Revealing Future Risk for Investors
In Globally Diversified Equity Indexes
What future risk is embedded in your portfolio? Is global diversification adding benefit or new unseen risks?
Future risks that are not captured on the balance sheet – from human capital to customer satisfaction to carbon efficiency to legal exposure – are knowable when you properly evaluate data on impact, sustainability, and ESG (environmental, social, governance) metrics.
To test which capital markets worldwide include publicly listed companies that disclose major risks, impact investment analyst Hummayun Javed of HIP Investor mapped 45 international indexes across 38 countries and regions.
The color-coded chart (see below, click for detailed look) provides a unique insight into which indexes have high coverage levels (color-coded in green, where the top score is 100%) and disclosure of future risks, including ESG risks -– and which ones have low disclosure by companies (color-coded in red), which could lead to more surprises for investors. HIP tracked coverage levels within these indexes across the years 2002, 2009, and 2015.
Improving impact, sustainability and ESG coverage and disclosure is an essential element in the foundational understanding of the future risks that investors face in their portfolios. Increased levels of reporting on these critical issues is also an opportunity for corporations to mitigate future risks and pursue value-add opportunities.
In its 6th year since inception, the HIP 100 portfolio continues to outperform the S&P100 benchmark while delivering enhanced positive impact to society and the environment. This mega/large-cap equity portfolio reweights the S&P 100 component companies by using the Human Impact + Profit (HIP) 32-factor calculation of future risk, return potential and how those fundamentals are linked to drivers like human capital, natural resource optimization and 30+ quantifiable metrics.
As investors seek globally diversified portfolios to reduce future risk, enhance potential returns, and meet their impact and sustainability goals, HIP Investors's methodology enables new investment strategies.
These HIP Investor strategies are invested in, or licensed by, investment advisors, fund managers and directly to investors, including families and foundations.
The following summaries provide HIP strategy performance, as of June 30, 2015:
HIP 100 Exclusion Portfolio
The HIP 100, but excluding many fossil energy, chemicals, materials, banking and high-negative-impact firms. Established in January 2012, has a track record of nearly 3.5 years.
HIP Sustainable Real Estate Portfolio
The Real Estate Investment Trusts (REITs) and natural resources, forestry, and timber companies, that have an above-median HIP Rating. Track record is more than 3 years, and the yield ranges around 4%, which connects Income + Impact.
HIP Best Companies Portfolio
Publicly traded firms featured in Great Places to Work® Institute’s 100 Best Companies to Work For® annual list produced for FORTUNE magazine, are equal-weighted. Track record is 2 years.
The SEC has approved a rule that requires public companies to disclose the ratio of the chief executive’s pay to that of the median-paid employee. Disclosures will begin in 2017 and companies will only be required to updated the metric once every three years.
Disclosure of this critical metric will bring added transparency for shareholders to draw connections between the negative impacts of growing income inequality and financial performance. Today, only 1 in 10 companies in the S&P 500 disclose a total labor compensation to investors.
Since HIP Investor's first rankings back in 2006, our analyst team has affirmed that higher CEO Pay to Average Worker Pay ratios are destabilizing to long-term shareholder value, and add unnecessary risk. Some firms have ratios of 400x, 500x or even 1000x, and the shareholder value performance of these companies is riskier and not as robust.
Earlier this year, the shareholder advocacy non-profit As You Sow -- and executive pay expert Rosanna Landis Weaver -- published the "100 Most Overpaid CEOs" report highlighting the highest-paid CEOs in the S&P 500. HIP Investor's team, led by Auros Harman, conducted regressions on how CEO Pay and Total Shareholder Return -- resulting in a 2% correlation. In summary, CEO Pay and shareholder value are NOT linked (as you can see in the chart below).
Read the "100 Most Overpaid CEOs" report by As You Sow, with HIP Investor analysis of shareholder value to CEO Pay.
How can you invest for sustainability? What path should you pursue to get there? HIP Investor’s Founder and CEO was recently interviewed by sustainability writer and Presidio Graduate School MBA Sam Irvine.
The interview is a series with Presidio Graduate School’s Experts in Residence and explores Paul Herman’s journey into impact investing and how Presidio Graduate School -- recently recognized by the New York Times as "best MBA to change the world" integrates sustainability, society and business to produce current and future leaders.
HIP INVESTOR'S DISCLOSURES AND DISCLAIMERS
This is not an offer of securities. Past performance is not indicative of future results.
The views expressed by regisetered representatives and investment advisers R.Paul Herman are for informational and educational purposes only, and are not investment recommendations or an offer of securities.
For a full description of services and disclosures (including fees) relating to separately managed accounts, portfolio management, and wealth management at HIP, please read HIP's Part II of Form ADV (which can be found at http://adviserinfo.sec.gov).
Managed accounts may lose value and risk possible loss of principal. HIP Investor Inc. or its Advisory Representatives do not provide tax advice. You should consult with your tax advisor on specific tax issues.
This newsletter should not be construed as a solicitation or offer to sell investment advisory services except where HIP Investor, Inc. is registered or where an exemption or exclusion from such registration exists.
HIP Investor Ratings LLC is an independent limited-liability company, providing ratings to investors, advisors, fund managers and retirement plans, including 401(k)'s.
RSVP For These Upcoming Events
“Explore the basics of building financial security, including managing debt, growing savings, and safeguarding against risk and unexpected events. Free workbook included.”
RSVP HERE for August 12 in San Francisco
“Presented by Corporate Knights Capital and HIP Investor, in partnership with Newsweek
The Newsweek Green Rankings are one of the world’s most recognized assessments of corporate environmental performance.
Learn 'How To Go Greener' with enhanced disclosure, including calculating your Green Revenue. ”
RSVP HERE for August 19 On-Line Webinar
“Leading businesses are creating and valuing entirely new forms of positive environmental AND social impact as well as quantifying previously ignored costs and risks.
This 3-day Sustainable Brands event in partnership with MIT Sloan School of Management showcases new approaches to valuing future risk and impact -- and how those factors drive value creation.”
RSVP HERE for Oct 6-8 in Boston
*October 6-9: SOCAP'15, San Francisco, CA
“Join the world’s pioneering impact investors, social entrepreneurs, philanthropists, civic leaders, and innovators at SOCAP15. At SOCAP we create the intersections where you – with friends and valuable strangers – form partnerships and mobilize resources and capital for good.”
RSVP HERE for October 6-9 in San Francisco
*November 3-5: BSR'15, San Francisco, CA
“Resilient Business, Resilient World Every year since 1992, the BSR Conference has brought together 1,000 leaders in sustainable business to share their expertise and knowledge.”
RSVP HERE for November 3-5 in San Francisco
“The SRI Conference on Sustainable, Responsible, Impact Investing is the premier annual gathering of investors and investment professionals working to make money and direct the flow of investment capital toward a truly sustainable future.”
RSVP HERE for November 3-5 in Colorado