outlook 2015 do not account for the dampening effect of rapidly declining renewable energy costs and low financing costs. In particular, rooftop solar should act as a cap on the price that utilities will be able to charge retail customers while falling wholesale solar prices, set at a fixed price for up to 20 years, could reduce wholesale electricity prices for the long term.
US electricity prices have steadily increased in nominal terms over the last five decades. However, using history as a guide, we observe two distinct periods of falling prices driven by technology and government subsidies. We believe that a confluence of factors could once again result in structurally lower prices – with potential impact to power market participants.
There are no material changes to our regional recommendations, however, we offer material changes to the recommendations in our sector strategy model.
Although there are no material changes to our regional or sector recommendations this month, there have been some noteworthy crosscurrents…
We are now underweight the most cyclically sensitive sectors: Industrials, Materials, Energy. While we upgrade the CEEMEA region to Neutral from Underweight — in large part because of an improved earnings outlook — this likely reflects a modest rebound in oil prices, which remain 40% below year-ago levels.
California’s drought poses a resource crisis on a scale that has not been seen in the US for several decades. Experts forecast the drought, now in its third year, will continue at least through 2016, and the lack of rain, combined with a record low water table beneath the Central Valley, may be a “new… Read more »
We continue to have a defensive tilt in our regional recommendations, and are Underweight the commodity-rich regions of Central and Eastern Europe, Middle East and Africa (CEEMEA) and Latin America …
Harvard Business School, Intel Education among Business and Entrepreneurial Leaders to Select Winner of $25,000 Prize Five global leaders from across business, the capital markets and academia have been selected as judges for “Sustainable Games: The Business Model Challenge.” The competition, which offers a $25,000 prize, is sponsored by Cornerstone Capital Inc., together with the Clinton… Read more »
What Matters? — Some environmental issues that are the subject of popular focus — such as carbon dioxide emissions — do not appear to be statistically significant for global investors. Moreover, many countries’ environmental “health” has moved in the opposite direction of their economic development i.e., more pollution and higher per capita GDP.
Our regional strategy is unchanged. We continue to have a defensive tilt in our regional recommendations, and are Underweight the commodity-rich regions of CEEMEA and Latin America. Japan continues to be the top-ranked country. Over the past twelve months, share buybacks in Japan have been the largest of any country / region, the first time that country has been the global buyback leader since we launched the regional model in April 2014. We highlight changes in the Energy suggesting, perhaps, that stock prices in the sector have not fallen as fast as earnings estimates . . .
Schneider Electric (SU) published its annual results yesterday, posting a profit increase of 2.8% and revenue growth of 6.6%. With a 170-year history, starting in metallurgy, Schneider Electric is now betting on one core element of its strategy, across all its business lines: energy efficiency. Last November, the International Energy Agency reminded markets that energy… Read more »
Our regional strategy is unchanged, even with a heightened focus on monetary policies and exchange rates in the past month driven, in part, by fears of deflation. We continue to have a defensive tilt in our regional recommendations, and are Underweight the commodity-rich regions of CEEMEA and Latin America. Our sector strategy is also unchanged and remains “less cyclical, more defensive.” We maintain our relatively defensive posture given pockets of economic weakness globally. We are Overweight Health Care in North America, the U.K. and Europe ex U.K. We are Underweight or Neutral Energy in the majority of regions….
Cornerstone Capital Group hosted a call on Jan. 12 with geopolitical expert, Lionel Vairon, CEO of CEC Consulting. Dr. Vairon spoke about implications for the global economy given closer ties between Russia and China – including likely developments in energy, politics and the financial sector. Click below to listen to the call. Dr. Lionel… Read more »
On December 1st, the German energy utility company E.ON announced it would spin off its conventional energy generation, upstream and trading businesses, and focus on renewable energy, networks and customer solutions. E.ON’s current shareholders will receive shares in this new company, in addition to their holdings in the parent company. E.ON will keep a minority… Read more »
Praxair, Inc. (NYSE: PX) is a Fortune 250, $12 billion global industrial gas company headquartered in Danbury, CT. It is the largest industrial gas company in the Americas and operates in more than 50 countries. Praxair consistently leads the industry in profitability and return on capital through a culture of operational excellence, capital discipline and… Read more »
My journey to the recycling world, is a circuitous one primarily driven by environmental and social motives. A child of immigrants from India and the UK, and one of six children, I never sought easy answers. We came from England with just the clothes on our backs. My parents had big dreams of not only… Read more »
Nils Anderson, the CEO of AP Moller Maersk, spoke at this month’s BSR Conference in New York City and articulated his company’s aspiration to be “Taking the lead in a world of change.” This company represents the ultimate player in global trade. And, if one subscribes to the economic theory of comparative advantage, then the… Read more »
“Readers, I selected this story–written by a colleague here at Oxfam–when I learned that the focus of October’s issue of The Journal of Sustainable Finance and Banking would be on food and nutrition. Although Oxfam has worked on food and hunger issues from our inception, far too few people recognize the significance that clean water… Read more »
As the world’s consumers increasingly eat their way up a middle class ladder replete with growing portions of meat, dairy, cooking oils and fruits and vegetables, farmers find their jobs growing harder by the day. Facing ever-hotter temperatures, record-busting cycles of drought and flood and finite amounts of irrigation water, farmers have the unenviable task… Read more »
Co-authored by Viki Radden and Doug Lawrence Today, the U.S. population is over 316 million. In less than 40 years, the U.S. Census Bureau projects we’ll reach a national population of 450 million, a 42% increase. Where is this population going to live? The answer to that question appears relatively clear; the U.S. Census Bureau… Read more »
The current U.S. agriculture model is not sustainable. It is losing more than one acre of farmland a minute to development and causes the erosion of four billion tons of topsoil per year. It accounts for 82% of fresh water use while our major water sources such as the Ogallala Aquifer, Lake Mead and the… Read more »
In a year of surprisingly muted market volatility, this month we saw risk assets tumble as investor concerns reached a decisive tipping point. Anxiety over a less accommodative Fed, the pace and sustainability of global economic growth, continued conflict in Ukraine, escalating violence in the Middle East, and even the Ebola crisis have investors fleeing… Read more »
In an effort to ignite and support the efforts of the next generation of business leaders, and a form of capitalism that is based upon greater collaboration and transparency, we launch this initiative among the world’s students who will be essential drivers of sustainable innovation…This is a call to action for social entrepreneurship: “Sustainable Games:… Read more »
Fossil-free by 2075. That is the answer the International Energy Agency (IEA) found when it explored technology transition paths for the global energy sector consistent with stabilizing climate change. As an intergovernmental formation of industrialized nations, the IEA’s aim was the same target as the one repeatedly sought by in international negotiations – 2 degrees Celsius above pre-industrial global average temperatures, a level intended to avoid the most catastrophic effects of climate change. While investment analysts are often bound to performance horizons of just a few quarters, the IEA view to 2075 has implications for capital allocations today….
This is an abstract from the September edition of The Cornerstone JSFB. Subscribers can read the full article here. Learn more about the JSFB here. When discussions about the imperative to lower greenhouse gases turn to the subject of hydraulic fracturing, or fracking, tensions get white hot. Opponents cite the horrors of gas and… Read more »
Climate forecasters breathed a collective sigh of relief earlier this month as predictions of a “mega El Niño” on par with severe incidents that took place in 1997-98 were downgraded. Scientists now believe a more modest event will develop later this year and run through the winter of 2014/2015. Nonetheless, the revised “60-65% chance” forecast… Read more »
We have updated the inputs to the Cornerstone Capital Sector Strategy Model in which we rank the ten GICs in the MSCI All Country World Index (ACWI). Figure 1 summarizes the most recent rankings. Figure 1: Cornerstone Capital Global Markets Equity Strategy Model Sector Overview Relative to the previous rankings (published in the June edition… Read more »
The fact of the matter is that capital markets have moved away from a long-term mindset and more towards a focus on short-term results. This trend has been well observed by market participants and academics alike, yet the question as to what will serve as a catalyst to reverse the trend remains. To this end, it’s worth highlighting a recently released white paper by The Generation Foundation and KKS Advisors focusing on the impact of regular Earnings Guidance. Thorough examination of the topic leads to the following conclusions….
ABSTRACT FROM THE CORNERSTONE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE JUNE 2014 EDITION. When we think about sustainability in the context of the fan experience we take a holistic view of our opportunity and responsibility – from the restaurants supporting the sports events to the ingredients provided by our supply chain. In doing… Read more »
How should investors respond to the challenges of climate change? On our June 12th conference call, Cornerstone Capital CEO Erika Karp and John Wilson, Head of Corporate Governance, Engagement and Research, provided investors and corporate constituents with our perspective on this pivotal issue. The Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC)… Read more »
As global markets digest the implications of the latest move from the Obama Administration, we argue that investors must adapt to the evolving reality of climate change with transparency, engagement and pragmatism. In this note, John Wilson, Cornerstone’s Head of Corporate Governance, Engagement & Research, articulates our firm’s position on this pivotal issue. Introduction Although… Read more »
In this note, we introduce the Cornerstone Capital Global Sector Strategy Model. The model ranks the 10 GICS in the MSCI All Country World Index. As discussed in detail below, the model employs a quantitative multi-factor methodology to generate sector recommendations based on proprietary measures of valuation and earnings. The Cornerstone Capital model also takes… Read more »
ABSTRACT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE MAY 2014 EDITION In the April edition of The Cornerstone Journal of Sustainable Finance & Banking we introduced the Cornerstone Capital Regional Strategy Model. This month there is no change in our regional weightings. We provide a quick update by region. Michael Geraghty is the… Read more »
ABSTRACT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE MAY 2014 EDITION We introduce the Cornerstone Capital Global Sector Strategy Model which ranks the 10 GICS in the MSCI All Country World Index. The model employs a quantitative multi-factor methodology to generate sector recommendations based on proprietary measures of valuation and earnings and incorporates… Read more »
In this note, we introduce the Cornerstone Capital Global Markets Regional Equity Strategy Model. As discussed in detail below, the model employs a quantitative multi-factor methodology to generate regional recommendations based on proprietary measures of valuation and earnings. The Cornerstone Capital model also takes into account corporate governance metrics by region. We will be updating… Read more »
As we strive towards a system change, replacing linear business models with circular, impact-integrating strategies, network infrastructures are at the core of a major shift. From low-risk, low-return physical assets, they are being transformed into smart grids….
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE APRIL 2014 EDITION. Our national economy is in a world of hurt when it comes to its very foundation: the public infrastructure and buildings that enable and support economic activity. Bridges, highways, transit, energy, and environmental infrastructure as well as social infrastructure including healthcare, education… Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE APRIL 2014 EDITION. With limited public funding available for socially and environmentally responsible programs, a variety of initiatives have been developed to attract private capital into sustainable development. Although still in their infancy, social impact bonds (SIBs) offer a promising outlook for sustained public-private partnerships…. Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE APRIL 2014 EDITION. It is our experience that sustainability adds value if it is tied closely into business and is allowed to help the company take a longer term perspective on material matters. At its core, it adds value through better risk management whether it… Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE APRIL 2014 EDITION. The financial benefits coupled with the benefits of maintaining the water quality of the lake and canals planned for Panther Island makes a clear case for expanding the use of green infrastructure in North Texas that will benefit the development community and… Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE APRIL 2014 EDITION. Abridged Article based upon SAN Press release courtesy of Jim Grant HNTB Corporation San Diego International Airport has been awarded Leadership in Energy and Environmental Design Platinum certification for The Green Build terminal expansion from the U.S. Green Building Council. LEED certification… Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE FEBRUARY 2014 EDITION. Climate change is integrated into our company-wide risk management processes and in 2013 we further strengthened their commitment to lowering GHG emissions associated with the production and distribution of our products. Nestlé also commits to designing products that help consumers lower their… Read more »
EXCERPT FROM THE JSFB. SUBSCRIBERS CAN READ THE FULL ARTICLE IN THE FEBRUARY 2014 EDITION. In the U.S., domestic developments have made New Jersey the third leading state in solar energy. This reflects a changing energy landscape in which sustainability has become a global policy consideration. The long-term trend is towards the adoption of renewable energy… Read more »
As last year’s Earth summit in Brazil, Rio+20, clearly showcased, many people believe indeed that a “green growth” economic model, integrated within the long term vision of sustainable development, is incompatible with the economic growth countries like Brazil strive to achieve in order to bring prosperity and progress to all. Is this antagonism relevant, or is there a way to reconcile these major objectives?
Bloomberg Interview on “The Pulse” – Financial Services for Sustainable Energy, 12/12/13
Extract from the Cornerstone Journal of Sustainable Finance & Banking, October 2013, written by Kimberly Gladman, Research Director of the Just Capital Foundation. Amid growing investor interest in the ways that corporations manage sustainability issues, executive pay plans are receiving heightened scrutiny. Many companies say they value environmental and social performance, but do they structure… Read more »
Extract from the Cornerstone Journal of Sustainable Finance & Banking, October 2013, written by Chris Fowle, Vice President, Investor Initiatives, CDP. This report from WWF and CDP identifies novel approaches for the private sector to realize significant cost-savings achieved through boosting energy-efficiency measures and transitioning to low-carbon energy sources. In the process, the US corporate… Read more »