At Cornerstone Capital Group, we have always been committed to investing with gender lens – it’s part of our heritage as a woman-owned investment firm, and equity and inclusion are core values.  One of our first clients to embrace a total gender lens portfolio was the Ms. Foundation for Women (  We are proud to partner with the Ms. Foundation as their investment advisor and as a thought partner on important matters facing women and girls including addressing the prevalence of sexual and gender based violence (as in our recent report).

On April 10 we were thrilled to welcome Teresa Younger, President & CEO of the Ms. Foundation, for an event we co-hosted in Denver with the Women’s Foundation of Colorado (  The event was attended by many leading investors and philanthropists in Colorado. Here are a few photos from the evening.

Phil Kirshman and Craig Metrick with Ning Mosberger-Tang of Innovo Foundation

Katherine Pease, Head of Impact Strategy for Cornerstone Capital Group, with Lauren Casteel, President & CEO, Women’s Foundation of Colorado and Teresa Younger, President & CEO, Ms. Foundation for Women

Lauren Casteel, President & CEO, Women’s Foundation of Colorado; Karen McNeill-Miller, President & CEO, The Colorado Health Foundation; Teresa Younger, President & CEO, Ms. Foundation for Women

Phil Kirshman with Adrienne Mansanares, Trustee, Women’s Foundation of Colorado; Jesse King, President, Fulcrum Advisors.

Katherine Pease is Managing Director, Head of Impact Strategy. In this role she helps develop and monitor impact strategies and provides contributions to Cornerstone’s professional research team. She previously served as the Principal of KP Advisors, Inc., whose mission is to help foundations, nonprofits and investors develop thoughtful, innovative approaches to address the challenges they care most about by using a variety of types of capital and other resources to make the world more just, fair and equitable.


Even as stock price volatility has increased in 2018, the U.S. equity outlook remains fundamentally sound.  Strength in corporate profitability is broad-based, with nine of the eleven sectors in the S&P 500 currently forecast to post double-digit earnings gains this year.

There are risks to our outlook: potential interest rate increases; wage pressures; trade tensions; geopolitical conflicts; domestic political upheaval. We also consider risks that might arise from environmental, social or governance factors, particularly for the technology and finance sectors.

While acknowledging these risks, our 2018 equity outlook remains unchanged. We continue to believe that strength in corporate profits will offset any pressures on P/E multiples, so that stock prices are likely to end 2018 with gains of 5-10%.

Read our full analysis here.

Michael Geraghty is the Equity Strategist at Cornerstone Capital Group. He has over three decades of experience in the financial services industry.  Michael has worked as an investment strategist at a number of leading firms.  At PaineWebber (1988 – 2000), he was a Senior Vice President and member of an Institutional Investor ranked U.S. Portfolio Strategy team.  At UBS (2000 – 2003), he was an Executive Director and senior member of the global equity strategy team responsible for regional and sector allocations.  At Citi Investment Research & Analysis (2004 – 2012), Michael was the global themes strategist; Citi was ranked #1 for Thematic Research in the 2011 Extel survey.  Michael holds a Master’s degree in Economics and a Masters of Business Administration in Finance from Columbia University.

U.S. Special Counsel Robert Mueller’s recent indictment of 13 Russians for violations of US campaign laws highlights just how broken the U.S. election finance system has become. It illustrates that the public cannot expect to be able to evaluate all the agendas that lie behind election spending, the truthfulness of content, or the legitimacy of the “dark money” that currently dominates campaign finance.

Beginning at least as early as 2014, a Russian organization called the Internet Research Agency (IRA) appears to have violated laws prohibiting election spending by foreign nationals by purchasing ads on social media sites, paying U.S. nationals to engage in political activities, and making other expenditures designed to influence the outcome of the 2016 Presidential election. Such a scheme could flourish for years only because of the general opaqueness of the U.S. campaign finance system. Because U.S. election law allows legitimate donors to avoid disclosure by funneling some political spending through intermediaries, U.S. voters are typically not aware of the funding source of political advocacy efforts.  Transparency advocates argue that this undermines free and fair elections by concealing the possible motivations and agendas of donors.  But emerging details of Russian interference in U.S. elections also shows how this system can pose an even greater threat to national security by covering up illegal activity by foreign agents whose agenda is contrary to US national interests.

An ineffective system…

U.S. campaign finance laws have generally grown laxer over the last decade.  In a series of decisions, most notably the 2010 Citizens United v. FEC decision, the Supreme Court has struck down many limitations on campaign finance for individuals and corporations, while endorsing – but not requiring – greater transparency of political contributions.

In the absence of outright limits, a system of transparency creates accountability of donors to the public and makes illegal donations more difficult to conceal.  However, Congress has shown little political will to act on the Court’s recommendations, leaving a system that fails either to effectively limit election spending or to establish accountability for donors.

Currently, U.S. corporations cannot donate directly to political campaigns. They can instead make indirect contributions to trade associations or “social welfare” organizations for political purposes without disclosing these contributions, as long as these contributions are not coordinated with the campaigns of political candidates.  This substantial loophole has increased the influence of money in US elections.

…Leaves the task to advocates

In the absence of comprehensive campaign finance disclosure rules, advocates are making efforts to encourage disclosure where possible, as a means of raising public expectations of transparency.  Many shareholders of public companies now consider oversight and disclosure of election expenditures to be a necessary part of good corporate governance. They have begun to ask companies to voluntarily disclose all election spending, arguing that oversight is necessary to ensure that funds are spent in shareholder interests, as opposed to advancing the political views or interests of company executives.  Advocates have also pointed to the example of companies whose donations have caused embarrassment when revealed, because they were perceived as contrary to the companies’ own expressed policy views.

According to the Center for Political Accountability, shareholders have engaged over 175 companies, of which 83 have adopted model guidelines for disclosure while approximately 200 others have adopted some form of disclosure and board oversight of political spending.  In 2017, approximately 100 shareholder proposals were filed on this topic, and voting support for most of these proposals typically exceeds 40%, which demonstrates substantial support among shareholders.

Voluntary corporate disclosure of political contributions will not be sufficient to bring transparency to the campaign finance system, because a significant portion of campaign finance comes from private companies, individuals and families, and because the public corporations with high or controversial electoral participation may have the most incentive to resist full disclosure.  Nevertheless, the success of shareholder efforts helps to build support for eventual comprehensive disclosure laws by creating social expectations for transparency and countering arguments that disclosure is impractical or risky.

The Role of Asset Owners

While there is no way to know how much influence Russian interference had on the outcome of the 2016 U.S.  Presidential election, they did succeed in reaching millions of people and mobilizing thousands to take action in what they believed to be legitimate domestic political events.  The Mueller indictment may at least hamper the IRA’s future efforts by shining a light on its methods, and perhaps by spurring greater regulation of social media advertising.  But a model for disrupting US election has now been established.   Until all election finance can be traced back to its source, there is no guarantee that another hostile power could not use a similar roadmap to disrupt future elections.

Increased corporate transparency could make such schemes more difficult to conceal by establishing generalized expectations of transparency by all actors. The role of investors is to influence the corporations and financial markets toward support for this outcome.  Specific steps may include:

All citizens have an interest in living in a robust democracy, and investors have a specific interest in the role that democracy plays in ensuring market stability, respect for property rights, and broadly shared economic growth.

John K.S. Wilson is the Head of Research and Corporate Governance at Cornerstone Capital Group. He leads a multidisciplinary team that publishes investment research integrating Environmental, Social and Governance (ESG) issues into thematic equity research and manager due diligence. He writes and presents widely about the relevance of corporate governance and sustainability to investment performance for academic, foundations, corporate and investor audiences.

On January 26, 2018 the S&P 500 closed at a record high, and up 7% for the year to date. On February 5, the S&P 500 was down 1% for the year-to-date, reflecting a decline of 8% from its record high. Fundamentally, not much has changed. If anything, the earnings outlook has actually improved.

Download our update here.



Robust Earnings Environment. The combination of favorable bottom-up factors (sales growth, margin expansion) and a solid economic environment (synchronized global growth) has created a healthy earnings environment. 2017 S&P 500 earnings growth is on track to have been the fastest since 2010.

Rising estimates. Earnings estimate upgrades have been outpacing earnings downgrades lately, in the most extended period of net estimate increases since 2010. Upward estimate revisions have been most significant in the Information Technology and Energy sectors.

U.S. Tax Reform: A Wildcard in 2018. Quite unusually, consensus estimates for 2018 S&P 500 EPS increased late in 2017; estimates typically decline steadily. Even a modest reduction in the effective corporate tax rate in 2018 could materially boost consensus estimates.

Market Outlook. A 5% increase in current 2018 EPS estimates combined with a two percentage point reduction in the P/E multiple (possibly driven by interest rate hikes) would suggest about a 10% gain in stock prices in 2018.

Figure 1: S&P 500 Operating EPS — Consensus Estimate for 2017 and 2018

Source: S&P

Download our full report here.

Michael Geraghty is the Equity Strategist at Cornerstone Capital Group. He has over three decades of experience in the financial services industry. Michael has worked as an investment strategist at a number of leading firms. At PaineWebber (1988 – 2000), he was a Senior Vice President and member of an Institutional Investor ranked U.S. Portfolio Strategy team. At UBS (2000 – 2003), he was an Executive Director and senior member of the global equity strategy team responsible for regional and sector allocations. At Citi Investment Research & Analysis (2004 – 2012), Michael was the global themes strategist; Citi was ranked #1 for Thematic Research in the 2011 Extel survey. Michael holds a Master’s degree in Economics and a Masters of Business Administration in Finance from Columbia University.

Executive Summary

Earnings Growth Set to Slow in 2018. S&P margins and earnings are now at record levels, while sales growth has accelerated in recent quarters. Likely reflecting tough comparisons, as well as anticipation of Federal Reserve interest rate hikes that could curb economic growth, the consensus expectation is for earnings growth to slow sharply in 2018.

A Risk of Earnings Disappointments. Even as profits moved to record levels, 2017 earnings expectations have continued to fall, albeit modestly, suggesting that analysts have been a little too optimistic. But, with earnings growth forecast to slow in 2018, that raises the risk of earnings disappointments if expectations remain too high.

Sector Forecasts. All sectors are currently forecast to experience earnings growth in 2018, which seems unrealistic. Energy, a key swing sector, is expected to see a 40% gain in profits, which is likely highly dependent on the direction of oil prices.

Market Outlook. Slower earnings growth and higher interest rates could well pressure stock prices in 2018, especially with valuation multiples still elevated.

ESG Matters. We have added a new section to this report, which recaps key Environmental, Social and Governance (ESG) developments during the month.

Figure 1: S&P 500 Operating EPS ̶ Consensus Estimates for 2018
Year-to-year percentage change in quarterly EPS

Source: S&P, Cornerstone Capital Group

Our full report is available here.

Michael Geraghty is the Equity Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.


Executive Summary

Accelerating Earnings Growth. With earnings reporting season about to begin, Q2 2017 S&P 500 operating earnings are forecast to rise 19% from year-ago levels, an acceleration from the 13% rate of growth in Q1 2017.

Stable Earnings Expectations. Consensus 2017 S&P 500 estimates have been relatively stable — in contrast to the trend in most years, in which earnings expectations are ratcheted down steadily — and have declined only 4% over the past year. A significant majority of companies have been exceeding earnings expectations.

A Decline in P/Es. Given steadily accelerating corporate profit growth, the Price to-Earnings multiple of the S&P 500 has actually declined, so that valuations are not as stretched as they were one year ago.

Revising Expectations Upward. Reflecting the highly favorable combination of accelerating profit growth and improved valuations, we are revising upward our expectations for 2017, and now expect a mid-teens gain in US stock prices, as compared to our previous expectation for a high-single-digit gain.

Figure 1:  A Declining S&P 500 P/E Multiple
Earnings Growth Has Been Exceeding Stock Price Gains

Source: S&P, Cornerstone Capital Group

Our full report is available to clients of Cornerstone Capital Group. Click here for important disclosures.

Michael Geraghty is the Equity Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.


This is the text of a speech we prepared for the conference “Post-Carbon Finance: Fostering Low-Carbon Investment,” to be hosted by Ecologic Institute and the Consulate General of Germany in New York on June 15.

It is an auspicious time to be talking about climate finance. The US administration may be removing itself from the Paris accord, but as Cornerstone Capital wrote following the election of President Trump, we believe that the capital markets have the ability and responsibility to power the progress needed to solve the critical issues of our time, including climate change.

The US departure from the Paris Accord, together with the potential movement away from globalization in numerous countries, changes the medium-term climate investment catalysts, though will have less near-term effect. Earlier this year, we outlined three macro trends – regulatory, behavioral, and technological – whose intersection will drive climate change investing both in the near and medium term. Tonight, I want to talk through these trends, where their overlap creates the strongest catalysts, and how recent events create new climate investment risks and opportunities.


Regulatory: US sidestepping resistance, EMs linking to growth

Key US states and cities have driven policies addressing climate change, from renewable energy portfolio standards to feed-in tariffs (payments to ordinary energy users for the renewable electricity they generate), for decades. We see their role in climate action expanding further because of the current administration’s stance. The US government does not have a national energy policy, and, with the staying of the Clean Power Plan, it is not likely to adopt a plan soon. States and cities are now front and center, if they ever left, and leading states and cities have already increased climate response policies. California’s senate passed a bill mandating 100% clean energy by 2045[1] while Pittsburgh (not Paris) now aims to source 100% clean energy by 2035[2].

While states and cities will push climate change regulations in the US, national governments in emerging major emitting countries are taking a significant role. The clear co-benefits of climate action make the discussions for China and India different from even five years ago, as both countries have transitioned to incorporating climate action into other national policy goals. China sees the reduction in air pollution as well-aligned with the rollout of renewable energy, while India sees the necessary provision of electricity to all its citizens as linked to distributed energy sources, such as solar. This alignment between renewable energy, political stability, and economic growth provides significant hope for rapid progress.

Behavioral: Accelerating focus across sectors and consumer segments

We see behavioral trends becoming a more powerful force than regulatory trends. We consider behavioral trends in the broadest sense, from consumer trends to how companies are positioning themselves for changing markets. On the consumer side, we see a deeper focus on supply chain impacts. From food to beauty products to clothes, consumers are examining supply chains in a way we have not seen before. Some companies expressed their concern at the US’s shift on the Paris accord because they consider responding to climate change to be a market imperative (as well as a branding opportunity). Corporations are also acting to inspire their employees, who are increasingly demanding their organizations engage in climate action.

Technological: Relentlessly advancing

Technological advances to address climate change continue to meet and raise expectations. The question if solar and wind could reach grid parity has been answered, when it was a real concern less than nine years ago. The battery sector has also seen significant declines in price, with electric vehicle battery prices dropping by 80% from 2010 to 2016[3]. If the decrease can continue, battery prices are poised to achieve grid parity in the coming years. This technology, which can support the decarbonization of transport and the mass storage of electricity, would be a significant boon to renewable energy.

Intersection of trends creates powerful investable opportunity

The intersection of regulatory, behavioral, and technology trends builds near- and medium-term momentum, which creates an investable opportunity that is more powerful than the sum of the individual trends. For instance, the intersection of trends has contributed to the increasing capacity of renewable energy, with solar capacity increasing from virtually zero at the turn of the millennium to 305GW in 2016[4]. Over the same time, US regulation provided subsidies to consumers buying solar panels in the form of federal tax credits, minimizing the financial risks to buying solar panels while consumers became more interested in renewable energy sources for the climate benefits. China has also flooded the world marketplace with solar panels, rising from less than 1% of global production prior to 2000 to more than 60% in 2013. This supply growth, combined with technological advancement, has pushed solar prices to decrease 78% from 2000 to 2013, contributing to the relatively quick expansion of solar energy capacity.

These factors should cushion any near-term risks to climate investing from recent political events. In the near term, a slip in progress in one trend can be buoyed by the momentum created by other, overlapping trend. We believe that behavioral and technology trends can drive the investable thesis for renewable energy in the near term. In 2015, Kansas repealed its goal of 20% renewable energy by 2020, six years after adopting the goal. A year later, in 2016, Kansas achieved 30% of its electricity from wind power, speaking to the near-term momentum provided by the intersection of trends[5].

Looking to the medium term

The US departure from the Paris accord does, in my view, create medium-term implications. Regulation brings forward consumer and company action, which might take longer to manifest otherwise, and focuses technological development. Any further decrease of US regulation could weaken these trends, though there is the possibility that the retreat of leadership at the federal level will result in increasing state level regulation. California and China are already pledging to expand trade with an emphasis on renewable technologies. The potential for state action brings the possibility of companies looking to California as a leader in regulation instead of the federal government.

However, states will have difficulty filling the federal government’s role in international cooperation on climate change, which poses a risk for medium-term climate change investing. Consistent and transparent action across countries creates trust, enabling investors and companies to quickly adapt to new approaches and introduce technologies to new markets. A less trusting global marketplace hinders climate change mitigation and raises barriers to market access for investors.

We believe there are opportunities for creative investments to capitalize on and accelerate the behavioral and technological trends, which are aided by state action but not reliant on federal regulation. Given this change to medium-term regulatory momentum away from the US federal government, the areas of technological progress, behavioral trends, and the overlap of these two are becoming the more powerful catalysts.

On the behavioral side, we see companies that manage supply chain issues and integrate technological advances as well positioned to capture the increasing consumer concern around supply chain management. Specifically, an area that warrants more attention is the emissions reductions created for downstream companies by upstream companies. Coca Cola, for instance, says two-thirds of the carbon footprint of its products is caused by suppliers and is aiming to cut its carbon footprint by 25% between 2010 and 2020.[6] While carbon emission trading schemes captures this value more explicitly, businesses that help other businesses within their supply chain be more efficient (i.e. sustainable) are well positioned.

Technologically, we are most interested in climate investing opportunities that align with broader technological trends, such as internet of things, and that respond to consumer demand for innovative energy products. While big data is mentioned in every conference on any topic, we do know that the availability of vast amounts of data, along with improvements in analytics, are likely to uncover critical insights that we would not be able to decipher through mere observation. We see the ability to gather and analyze big data as a necessary step for innovation in energy efficiency.

The public market support for large-scale energy innovation companies such as Tesla is a substantial vote of confidence for addressing climate change. Nearly 400,000 people have pre-ordered Tesla’s Model 3 car, highlighting the market demand for clean energy products. At the same time, we are looking for solutions to the sourcing of renewable energy raw materials so that the technology we use to address climate change doesn’t exacerbate environmental damage and income inequality issues in emerging markets. Technology companies that can source responsibly will be able to capture the demand for technology and benefit from the growing consumer concern around supply chain management.

The intersection of behavioral and technological trends opens creative opportunities for investors. For instance, we see a future for an ethical fish farming system that addresses the world’s protein requirements in a manner consistent with consumer supply chain concerns. Companies are starting to innovate in fish farming: a Danish company is building a high-efficiency salmon farm in the Gobi Desert in northwestern China, where there is no more rainfall than 50 to 100 millimeters a year, to address protein demand and consumer interest in sustainable protein supply chains[7]. Companies that minimize energy use in this type of innovation are poised to satisfy consumer demand while benefiting from technological advances in efficiency.

We remain confident that technological and behavioral trends can continue to grow and catalyze climate investment, even as the US decreases its role in national and international regulation. However, there are several reasons we could be proven wrong in the future. Technology development or consumer technological demand for clean energy solutions could be more reliant on regulated subsidies than we understand, or changes in globalization could undermine the existing clean technology supply chains. We will continue to watch these trends and update our view on climate investing opportunities and risks.

In conclusion, I am buoyed by the progress over the last five years and hope that winning begets winning. As most people in the room can attest, shifting to an economy that decouples emissions and economic growth has had stops and starts before. Investors should remain focused on the bigger picture, utilize the growing global behavioral and technological trends, and nurture the capital markets to solve climate change.








Sebastian Vanderzeil is a Director and Global Thematic Analyst with Cornerstone Capital Group. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments. She spent her sophomore summer researching differences between American and Indian educational styles in Arunachal Pradesh, India, and completed a summer investment bank analyst position with Citi in the Media & Telecom group in 2015.

For over 40 years, some shareholders have been protecting the environment, improving working standards and increasing corporate accountability using a little-known but effective tool called a shareholder proposal. But now this tool is threatened by the legislative push to reform financial regulation.

Shareholder proposals allow investors to put questions related to a company’s environmental, social and governance (ESG) policies to a vote of all shareholders. But this right would be stripped away from most shareholders by Section 844 of Financial Choice Act, the bill authored by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, to unwind much of the post-crisis regulatory regime.

As an advocate for corporate governance and sustainability, I strongly oppose this provision.

Shareholder proposals have long been an effective tool for promoting the interests of long-term investors. While most proposals do not receive majority support or result in immediate policy changes, the primary purpose of a shareholder proposal is to initiate a dialogue between companies and shareholders regarding long-term issues that may escape attention in a financial market primarily driven by quarter-by-quarter performance.

Shareholder dialogue does not coerce companies into action, but does offer corporate leadership the benefit of an independent and objective perspective of a group that, like the corporation itself, is focused on creating long-term value. These discussions may center on traditional corporate governance issues such as executive compensation or board structure and composition, or on material sustainability issues such as fair treatment of labor, climate change or equal employment opportunity.

Over the years, policies related to many of these issues have become a routine part of business planning for many companies, with benefits both for society as a whole and for the long-term performance of companies.

Today, many corporate dialogues proceed without shareholder proposals because companies seek out investor views on these issues. However, the right to file a shareholder proposal remains critical, particularly when companies prove reluctant to pay sufficient attention to issues of shareholder concern.

Section 844 arises from a white paper published earlier this year by the Business Roundtable, which represents corporate CEOs. The Business Roundtable professes that its proposal would improve the process for shareholder proposals but in fact it would stifle this important shareholder right.

The key provision would establish a minimum threshold of 1% ownership to file a shareholder proposal, replacing the current threshold, which is a nominal $2,000 worth of shares. Only the very largest institutional investors, such as my former employer, TIAA, would be able to meet this new proposed threshold. These shareholders typically already have access to management and rarely need to file resolutions.

By contrast, current law gives a voice to all of a company’s owners, even the smallest. These shareholders may not own a large percentage of a company, but their investment may be important to their own financial future. Their shareholder rights are part of the value of their share ownership.

Despite the openness of the shareholder proposal process, only about 25% of companies receive a proposal each year, and companies have incorporated shareholder proposals smoothly into annual meetings for many years. This contradicts the Business Roundtable’s claims that the current process is burdened by too many filings.

In the absence of this relatively collegial process, shareholders would be left only with more adversarial tools such as rejecting director nominees, opposing executive compensation plans, shareholder lawsuits, and books and records requests.

Regardless of what Section 844 is intended to achieve, it represents short-term thinking in corporate governance reform. Far from any visible benefits, all this provision would result in is less corporate accountability and more conflict between shareholders and companies.

This editorial originally appeared in American Banker’s “ThinkBank” blog:

John K.S. Wilson is the head of corporate governance, engagement and research at Cornerstone Capital Group. Prior to Cornerstone, he was the director of corporate governance at TIAA-CREF and the director of socially responsible investing at the Christian Brothers Investment Services. He is also an adjunct assistant professor at the Columbia University Graduate School of Business.

Executive Summary

2017 Estimates Still Seem Overly Optimistic. While the initial estimate of 2015 earnings was below the initial estimate of 2014 earnings, and the initial 2016 estimate was below the initial 2015 estimate, the initial consensus estimate for 2017 EPS is materially above the initial estimate for 2016. Consensus estimates currently imply a 34% gain in global earnings in 2017. Annual earnings growth has not exceeded 13% in any of the past six years.

Bottom-Up Estimates Also Seem Too Optimistic. Driven by interest rate and oil price movements, the Financials and Energy sectors had the biggest declines in earnings in 2016. (The yield on the 10-year U.S. Treasury declined in H1 2016; oil prices spent most of 2016 below $50.) The consensus estimate is for those two sectors to have the biggest earnings gains in 2017, which seems dependent on a further steepening of yield curves and materially higher oil prices.

A Single-Digit Gain in 2017 Seems Plausible. Since 2010 the start-of-the-year expectation for MSCI ACWI EPS has, on average, been too high by 15%. If the current estimate of 2017 earnings declined by the average 15%, that would imply a 14% gain in 2017 earnings. However, with estimates likely to continue falling, actual earnings growth in 2017 could well be in the single digits. If P/E multiples remain stable, global stock prices could also rise by a single digit amount in 2017.

Figure 1:  MSCI ACWI EPS  ̶  Start-of-Year Consensus Estimate and Actual Year-End EPS

Source: MSCI, Cornerstone Capital Group

Please see important disclosures here. The full report is available to clients of Cornerstone Capital Group.

Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

Today we contributed our opinion to the SEC regarding its move to reconsider the Pay Ratio Rule, which would require corporations to disclose the gap between CEO compensation and “median” worker pay. We reprint our letter below.

Dear Acting Chairman Piwowar:

Cornerstone Capital Inc. (“Cornerstone”) appreciates and welcomes the opportunity to submit comments in response to the Commission’s reconsideration of the Pay Ratio Rule (Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act).

Founded in 2013, Cornerstone is a financial services firm based in New York. The mission of the firm is to apply the principles of sustainable finance across the capital markets, enhancing investment processes through transparency and collaboration.  In offering investment consulting and advising, investment banking, and strategic consulting services, Cornerstone works with asset owners, corporations and financial institutions, promoting new research in the field of Environmental, Social and Governance (ESG) analysis, and facilitating capital introductions for organizations around the world engaged in sustainable business practices.

The Commission has received numerous submissions in the years since this measure was initially passed by Congress outlining the rule’s potential benefits and costs.  Reviewing this correspondence, we observe that investor groups have identified substantial material benefit, while representatives of issuers have raised concerns about whether they would be able to provide meaningful information in a cost-effective manner.

As an advisor both to corporations and investors, we would encourage a decision to go forward with the rule as mandated in the statute.  Nevertheless, the Commission should take heed of the concerns of issuers that disclosures provide shareholders with accurate and reliable information.

Because our investor clients seek to invest for the long term, we have a strong interest in urging corporate disclosures that enable investors to evaluate risks and make decisions that will affect the long-term health of our clients’ portfolios.  Our corporate clients believe that meaningful disclosure that communicates how they are managing environmental, social and governance matters helps them to attract long-term capital.

As a matter of good corporate governance, we believe that corporate disclosures should provide holistic information about the compensation strategies.  As Charles Elison and Craig Ferrere have pointed out[1], current disclosure requirements focus entirely on executive compensation, ignoring the company’s governance strategy for compensation throughout the firm.  Peer group comparisons provide useful but limited context for understanding CEO pay, since no two firms’ strategy or business model is perfectly comparable. Peer group comparisons also reinforce the notion that CEO pay should be treated as distinct from other forms of compensation, and may place upward pressure on pay levels.

By providing intra-firm context, pay ratio disclosure will shed light on the role compensation plays generally in its human capital strategy, including the strategic importance of top management relative to the rest of the firm’s talent.  A consistent body of research has determined that compensation strategy has implications for firm strategy, talent retention and employee engagement.  For example, Cornerstone Capital Group has published research demonstrating that quick serve restaurants that invest in both technology and human capital may enjoy higher margins and profitability.[2]

We are sympathetic to concerns that such issues as outsourcing, foreign employment and part-time and seasonal workers may impact pay ratio figures.  However, methodological choices may have a material impact on any accounting metric, and financial data may not be meaningful without context.  Narrative descriptions accompanying pay ratio disclosures will help to provide necessary context to understanding these figures.  Investors will find these disclosures particularly useful in comparison to other companies or as a measure of change over time.

We appreciate that for particularly large global companies, finding the “median” worker may be difficult.  Nevertheless, statistical sampling techniques can be employed to reduce the burden of this research.[3]  Therefore, we are not supportive of allowing companies to exclude workers from the sample, which may distort the pay ratio and creates a moral hazard to manipulate the figures.

We are also sympathetic to the concern that the “median” worker is only one data point and may not fully represent the company’s human capital strategy.  While we believe that the current disclosure represents a meaningful step forward, we recommend that the Commission also require companies to disclose total payroll, which will allow investors a fuller picture of the company’s compensation strategy, without creating additional substantial burden on companies.

We appreciate the opportunity to provide these comments and urge the Commission to move forward with final rulemaking on Section 953(b).


John K.S. Wilson

Head of Corporate Governance, Engagement and Research

Cornerstone Capital Inc.


[2] The Economics of Automation: Quick Serve Restaurant Industry, by Michael Shavel and Andy Zheng, March 2015  /2015/03/the-economics-of-automation-in-the-quick-serve-industry/



Executive Summary

Regional Strategy: Upgrade UK; Remain Positive on Russia. This month the UK is being upgraded, largely reflecting a continued improvement in earnings momentum. In contrast to Russia — our other top-ranked country — corporate governance in the UK is among the best in the world.

Sector Strategy Unchanged. Financials remain the most favored sector; Health Care the least favored. Information Technology is looking increasingly attractive, although valuation remains an issue.

Real Estate GIC Added as a New Sector. MSCI added Real Estate as a new sector, increasing the number of GICS sectors to 11. While the sector looks cheap, its earnings outlook is unfavorable. Then, too, the sector’s ESG risk profile is likely among the highest of the GICS sectors.

Figure 1: Regional Rankings                           Figure 2: Sector Rankings                 

2017-jan-strat-fig-1 2017-jan-strat-fig-2

Source: Cornerstone Capital Group


Please click here for important disclosures. Our full-length report is available to clients of Cornerstone Capital Group.

Michael Geraghty is the Global Equity Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.

Below is an executive summary of our in-depth report. Click here for an extract of that report. The full version is available to clients of Cornerstone Capital Group. 


The extractive sector is vitally important to the global economy and will in fact be critical to a sustainable future. With a market cap of over US$6 trillion, the extractive sector encompasses over 5,000 companies. It provides raw materials for everything from energy creation to high-tech manufacturing to electronics. Even as the world starts to transition from greenhouse gas emitting commodities like oil and coal, natural resource extraction will remain essential. Smartphones and electric vehicles, for instance, require metals sourced from extractive operations around the world. Yet natural resource extraction is, by its very nature, environmentally destructive and socially disruptive — and managing the risks inherent in mining is of prime concern to extractive companies and the host countries in which they operate. Extractive companies’ success will be in part determined by their ability to position themselves for this future.

Risk Assessment in Context

The environmental and social (E&S) issues we address in this report highlight strategic concerns for any mining or extractive company. Tailings risk (tailings are the effluents generated in a mine processing plant, and require long-term, secure storage), community-company conflict, contract workers and labor disputes, and management of global reputational risk (using biodiversity impact as its proxy) create event risks such as mine failures, shutdowns or license denials. They also impact longer-term operational planning because they require proactive engagement with local, global and contextual stakeholders to assure passage. We assess selected companies’ corporate governance as it relates to actively managing E&S issues, identifying leaders and laggards based on relative “attentiveness” to material E&S concerns.

Detailed analysis of E&S issues provides predictive insight. We offer a proprietary framework to assess extractive companies’ underlying values, leadership, and culture based on a bottom-up analysis of material, yet underappreciated environmental and social (E&S) issues. We then explain how the issues impact specific items within a company’s financial statements.

Key observations. At a high level, we came away with these conclusions:


We evaluated companies according to seven metrics that together provide a clearer picture of their potential for long-term success in executing their strategies. These metrics are:

We performed our assessment on a range of representative companies, shown below. We “score” the companies on each of the seven metrics, then roll those up into an overall “attentiveness” indicator.


Sebastian Vanderzeil is a Global Thematic Research Analyst with Cornerstone Capital Group. He holds an MBA from New York University’s Stern School of Business. Previously, Sebastian was an economic consultant with global technical services group AECOM, where he advised on the development and finance of major infrastructure across Asia and Australia. Sebastian also worked with the Queensland State Government on water and climate issues prior to establishing Australia’s first government-owned carbon broker, Ecofund Queensland.

Carolyn Trabuco is a Managing Director and Global Thematic Research Analyst at Cornerstone Capital Group. Carolyn has spent more than 25 years in the global equity investment space where she has identified dynamic secular changes, made investment decisions, developed business and industry models, valued companies, and assessed risk around global commodities, companies and industries. Previous firms include Pequot Capital, Phibro, Montgomery Securities and Fidelity Management and Research.  She is an independent member of the Board of Directors of Azul Brazilian Airlines.

Michael Shavel is a Global Thematic Research Analyst at Cornerstone Capital Group. Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at Alliance Bernstein. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.

Emma Currier is a Research Associate at Cornerstone Capital Group. Emma graduated with a Bachelors of Arts degree in Economics from Brown University in May 2016. While at school, she worked with the Socially Responsible Investing Fund and as a teaching assistant for the Public Health and Economics departments. She spent her sophomore summer researching differences between American and Indian educational styles in Arunachal Pradesh, India, and completed a summer investment bank analyst position with Citi in the Media & Telecom group in 2015.

We extend our thanks to Fiona Ewing, Cornerstone Capital Group summer intern, for her contributions to the report.


A growing body of research confirms that investors around the world are incorporating environmental, social and governance (ESG) issues into their investment decision-making.1  Adding to the evidence, a recent study of institutional investors in Canada found that investors do consider ESG issues when making investment decisions. And that’s not surprising considering the growing evidence that sustainability is linked to corporate performance.2

But investors have made it clear they’re not getting the information they need from companies’ securities filings or from their CSR reports. What they want is a clear link between ESG issues and a company’s strategy, risk management and operations.

This doesn’t mean Canadian companies aren’t already considering ESG issues in their corporate strategy, risk management and operational context, and even in their executive compensation programs. What it tells us is that it isn’t coming through in their reporting.

Key Highlights

We surveyed a group of 24 institutional investors representing over $1.7 trillion in assets under management, including some of Canada’s largest pension funds, mutual and pooled funds and other investment managers. The survey was completed by members of the investment team (40%), senior management (30%), the governance team (20%), and one board director. Key takeaways are:

What This Tells Us

The study made it clear to us that there’s a gap between the ESG information companies are providing, and what Canadian investors need to know to make informed investment decisions. So what’s the solution?

There are different ways to approach it. One is to include material ESG metrics in the 10-K or MD&A. The Sustainability Accounting Standards Board (SASB) has already issued provisional sustainability accounting standards for 90 industries in 11 sectors, and a guide for companies to implement them in their 10-K reports.3 The Global Reporting Initiative (GRI) is also providing guidance on materiality.4 Another is to publish an integrated report following the principles of the International Integrated Reporting Council (IIRC). But to date, very few North American companies have taken the leap.

While the concept release issued by the U.S. Securities and Exchange Commission in April 2016 is encouraging,5 it’s likely going to be a while before there’s any change in regulations in the U.S. or in Canada.

So we think investors should be letting companies know what will help them the most. We also think that companies can and should be taking a critical look at their own reporting – MD&A or 10-K, proxy and CSR reports – to make it consistent and useful to the people who rely on it.

Click here to read the full report.

Working group

The 2016 Canadian investor survey was developed by representatives of the following organizations:

•   SimpleLogic Inc.

•   RR Donnelley

•   Canadian Coalition for Good Governance

•   Clarkson Centre for Business Ethics and Board Effectiveness, Rotman School of Management

•  CPA Canada

Catherine Gordon is President and Founder of SimpleLogic Inc., a communications firm that has been bringing clarity to business communication since 1997.

1   Unruh, D. Kiron, N. Kruschwitz, M. Reeves, H. Rubel, and A.M. zum Felde, “Investing for a Sustainable Future,” MIT Sloan Management Review, May 2016. 2) 2015 study of Environmental, Social and Governance (ESG) Survey. June 2015. 3) 4) Principles for Responsible Investment member statistics:

2    Corporate Sustainability: First Evidence on Materiality. March 9, 2015. Khan, Mozaffar and Serafeim, George and Yoon, Aaron.  From the Stockholder to the Stakeholder: How Sustainability Can Drive Financial Outperformance. March 5, 2015. Clark, Gordon L. and Feiner, Andreas and Viehs, Michael.



5    SEC Concept Release on Business and Financial Disclosure Required by Regulation S-K – SASB commentary