IRS Releases New Round of Regs for Opportunity Zone Funds (ThinkAdvisor)

https://www.thinkadvisor.com/2019/04/17/irs-releases-new-round-of-regs-for-opportunity-zone-funds/

The Treasury Department has released a new round of proposed regulations governing opportunity zone funds that answers several key questions that have kept potential investors and fund operators on the sidelines.

The zones in which the funds invest are either in or adjacent to depressed communities, and there are over 8,700 spread throughout the U.S. To date, most of the early opportunity zone funds are focused on real estate developments, but the tax benefit is also available for other types of businesses opportunity in the zone.

Six Trends in College and University Endowments (CFA Enterprising Investor)

https://blogs.cfainstitute.org/investor/2019/04/03/six-trends-in-college-and-university-endowments/

What trends are influencing endowment investing in today’s market?

Among larger institutions, college endowments have been at the forefront of SRI and ESG investing…more than one in four colleges engages in some form of SRI. This could take the form of traditional negative screens or restrictions among faith-based organizations, ESG, shareholder activism, or impact investing. Parsing the data by assets, we find nearly 60% of these institutions apply some form of ESG criteria. 

Global Sustainable Investments Rise 34 Percent to $30.7 Trillion (Bloomberg)

https://www.bloomberg.com/amp/news/articles/2019-04-01/global-sustainable-investments-rise-34-percent-to-30-7-trillion

Global socially responsible investments grew by 34 percent to $30.7 trillion over the past two years, lifted by Japanese pension funds, retail investors everywhere and broad, growing concern about climate change.

Money managers around the globe said clients were increasingly asking for sustainable strategies and that climate change became a leading issue for investors this year. Retail investors bought up more ethical funds, according to the report, and now account for about 25 percent of assets, up from 20 percent in 2016.

ESG investing in 401(k)s faces fiduciary, regulatory questions (BenefitsPro)

https://www.benefitspro.com/2019/03/19/esg-investing-in-401ks-faces-fiduciary-regulatory-questions/

Sustainable investing is on a tear.

According to Morningstar research, sustainable investment funds, which the research firms defines as those that use environmental, social and corporate governances (ESG) criteria as measurements for scoring the societal impact of investing in a public company, saw record flows of $5.5 billion in 2018.

Last year marked the third consecutive year of record flows to ESG-premised mutual funds, which increased 50% to 351 offerings in 2018.

Investors and their managers climb the steep ESG learning curve (FT)

https://www.ft.com/content/bc1e0467-f9e6-384b-a6df-cd42dc212109


“On the road from the City of Skepticism I had to pass through the Valley of Ambiguity,” said Adam Smith, founding father of modern economics. This sums up the current state of investing in the environmental, social and governance sphere. A survey last November by the Dutch Association of Investors for Sustainable Development, which covered 90 per cent of Dutch pension assets, shows that most investment managers see the UN-sponsored goals as an opportunity.

Despite this, two-thirds have no formal policy to pursue them and only a fifth have brought their activities into alignment. For the rest, a key obstacle is the lack of a robust template, with consistent definitions and reliable data, that permits statistical modelling. Additionally, establishing a line of sight between, say, climate change and investment outcomes remains a complex task and requires expertise that many Dutch pension plans have yet to acquire, despite their reputation as savvy investors.

The good news is that there are positive straws in the wind.

The Truth about Big Oil and Climate Change (Economist)

https://www.economist.com/leaders/2019/02/09/the-truth-about-big-oil-and-climate-change

In America, the world’s largest economy and its second biggest polluter, climate change is becoming hard to ignore. Extreme weather has grown more frequent. In November wildfires scorched California; last week Chicago was colder than parts of Mars. Scientists are sounding the alarm more urgently and people have noticed—73% of Americans polled by Yale University late last year said that climate change is real. The left of the Democratic Party wants to put a “Green New Deal” at the heart of the election in 2020. As expectations shift, the private sector is showing signs of adapting. Last year around 20 coal mines shut. Fund managers are prodding firms to become greener. Warren Buffett, no sucker for fads, is staking $30bn on clean energy and Elon Musk plans to fill America’s highways with electric cars.

Yet amid the clamour is a single, jarring truth. Demand for oil is rising and the energy industry, in America and globally, is planning multi-trillion-dollar investments to satisfy it. No firm embodies this strategy better than ExxonMobil, the giant that rivals admire and green activists love to hate. As our briefing explains, it plans to pump 25% more oil and gas in 2025 than in 2017. If the rest of the industry pursues even modest growth, the consequence for the climate could be disastrous.

IOSCO Statement on Disclosure of ESG Matters by Issuers

https://www.iosco.org/library/pubdocs/pdf/IOSCOPD619.pdf

The International Organization of Securities Commissions (IOSCO) is this month publishing a statement setting out the importance for issuers of considering the inclusion of environmental, social and governance (ESG) matters when disclosing information material to investors’ decisions.

The statement does not supersede existing laws, regulations, guidance or standards or relevant regulatory or supervisory frameworks in specific jurisdictions, or any IOSCO Principles.

I. Introduction

As underlined by IOSCO in its Objectives and Principles of Securities Regulation, securities regulation has three key objectives: protecting investors, ensuring that markets are fair, efficient, and transparent, and reducing systemic risk. IOSCO Principle 16 states that issuers should provide “full, accurate, and timely disclosure of financial results, risk, and other information which is material to investors’ decisions.” With regard to this Principle, IOSCO emphasizes that ESG matters, though sometimes characterized as non-financial, may have a material short-term and long-term impact on the business operations of the issuers as well as on risks and returns for investors and their investment and voting decisions.

II. Developments in the disclosure of ESG information

Disclosure of ESG information in the market has increased in recent years. Examples of ESG matters that issuers are disclosing include environmental factors related to sustainability and climate change, social factors including labor practices and diversity, and general governance- related factors that have a material impact on the issuer’s business.

PGE: The First Climate-Change Bankruptcy, Probably Not the Last (WSJ)

http://PG&E: The First Climate-Change Bankruptcy, Probably Not the Last

PG&E Corp.’s PCG 13.68% bankruptcy could mark a business milestone: the first major corporate casualty of climate change. Few people expect it will be the last.

California’s largest utility was overwhelmed by rapid climatic changes as a prolonged drought dried out much of the state and decimated forests, dramatically increasing the risk of fire. On Monday, PG&E said it planned to file for Chapter 11 protection by month’s end, citing an estimated $30 billion in liabilities and 750 lawsuits from wildfires potentially caused by its power lines.

The PG&E bankruptcy could be a wake-up call for corporations, forcing them to expand how they think about climate-related risks, management consultants and other experts said.

Previously, companies mainly worried over risks from new governmental regulations related to climate change, said Christophe Brognaux, a managing director at Boston Consulting Group. The PG&E case makes clear that companies also have to worry about sudden, and potentially unexpected, impacts to their core assets and liabilities, he added. 

“Physical risks have only recently manifested themselves. This is a fairly new development,” said Bruce Usher, a professor at Columbia University’s business school who teaches a course on climate and finance. “If you are not already considering extreme weather and other climatic events as one of many risk factors affecting business today, you are not doing your job.”

Impact investing: A multitrillion-dollar market in the making (Pitchbook)

https://pitchbook.com/news/articles/impact-investing-a-trillion-dollar-market-in-the-making

This, Cohen believes, will ultimately lead to an impact ecosystem that has the potential to cover all major assets classes and create the emergence of a multitrillion-dollar market within the next 10 to 12 years.So, if you add it all up, we are talking about tens of trillions, perhaps $30 trillion by 2030.”

Impact investing has been gaining traction over the last decade, as investors, consumers, and—to an extent—policymakers come to recognise that new ideas are needed in order to address some of the largest societal and environmental challenges facing humankind.

However, as is often the case with new ideas, impact investing continues to face big challenges and misconceptions. How to actually define this type of investing is one of those challenges, while the biggest obstacle perhaps remains the general belief that doing good with investments will almost always result in lower-than-market-rate returns.

But according to Cohen, at least, the scepticism is due to a somewhat dogmatic approach by traditional practitioners. “Many people have the notion that optimising risk and return is sacrosanct, and therefore refuse to even contemplate any alteration to the system which might affect their two dimensions of the decision-making process.

“The reason I am putting weight behind this is that if we can apply the usual tools of financial analysis—such as price-earning ratios and return on equity—on an impact-weighted basis, then we will have the most versatile set of tools to be able to make comparisons between companies. This is a huge, but totally achievable goal.”

According to Cohen, the impact revolution will be driven to a large extent by consumers, contributors to pension funds and asset owners. Living in times of systemic challenges such as extreme poverty, geopolitical tensions and environmental disruption on a global scale appears to be leading a growing part of the western population to question, if not outright challenge, the status quo.

This, Cohen believes, will ultimately lead to an impact ecosystem that has the potential to cover all major assets classes and create the emergence of a multitrillion-dollar market within the next 10 to 12 years.

“This is not a dream. If you look at the potential application of agreed impact principles across all asset classes, the numbers are absolutely huge. It is not a stretch to imagine that in a few years’ time a small percentage of the public markets, government and corporate debt, private equity and venture capital will all be investing under the agreed impact principals. So, if you add it all up, we are talking about tens of trillions, perhaps $30 trillion by 2030.”

Mobilize the Private Sector to Avert a Climate Crash (WSJ)

https://www.wsj.com/articles/mobilize-the-private-sector-to-avert-a-climate-crash-1543786196

In the coming months, we call on governments, the global business community and financial executives to work with us to help build on these successes with three objectives in mind: First, mobilize public investments in combination with private capital flows to support vulnerable countries and communities. Second, ask companies how they manage climate risks while anticipating the opportunities of a low-carbon future. Third, promote standardized methods for climate-related disclosure and investment decision-making.