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The ESG Update, Vol. 2

Updated: Mar 16, 2018

Long-time readers will recall my newsletters where I select headlines, often buried, that I think are important for you. Many voices and an often subtle under-current can help us ward off group think – the true benefit of independence.

In this vein, each month the ESG Update will consist of:

• ESG Headlines;

• Pulling Back the Curtain: Transparency Matters;

• and Financial Markets and Moguls.


– Julie Skye, Principal, Skye Advisors


ESG Headlines

NYC Retirement Systems to move toward divesting fossil-fuel companies; city sues 5 major oil companies for climate change damages.

BY ROBERT STEYER · JANUARY 10, 2018, 3:57 PM, BLOOMBERG

City Comptroller Scott Stringer and Mayor Bill de Blasio said Wednesday NYC will take steps to divest from fossil-fuel companies. Five pension funds and five separate boards of trustees; $5 billion in fossil-fuel investments in more than 190 companies with a total of $189 billion in assets. “The pension system will "maintain is fiduciary responsibilities" in exiting fossil-fuel investments, Mr. Stringer, who is the pension system's fiduciary, said at a news conference. "A stronger economy rests on a greener planet."


Why this matters to YOU: These decisions are not done in isolation and will lead other institutional investors to redefine what fiduciary duty looks like today. Fiduciary duty is like case law: it develops over time as events shape the future.

Read Full Article »


BlackRock’s Fink: companies must make ‘positive contributions to society.’

The CEO of the world’s biggest asset manager just made a huge ESG push.

JANUARY 16, 2018

In his annual letter to CEOs, the head of the world’s largest asset manager took companies to task and emphasized the need for companies to contribute to society.

“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” CEO Larry Fink writes in the letter. “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”

In the letter, Fink calls for a new model for corporate governance beyond casting proxy votes at annual meetings. “The time has come for a new model of shareholder engagement – one that strengthens and deepens communication between shareholders and the companies that they own,” he writes in the letter.


Why this matters to YOU: If the head of the largest asset manager in the WORLD says ESG matters, then take it to the bank – ESG matters. Larry Fink is leading the way to re-defining capitalism and what fiduciary duty means. What Larry says, goes!

Read Full Article »


Commercial sales rules threaten to redefine fiduciary advice.

It looks like the SEC will not require financial advisers to avoid or mitigate material conflicts, merely disclose them.

By KNUT ROSTAD, JANUARY 6, 2018, 6:00 AM 


The chairman’s emphasis on disclosing information to protect investors — and his lack of discussion of serving clients' best interests — is important. This emphasis matters. It equates disclosure with a client's best interest. It blurs the sharp difference between avoiding conflicts, and merely disclosing conflicts. What is a financial adviser’s obligation — to avoid or eliminate material conflicts of interest? The commission has traditionally urged investment advisers to avoid such conflicts because conflicts are inherently harmful. Under the law of trusts and in the common law, fiduciaries are required to avoid material conflicts. Why would the SEC not require this?


Disclosure alone is not enough to protect clients in a fiduciary relationship. Clear and complete disclosure must be accompanied by steps to mitigate the harms caused by conflicts. For, it’s the advice — and not the disclosure — that determines if the financial adviser actually acts in the best interest of the client.

After all, clients retain, pay, and trust a financial adviser to provide competent advice that is in their best interest — not to receive disclosure. Any legal standard that does not explicitly require this impairs the interests of investors and cannot be called “fiduciary” in nature.


The rules of the commercial market place. What’s ahead for 2018? There seems to be little reason to think the SEC will require financial advisers to act in the best interests of clients by requiring their advice to be unaffected by the adviser's conflicts. Instead, it will enable financial advisers to merely disclose their conflicts of interest away. The era of faux fiduciaries will be inaugurated. Caveat emptor.


Why this matters to YOU: I cannot believe we are still talking about whether all financial advisors are fiduciaries and disclose, not prevent it. Thought the Department of Labor nailed these lines down 2 years ago? Unfortunately the move towards de-regulation means investors now need in fact, to caveat emptor. We are Fiduciaries, all day, every day.

Read Full Article »


New York State may set its own best-interest standard.

The NAIC has been considering a multi-state best-interest proposal.

DECEMBER 27, 2017


New York State’s top financial watchdog, Andrew Cuomo, proposed regulations that would require sellers of life insurance and annuities to act in the best interest of clients, raising standards even as the U.S. government delays its fiduciary rule.

“Products that best fit clients would have to be offered before those that are most profitable to the sellers.” New York state regulators today proposed adding a best-interest standard to the state’s annuity sales standards regulations. The state may also apply the annuity sales rules to sales of life insurance.


“As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field,” Cuomo said in a statement included in the press release announcing the proposal. “With these commonsense reforms we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products.”


Why this matters to YOU: Once again, I cannot believe I have to write that annuities and life insurance should be the best fit for clients…not what is most profitable to the sellers. You cannot make this stuff up!

Read Full Article »


Financial Moguls and Markets

Gary Shilling, famed bubble detector, urges caution on stocks.

Investors buying stocks merely because the market keeps going up clearly calls for a big “Caution” sign. Shilling drills down — looking beyond the consensus view priced into the markets — searching for indicators that other economists ignore or don’t expect. Long a critic of the Federal Reserve, the economist, 80, argues that interest rate increases and the central bank’s selling off its vast portfolio could trigger a recession down the road. He is deeply at odds with the Fed about its view on inflation, seeing instead the likelihood of deflation.


Consequently, Shilling is bullish on bonds, based on what he describes as the “coming bond rally of a lifetime.” What keeps him awake at night? He is not rampantly bullish; stocks are expensive; the economy is getting long in the tooth and while there are lots of reasons for caution, he doesn’t see the party coming to a grinding halt in the immediate future. The biggest threat to the market is complacency: this mad rush into index funds — passive investments — and the attitude is: “I don’t care what the fundamentals are. I’m buying it because it’s going up.” So it’s onward and upward with no discrimination. The other manifestation is speculation — the same kind of speculative complacency we’ve seen in the Bitcoin area.


What’s the stock market’s tipping point? Historical, bull markets haven’t died of old age, there’s always some trigger mechanism and this comes from either the Federal Reserve worries so much about an overheating economy…that they tighten credit by raising interest rates.


Bill Gross: Bear Market in bonds is already here.

Gross says the bear market started in July 2016 when the 10-year Treasury yield fell to 1.45%


U.S bonds are in a bear market that started in July 2016 when the 10-year Treasury note “double-bottomed at 1.45%,” says Bill Gross, bond market mogul you will often see in my writings. 


Don’t get too comfortable: this market signal says a stock sell-off is coming soon — the technical picture looks stretched. Stocks haven’t been this significantly overbought in at least the last 5 years, probably much longer and relative strength is at an extremely high level. This is an additional indicator of just how overbought stocks have become on a short-term basis.


Why this matters to YOU: Confused that views bonds on bonds vary so much? Join my world! But, if you think interest rates are headed higher, you’ll buy that car, refinance your mortgage…buy today, keep company profits rising and keep stocks moving higher. The startling increase in consumer debt supports the theory that investors are buying while the buying is good.


Read Full Article »


5 Mindset Shifts to Give Your Portfolio a Nudge by BlackRock

Since we all need nudges, or “mental tweaks” as BlackRock put it, I read the article with interest. The asset manager’s five recommendations are:

  1. accept that you don’t have all the answers;

  2. get comfortable with being uncomfortable;

  3. turn off news alerts;

  4. focus on what matters;

  5. ask “what if” more often; change your mind about one big thing.

Accepting the reality that losses are part of the process will help you prepare for and ultimately tolerate them better. So, if you like stocks, know that it's going to get ugly sometimes. Before it does, identify investments that can play defense during a decline - then own them consistently. Yes, it may feel uncomfortable when they're holding you back month after month. But it's like setting off on a mountain climb with your safety ropes firmly secured…You'll be glad you have them if your footing slips.”


Why this matters to YOU: I’ll be spending time talking about your Investment Policy Statement, now in the works, where we work to make sure if you can’t take the heat, don’t stay in the kitchen.


Read Full Article »


Tax overhaul gift may turn into lump of coal sooner than later.

Any positive effects are unlikely to last, and will contribute to greater budget deficits over the next 10 years.

EDITORIAL, JANUARY 6, 2018, 6:00 AM


The so-called Christmas gift given to the country — the tax reform law — might be enjoyable in the short run, but it could prove to be nothing more than a lump of coal to many Americans over time. The corporate and individual income tax cuts offered by the bill, signed into law by Mr. Trump on Dec. 22, might give the economy a short-term boost. But the positive effect is unlikely to last, and will contribute to greater budget deficits over the next 10 years, as the Republicans pretty much conceded throughout the drafting and passing of the bill.


The Congressional Budget Office estimates the income tax cuts would boost the deficit by $1.5 trillion over 10 years, and that doesn't even take into account the effect of rising interest rates on the already tremendous national debt of more than $20 trillion. The interest payments on that are estimated in the 2018 federal budget to total $332 billion, but will likely be higher as the Federal Reserve pushes up rates to prevent the economy from overheating.


Why this matters to YOU: As the dust settles on the largest tax reform in 3 decades, we will see the results unfold over the next decade…after the dust has settled.


Read Full Article »


Please contact Julie Skye with questions or to set up an appointment at julie@skyeadvisors.com or (918) 408-7981.


#esg #sociallyresponsibleinvesting #sri #skyeadvisors #firstaffirmative #charlesschwab #36N #tulsa

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