Confusing messages from LGS

LGS Chair Bruce Miller “promises ESG to be retained”

On 22 April 2013, Investment Magazine, under the heading “New chair at LGS promises more growth, ESG” Chair Bruce Miller said the fund retained “its attention fixed firmly on environmental, social and governance (ESG) investment strategies”.

He continued, “the fund’s unique ESG approach to investment has proven to be a successful formula that the fund will continue to build upon.” Oh yeah?

“Chief executive Peter Lambert said “a ‘surprisingly simple’ ESG investment approach has delivered a positive return despite the doubts of some. He added that, being a discrete portfolio in itself, it’s very easy to measure whether it’s adding value to members - and it has … We do find that, over the long term, we’ve had a positive outcome”.

Ethical Investor magazine on 30 October 2013 reported “Local Government Super vows to maintain its leadership in responsible finance despite the resignation of ethical investing stalwart Ian Robertson.” A vow clearly not written in blood. A non-core vow, perhaps.

In response to the Fund’s embracing of nuclear risk, we asked some questions and, amongst other things the fund responded with a letter dated 10 October, “the screening out of uranium mining/nuclear energy has to date not had a negative impact on historical returns.”

And this view, of no loss over the years, was reinforced when the LGS CEO, CIO and Sustainability Manager presented to the depa Committee of Management on 6 November. The sector itself was described as “not a very good performing sector”.

What does all this mean? Leaving aside boasts of continuing to build on the fund’s ESG commitment of more than a decade, it means that the decision to not hold uranium mining or nuclear energy stocks didn’t cost the fund anything. Nothing, no losses, no pain, no suffering and no exposure to the Fukushimas of the world.

But, unlike the decision of the Board in 2000 (when similar testing showed that in terms of returns it didn’t matter whether the Fund owned tobacco or not and the Fund decided they would rather not), on this occasion the Board in September decided that the screening against uranium mining/nuclear energy should go. Things have changed.

Having done so, uranium/nuclear stocks held by index managers in the international portfolios that would have been shorted*, using the “surprisingly simple” approach, so that the fund effectively didn’t hold them, would now be embraced and retained.

Which means that since 1 October, the fund has held shares to a value of around $4.5 million in six international nuclear energy companies.

In the 10 October reply the fund observed “to date the response by the media has been largely positive.”

But how about the responses are of members of the fund?

(*What is “shorted”?  Shorting stock is a way of making money when share prices go down. It allows an investor to borrow stock in a company where they believe the price will go down, sell the stock at the price it was borrowed at and, when the price does go down, buy it back, making a nice little earner. The stock is then returned to the original owner with the payment of a fee and the investor pockets the profit from selling stock they knew was going to go down. Shorting also allows an investor to quantify gains or losses form the process.)

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