There is no shortage of bad green-energy news. Automakers are fretting about electric-vehicle growth, higher interest rates are smashing financial plans, permitting for big projects still takes forever and offshore wind is a mess.
But for every setback, there is a Sun Streams. This cluster of solar farms will cover more than 13 square miles of desert west of Phoenix. By 2025, it will provide enough electricity for roughly 300,000 homes, bringing Arizona’s largest utility closer to its goal of a zero-carbon grid.
EU climate change body says it is ‘more probable than not’ temperatures will reach new highs in next few month.
The world faces a new era of “global boiling”, the head of the UN has warned, as scientific forecasts showed that July is expected to be the hottest month ever recorded. “The era of global warming has ended; the era of global boiling has arrived,” António Guterres, UN secretary-general, said on Thursday. The global average temperature this month has at times been about 1.5C higher than it was before human-induced warming set in, according to the EU’s Copernicus Climate Change Service. The first three weeks of July were the warmest such stretch on record, with the month now “extremely likely” to be the hottest ever, it said.
2022 is wrapping up on many levels as the most challenging year financially since the Global Financial Crisis, geo-politically since 9/11, and politically since the McCarthy years, when the country was divided over fears of a fifth-column, communist invasion.
One casualty in this bubbling cauldron of uncertainty has been what has become known in the past few years as ESG investing. 2022 marked the first year of negative outflows in over a decade with investors pulling $13.2 billion out of ESG funds through November 2022, according to Lipper. Even when considering the broader universe of fund outflows this year, ESG outperformed and not in a good way.
The secular headwinds are obvious at this stage: in Europe the Ukraine War and the implosion of its energy market. In the U.S., rampant inflation. In the emerging markets, the insidious and growing activism of authoritarian regimes on the world stage, namely China, Russia, Iran and North Korea.
Certain factions in the United States have seized on this backdrop of uncertainty and placed a portion of the blame on the ESG movement, characterizing it as woke, damaging to the middle class and harmful to the economy.
Exhibit A: Blackrock has seen over $2 trillion in assets flow out, particularly from a wave of public pensions that have fallen under state legislation banning ESG investments.
Exhibit B: Vanguard announced recently its intention to back away from the NetZero Alliance to address “confusion” over its ESG positions as a leading indexer.
While a political backlash in the U.S. seems to be the norm these days on just about any issue, this has marked a sea-change in the ESG movement, just as the SEC pursues stronger mandates to enforce greenwashing claims.
This has no doubt made for a tougher business environment for ESG investing.
All that being said, beneath the subterfuge is real underlying progress developing, and it is happening in the places that matter most: companies. A confluence of rationalization happening at the ESG standards level, in the form of the International Sustainability Standards Board, combined with pending rules on SEC climate-related financial disclosure has lit a fire, and companies are not backing away.
Data science is leading the way, and companies that are measuring are finding that they can also manage. Capital markets will remain part of the equation, providing some additional carrots and sticks, but the real traction will only happen with companies that find ways to innovate ourselves into a new carbon pathway, as one example.
This is also I think bringing some new life to the whole rationale where I think ESG as an investing experience has found itself marooned. For too long investment managers have fallen back on this idea that ESG is a risk management exercise. This may be true, and certainly can be argued, but it only carries us so far. People wanting to do the right thing and have a passion for doing the right thing, is where the whole idea of good corporate citizenship started. ESG investing has failed with investors who thought this concept could be simply rationalized and outsourced. As we are finding out, doing sustainability is a roll up the sleeves activity that is best placed when as an integral part of doing business.
To decarbonize and electrify America’s economy, the head of the nation’s biggest public power utility thinks several hundred new nuclear reactors may be needed in the next generation, including 20 or so new smaller reactors across the Tennessee Valley.
In a talk to business investors and nuclear power leaders this week, TVA President Jeff Lyash said the utility’s initial efforts to build small modular reactors near Oak Ridge will serve as a model to construct more than a dozen other such reactors in TVA’s seven-state region. The reactors will help provide around-the-clock, carbon-free energy needed to meet TVA’s goal of operating a carbon-free power grid by 2050.
Synopsis: In 2006, the Global Risks Report sounded the alarm on pandemics and other health-related risks. That year, the report warned that a “lethal flu, its spread facilitated by global travel patterns and uncontained by insufficient warning mechanisms, would present an acute threat.” Impacts would include “severe impairment of travel, tourism and other service industries, as well as manufacturing and retail supply chains” while “global trade, investor risk appetites and consumption demand” could see longer-term harms. A year later, the report presented a pandemic scenario that illustrated, among other effects, the amplifying role of “infodemics” in exacerbating the core risk. Subsequent editions have stressed the need for global collaboration in the face of antimicrobial resistance (8th edition, 2013), the Ebola crisis (11th edition, 2016), biological threats (14thedition, 2019), and overstretched health systems (15thedition, 2020), among other topics.
The immediate human and economic cost of COVID-19 is severe. It threatens to scale back years of progress on reducing poverty and inequality and to further weaken social cohesion and global cooperation. Job losses, a widening digital divide, disrupted social interactions, and abrupt shifts in markets could lead to dire consequences and lost opportunities for large parts of the global population. The ramifications—in the form of social unrest, political fragmentation and geopolitical tensions—will shape the effectiveness of our responses to the other key threats of the next decade: cyberattacks, weapons of mass destruction and, most notably, climate change.In the Global Risks Report 2021, we share the results of the latest Global Risks Perception Survey (GRPS), followed by analysis of growing social, economic and industrial divisions, their interconnections, and their implications on our ability to resolve major global risks requiring societal cohesion and global cooperation. We conclude the report with proposals for enhancing resilience, drawing from the lessons of the pandemic as well as historical risk analysis. The key findings of the survey and the analysis are included below.
In 2017 we launched Sustainable Finance with one mission: to curate the best in research and reporting on sustainability. Founded at Marquette University in Milwaukee, Wisconsin, we were the first university to offer programs in Sustainable Finance starting in 2005.
Since launching the blog, we have seen visits to our site double every year, and this year has seen our best year yet, with thousands of visitors from over 65 countries. As we close out 2020, we want to thank our readers for their support in making Sustainable Finance the number one sustainable finance blog in the world.
Much hay is being made this week regarding the April Consumer Confidence number, which compared to the monthly change in the S&P 500 index showed the widest-gulf on record since 1978, when the University of Michigan survey began. The explanation offered in the financial press is that this supports the “dislocation” theory of the stock market and the economy.[1] What has not been widely reported is the second part of that survey that covers Consumer Expectations, which have remained relatively strong and stable. Important to note is how this led the 2009 recovery.
We are monitoring the job market very closely to see whether consumer expectations are able to play out as the economy reopens. The recent Memorial Day holiday weekend offers a very telling sign that consumers are responding favorably to the economy re-opening. Based on the significant and widespread jump in retail activity compared to the beginning of the month, we find some measure of optimism is warranted. https://fingfx.thomsonreuters.com/gfx/editorcharts/xegpbymlzvq/eikon.png
And in the meantime, the path of the virus continues to head in the right direction with daily cases continuing to decline in the U.S., even with a number of areas of the country several weeks into their re-opening.
Fixed Income Review For the last few years we have seen an uptick in headlines around debt-laden companies and municipalities. These concerns have once again come to the forefront during this crisis as future cash flows are more uncertain. Over the last two months the amount of debt classified in the U.S. as distressed has surged 161% and in April alone, corporate borrowers defaulted on $35.7 billion of bonds and loans, the fifth largest monthly volume increase on record according to J.P. Morgan.
Historically, the investment grade corporate sector has experienced a 3.6% default rate.[2] COVID-19 has super-charged and exposed many problems that pre-dated the pandemic. Many of these weaker firms facing challenges have struggled for years, and the recent economic turmoil has accelerated the reality of what was likely to play out over time, and compressed that into just a few months. In general, these companies are in challenged sectors, have weak balance sheets, questionable business models and / or poor management.
These at-risk companies are generally focused in a few sectors with approximately 33% of the defaults in consumer discretionary (majority coming from retail); followed by energy at 21%. Defaults include J. Crew, Neiman Marcus, J.C. Penny and the recent filing by Hertz.
Take Hertz as one example: A company that was poorly managed with high CEO turnover, four in just a few years. The company took on huge amounts of debt to finance its acquisition of Dollar Thrifty, and mismanaged its fleet (i.e., it emphasized sedans, only to have consumers demand SUVs, and then faced weak used car values when disposing of such inventory).
In the case of the Energy sector, most of the at-risk companies have been smaller players in the exploration and production space that had very weak balance sheets, and were structured for oil production at much higher prices.
So we find ourselves in a situation where, with the support of the Fed, market liquidity has started to improve the overall health of the market, while at the same time we have seen an uptick in challenged businesses.
The $3.9 trillion dollar municipal bond market remains a highly-rated market. Although defaults are headline-grabbing like Puerto Rico or Detroit, they are extremely rare. Investment grade municipals have defaulted at a rate of 0.28% since 1986.2 The areas most prone to default include specific project-financed bonds, and bonds focused around hospitals and healthcare. Data compiled by the Pew Charitable Trusts shows the vast number of states entered this crisis much stronger relative to 2007 (prior to the Global Financial Crisis) based on Rainy Day Fund levels, and they are now being supported by additional Fed assistance. This support has led to a strong rally in municipal bonds from the lows, even allowing for some of the more challenged credits to gain access to the market.
2 Source: S&P. For municipal defaults, S&P’s study period was Jan. 1, 1986, to Jan. 1, 2019. For corporate defaults, S&P’s study period was Jan. 1, 1981 to Jan. 1, 2019. The calculation represents a 15 year cumulative default rate.
A few days ago, a smart 22-year-old asked me how to invest some savings from her first job. I advised her to open an individual retirement account. When she found out she couldn’t withdraw it without penalty until she turns 59 1/2, she shot back: “By then the planet will be a rotating cinder!”
The many young people who seem to share her gloomy view of the future should read the new book by Laurence B. Siegel, “Fewer, Richer, Greener.” In it, he proclaims, “We are on the verge of the greatest democratization of wealth and well-being that the world has ever known.”
Focuses on both structural and process factors of governance
Covers related investment topics in each chapter, including fiduciary duty, financial literacy, asset allocation, and socially responsible and impact investing
Draws from the annual U.S. Public Pension Governance Survey and other leading industry and academic research
Includes special “practitioner sections” in each chapter geared to the more technical reader
More than 80% of the financial assets in the United States fall under the purview of a trustee. That’s a big responsibility for an estimated 1% (around 1.5 million people) of the U.S. working population charged with overseeing investments for millions and millions of beneficiaries, public sector, and non-profit organizations. In a world proliferated by investment products, increasingly dominated by indexes, faced—particularly in the pension world—with increasing liabilities, more regulation, and a growing number of social and sustainability objectives, what’s a trustee to do?
The Trustee Governance Guide is here to help guide today’s board trustee through the brave new world of 21st century investing. The book focuses on the critical aspects of the Five Imperatives: Governance, Knowledge, Diversification, Discipline, and Impact. Based on more than a decade of research, practice, and discussions with many key decision makers and influencers across the industry, this book addresses the many topics related to better governance, greater mission-driven financial performance, and impact. The questions the book addresses include:
What is good governance, how do we know it when we see it, and why does it matter?·
How much knowledge is necessary to be a competent board member?
How big should my endowment be?
What are the key elements of a diversified portfolio?
How much does cost matter?
What’s the difference between socially responsible and ESG investing?
Can I focus on sustainability and still be a good fiduciary?
This book provides a way for boards to improve and benchmark their own governance performance alongside their peers, and uniquely covers related investment topics in each chapter.
