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from Global Investing:

How socially responsible is your investing?

Is your investment ethically sound and socially responsible?

A new survey by consulting firm Mercer finds that only 9% of more than 5,000 investment strategies achieve the highest environmental, social and governance (ESG) ratings.

Socially responsible investing (SRI) involves buying shares in companies that manage ESG risks. For example, firms that make clean technologies are favoured, while businesses which pollute the environment, are complicit in human rights abuses or nuclear arms production are shunned. All this sounds good, but the performance of such investments has been somewhat mixed -- meaning being good doesn't always mean doing well. But the SRI industry is hoping that greater involvement of funds, especially long-term ones such as pension funds and sovereign wealth funds -- may generate flows into the sector and lead to better performance.

Of the 5,175 strategies assigned ESG ratings, 57% are in listed equities, 20% fixed income and the remaining 23% across real estate, private equity, hedge funds and others.

Private equity has the highest proportion of highly rated ESG strategies, while hedge funds and fixed income had the fewest. From a geographic perspective, emerging markets and Asia-Pacific have the highest proportion of top ratings, while Canada -- and this may come as a surprise to some -- has the least.

from Global Investing:

Deutsche’s investment themes for 2012

We just finished our three-day Reuters 2012 Global Investment Outlook summit in London, New York and Hong Kong, where prominent money managers have discussed their outlook for next year. (For more click here)

Deutsche Bank Private Wealth Management (whose official was also a guest at the summit) is telling its clients the following 10 investment themes for next year.

1. Safe may not be safe Don’t react to uncertainty by automatically taking refuge in traditional safe havens such as cash, sovereign bonds, real estate or precious metals as they may prove less safe than they appear.

2. Walk before you run Build up holdings gradually, first focusing on “equity lite” type holdings

3. Ready, steady... go? When we get some clarity on euro zone resolution, not only equities and bond markets will start to have a different momentum.

4. Be nimble, but with a safety net Consider resorting to regular, dynamic portfolio rebalancing to adjust to economicand market developments.

5. Reason should dominate emotion Avoid an emotion-driven response that is likely to result in wrong investment decisions, andwrong timing, and make sure that reason always dominates the decision-making process.

from Global Investing:

Funding stress in the FX swap market

Signs of the wholesale funding stress are cropping up in the FX swaps market, with the premium for swapping euro LIBOR into dollar LIBOR over 3 months (so-called cross currency swap) rising to 141.5 basis points, which is the post-Lehman Brothers high.

The premium has skyrocketed in the past six months (back in May it was only 16.5bps) because European banks needing funds are forced to turn to the FX swap market, and other banks are reluctant to lend to European companies in the United States.

And it looks like the situation is going to get worse from here, because of weak dollar bond issuance by euro zone companies.

JP Morgan says companies across the euro zone are not issuing very much -- the average issuance over the past two months stands at only $1.3 bln, compared with a $4.5bln per week pace seen over the first half of the year, when dollar funding conditions were less stressed.

"The fact that dollar issuance is so subdued even for euro area non-financials is worrying as it suggests investors do not differentiate between euro area issuers. This is reinforced by the fact that dollar issuance by European companies outside the euro area appears relatively unaffected," JP Morgan writes.

from The Great Debate UK:

Companies would be foolish to ignore the Bribery Act

By Philip Urofsky and Josanne Rickard. The opinions expressed are their own.

The new Bribery Act, which comes into force on July 1, exposes British companies and other companies doing business in the UK to prosecution under its broad and somewhat undefined provisions. The risks it presents, although perhaps overblown by some commentators and practitioners, are nevertheless significant.

Companies would be foolish to ignore the Act in the hope that they will not be caught or, if caught, not prosecuted. On the contrary, the Serious Fraud Office (SFO), which has just escaped abolition, and other parts of the UK government, will be under great pressure to demonstrate that the Act is effective and enforceable.

However, it is in the interest of both the government and companies to seek efficient ways to ensure that such prosecutions are resolved quickly and with clear and certain consequences. To that end, the SFO and companies should continue the experiment of negotiating pre-charge alternative dispositions – known in the U.S. as ‘deferred prosecution agreements’ – which will be a less expensive option for the budget-constrained SFO and a more predictable process for companies.

The SFO has already done this - most notably when dealing with Balfour Beatty in 2008. The construction company was suspected of bribery in relation to a £75m joint venture project to build a prestige library in Alexandria, Egypt. Under investigation by the SFO, Balfour Beatty agreed to admit ‘payment irregularities’ and accept a penalty of £2.25m, in exchange for no charges being brought.

The agreement reached with Balfour Beatty was essentially a deferred prosecution. Such deferred prosecution agreements, under which a company agrees to pay a fine without going to court, have long become a routine tool for prosecutors and companies alike in the U.S. to achieve a prompt and certain resolution to foreign bribery investigations. Last year, five of the twenty-one corporate prosecutions in the United States were resolved through deferred prosecution agreements, with most of the remaining actions resolved through a combination of guilty pleas by subsidiaries and deferred prosecutions with parent companies.

In the best of all worlds, a company will not need to worry about prosecutions, because it will have complied with the Bribery Act’s requirements. The guidance from the Ministry of Justice (MoJ), issued in March, was supposed to provide help in that regard. British companies and their compliance officers, however, should be careful not to focus all their preparatory attention on scrutinising this document. Indeed, the MoJ guidance appears in places to contradict the law as set out in the Bribery Act. For example, the guidance appears to limit parent liability for acts by its subsidiaries only to instances in which the benefit flows directly to the parent. In contrast, prosecutors are likely to read the statute as imposing liability on a parent who fails to prevent bribery by its subsidiaries regardless of whether the parent benefits directly or indirectly.

from The Great Debate UK:

Bonds steal thunder from loans in Europe

- Alexander Smith is a Reuters columnist. The opinions expressed are his own. -

When the going got tough, banks were quick to bring down the shutters and cut off loans to European companies, forcing them to seek other sources of funding. The result -- a dramatic shift to the bond markets, where corporates borrow directly from investors.

This failure of the banks to be there when borrowers needed them most could spell the end of the European syndicated loan market as the powerhouse of corporate finance activity in the region, marking a longer-term shift in the funding mix for European companies from loans to bonds.

The European loan market had already fallen to $867 billion in 2008 -- from a record high of $1.7 trillion during the leveraged loan frenzy of 2007. Nevertheless, it remained a mainstay of the relationship banking model. This year the decline has continued, as European loan volumes have fallen by 35 percent year-on-year to $225 billion, with leveraged loans down by some 62 percent, according to Thomson Reuters data.

Meanwhile, Eurobond issuance is up 38 percent year-on-year, reaching $1.4 trillion of new bonds so far in 2009. 2008 was itself a near record year for new issues in the Eurobond market, just below the $3 trillion issued during the whole of 2007.

In the past, bank lending was more often than not loss-leading -- a simple device for luring a company in through the doors in order to sell it costlier advice on areas such as mergers and acquisitions. It was also an integral part of most companies' funding plans.

But the days of banks providing dirt cheap loans are unlikely to return as regulators impose tougher capital requirements. The result is that one of the main benefits for companies of the using the loan market will disappear.

from Global Investing:

Bosses in the dark

Business bosses, it seems, are as much in the dark as the investors who buy stocks in their companies.

That is the worrying conclusion of a new survey from Booz & Co. 

After quizzing more than 800 senior managers, it found 40 percent doubted that their company's leadership had a credible plan to address the economic crisis and an even higher number - 46 percent - were not sure that their top management could carry out the plan, credible or not.

Alarmingly, even at the CEO and board level, one third of those responding were sceptical of their own plans.

“It appears that the speed with which the crisis hit and the subsequent volatility has left many senior leaders uncertain of how to move forward and whether they should be in survival or opportunity mode,” says Booz partner Jake Leslie Melville.

But despite not being sure what to do, senior managers are clinging on hopefully. More than half of those questioned thought the crisis would ultimately have a positive impact on the competitive position of their companies.