Christopher K. Merker, Ph.D., CFA

ESG implementation in real estate strategies, throughout 2019, emerged as a new trend with LPs switching their focus towards impact & sustainable investments, which resulted in 2020 starting off with the largest investment volume for real estate impact investment strategies to date. But with the pandemic outbreak, tenants are increasingly concerned with the impact of buildings on their wellbeing, while investors are trying to minimise risk exposure to climate change related issues, such as fires, droughts and floods, through impact and socially responsible investments.

This GRI Report will discuss the immediate impact of Climate Change and associated risks for real estate and capital markets, as well as related ESG and wellbeing strategies from the point of view of GRI Club members and the IWBI during the “Wellbeing Impacts on Real Estate” and “Climate Change – Must one change investment strategies too?” GRI eMeeting. It will also explore the challenges and opportunities investors, lenders and developers will face when adapting these strategies.

October 4, 2020

Corporate Boards Improving on ESG (P&I)

https://www.pionline.com/esg/corporate-boards-improving-esg-less-diversity-survey

Corporate boards are improving the ways they deal with crisis management and ESG issues but less so on diversity, according to PwC’s Annual Corporate Directors Survey released Monday.

The survey conducted from February to March 2020 included 693 directors in more than a dozen industries, 75% of which have annual revenues of more than $1 billion. Among respondents, 76% were men.

The percentage of directors saying that disclosing a company’s efforts on ESG-related issues should be a management priority rose to 41% from 30% in 2019. The percentage of directors saying that ESG issues should regularly be on the agenda rose to 45% from 34% last year.

Among the directors, 67% believe issues like climate change should be taken into account when developing company strategy, and 50% said their boards fully understand ESG issues impacting the company.

October 1, 2020October 1, 2020

New ESG Reporting Standards Framework (World Economic Forum and the “Big Four” accounting firms)

WEF_IBC_Measuring_Stakeholder_Capitalism_Report_2020 Download

The recommended metrics are organized under four pillars that are aligned with the SDGs and principal ESG domains: Principles of Governance, Planet, People and Prosperity. They are drawn wherever possible from existing standards and disclosures, with the aim of amplifying the rigorous work already done by standard-setters rather than reinventing the wheel. The metrics have been selected for their universality across industries and business models, but the intention is not to replace relevant sector- and company-specific indicators. Companies are encouraged to report against as many of the core and expanded metrics as they find material and appropriate, on the basis of a “disclose or explain” approach.

The result of this process is 21 core and 34 expanded metrics and disclosures, which the project commends to both IBC members and non‐IBC companies for adoption.

September 19, 2020

5th Annual Quad Packaging Sustainability Symposium

Free Virtual Event October 7th & October 14th

Join leaders in packaging and branding for discussions on what’s possible in sustainability today. There’s strength in numbers – part- ners are ready at every step of the journey to make environmental initiatives easier and more effective than ever.

Topics for 2020 include implications from the COVID-19 pandemic on sustainable packaging initiatives, advancements in the use of post-consumer waste in packaging, consumer perception of sus- tainable messaging, and much more!

We hope you can join us for lively, informative virtual discussions with like-minded peers from across the industries that Quad serves.

Featured speakers; National Geographic, Clearwater Paper, Fashion For Good, Greenblue, Annies

https://event.on24.com/eventRegistration/EventLobbyServlet?target=reg20.jsp&referrer=&eventid=2613747&sessionid=1&key=6AF4AE93DA3A711B2C1056D95AEA1559&regTag=1544468&sourcepage=register

September 15, 2020September 19, 2020

Climate Week NYC – September 24, 2020

Amazing agenda for our upcoming 3rd event – in addition to recapping the barrage of recent reports, we will be featuring our friends Mark Lewis of BNP Paribas on the future of hydrogen and carbon pricing, Sophie Purdom on her excellent Climate Tech VC, Gerard Barron on the critical importance of ethical deep sea mining, Stewart Investors on Why Climate Measures Don’t Make Sense and How to Fix them, Christopher K. Merker, Ph.D., CFA and Matt Orsagh of the CFA Institute on “Shortermism,” Jyoti Banerjee on placing a regenerative lens on investment and my own call for working with China on climate change Modern China: Financial Cooperation for Solving Sustainability Challenges

https://www.climateweeknyc.org/event/you-missed-tldr-best-new-ideas-sustainable-finance

August 27, 2020

Short-termism Revisited (CFA Institute and Fund Governance Analytics)

Improvements made and challenges in investing for the long-term

In 2020 CFA Institute convened a panel revisiting the topic of short-termism and commissioned Fund Governance Analytics to quantitatively analyze the issue as we found many companies reluctant to step away from the short-term earnings guidance game.

https://www.cfainstitute.org/en/advocacy/policy-positions/short-termism-revisited

Overview

Issuers and investors have begun to understand the importance of issuer–investor communications in getting both sides on the same page on many long-term strategic issues. In the years since our 2006 report was published, investors and issuers have increasingly invested in resources dedicated to fostering engagement. Both parties realize that building a trusting relationship can increase understanding and avoid the adversarial relationships that often existed between the two groups in the past.

These improvements in the short-termism and long-termism landscape should indeed be celebrated, but more work remains to be done. Many companies have traded in short-term earnings guidance for either long-term guidance or a more diverse set of metrics that better informs investors.

August 27, 2020

The Proposed DOL ESG ERISA Regulation and the Public Reaction (Albert Feuer, Yale)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3669462

ERISA plan fiduciaries select investments to make (1) directly on behalf of plan participants and beneficiaries, or (2) indirectly on behalf of plan participants and beneficiaries by selecting investment options to offer them. The DOL describes ESG investments as including socially responsible investing, responsible investing, and sustainable investing (ESG/sustainable investing). The DOL proposed regulation would direct those fiduciaries to look askance at ESG/sustainable investments. In particular, the proposed regulation would provide that

(1) ESG/sustainable investments are only permitted if the plan fiduciary overcomes burdens not applicable to other investing approaches regardless of the economic value of the investment, and

(2) ESG/sustainable investment alternatives for self-directed plans, regardless of their economic values, may not (a) be a qualified default investment alternative or a component of such an alternative, or (b) include alternatives if the fiduciary acknowledges having used any ESG/sustainable investment considerations that are not “objective risk-return criteria.”

Many commenters suggested that the proposed regulations be significantly revised, and there appeared to be broad agreement on two revisions:

• The regulation should permit an investment alternative may be a qualified default investment alternative for a self-directed plan regardless of whether the alternative makes any use of ESG/Sustainable consideration, such as using the S&P® index; and

• The regulation should distinguish between the use of ESG/Sustainable considerations to determine the economic value of an investment, i.e., the incorporation approach, which may be judged in the same manner as any other valuation tool, and cases in which consideration are used for other purposes.

There was a strong factual disagreement about whether ESG/sustainable considerations are only used to value investments, including as a risk-management tool, in which case there is no reason for any special scrutiny of those considerations. If those considerations are ever used for other purposes, such as to have positive effects for the environment, society, or enterprise governance, some argue ERISA not only prohibits such consideration, but special scrutiny is needed to avoid these so-called abuses. even if the pursuit of those goals does not reduce the economic value of the plan’s investment or plan’s choice of an investment alternative to make available to plan participants and beneficiaries.

There was also a strong legal disagreement about whether the regulation should, as it does in very narrow circumstances, ever permit fiduciaries to use any ESG/sustainable considerations that do not determine an investment’s economic value to decide between direct investments which have the same expected economic value.

The paper argues that it is advisable for the DOL to revise the proposed regulation to be consistent with ERISA, the usual practice of prudent ERISA fiduciaries exercising due diligence in making plan investment decisions, prior DOL guidance, and the reasonable preferences of many ERISA plan fiduciaries, participants, and beneficiaries to reflect not only the commenters’ broad consensus but also :

• Delete any additional reporting or review requirements on ERISA plan fiduciaries that the rule would impose only if the name of the investment and/or the investment approach includes an ESG/Sustainable reference;

• State that because multiple options often have the same best expected economic value, ERISA plan fiduciaries making investments need not, and often may not, consider only the investment’s expected economic value ; and

• Permit, but not require, ERISA plan fiduciaries to choose and retain “ethically beneficial” investments that do not sacrifice any economic value by using any non-pecuniary consideration to select or monitor investments if such consideration is not illegal, and does not reduce the expected economic value of the investment.

August 22, 2020August 27, 2020

Toward a Global ESG Standard (CFA ESG Working Group)

Delighted to share the following announcement as we work toward a global standard on ESG investing. I’m proud of the effort our working group has put into this much needed area over the past eight months. Public comments from across the industry are welcome and encouraged. #ESG #standards #sustainability https://lnkd.in/eATPWYE

– Christopher K. Merker, CFA, Ph.D.

https://www.cfainstitute.org/en/ethics-standards/codes/esg-standards?s_cid=smo_ESGConsultCFA_LI#__prclt=UW13XK6I

August 22, 2020August 27, 2020

COVID-19 Crisis: Focus on the U.S. Consumer

This week we focus on the U.S. consumer. Consumer spending represents over two-thirds of gross domestic product (GDP) in the U.S. and is therefore a critically important force in the economy and markets, both for U.S. and global companies.   The good news is that consumer spending, supported by federal stimulus measures and a recovering job market, has defied expectations throughout this recession and has recovered substantially from its lows in April.^[1] While consumer spending has held up, there have been some recent headwinds from the continuing drag from the pandemic and the prospect of a “no-deal” stimulus package in the near term.

Total U.S. Consumer Spending (as of 6/30/2020)

There is also no doubt consumer spending has shifted during the pandemic, with significantly more shopping occurring online. The increase in ecommerce has been breathtaking to say the least with the growth in ecommerce over the last several months outpacing the growth over the prior 18 quarters combined.^[2]

And while this has clearly manifested itself in the performance among a core set of retailers, it has also been supportive to small business:^[3]


And the future bodes well given the current position of U.S. consumers, with savings up 54.6% from one year ago:^[4] Measures of new orders and PMIs (Purchasing Manager Indexes) we referenced in last week’s letter also reinforces this point. According to a recent statement from the research firm, Markit, “Total new business rose for the first time since February and at a solid rate. Manufacturing firms registered a steeper expansion in new order inflows than in July, while Services signaled a renewed increase in sales.”


Despite continued cautious notes from the Fed (see below), James Bullard, the St. Louis Fed President, had this to say about the outlook for the rest of the year (excerpted from a Reuters interview this week):^[5]

Though the situation seems chaotic, with federal, state and local officials laying out competing ideas about what activities are safe and under what conditions, Bullard said that shows adaptation in process, and will allow the country to fine-tune behavior and economic activity to what a “persistent” health threat allows. “I think Wall Street has called this about right so far,” he said, noting how firms like Wal-Mart, with its mandatory masking and other rules, have found ways to operate that others will copy. “There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside…So I think we are going to do somewhat better…I expect more businesses to be able to operate and more of the economy to be able to run…successfully in the second half of 2020.” Bullard said he sees the U.S. economy shrinking 4% for the year, substantially more optimistic then the -6.5% median projection his colleagues made in June, and also less dire than the median forecast of economists polled by Reuters in mid-July. That saw a 5.6% hit to GDP for the year, with a catastrophic annualized decline of 32.9% in the April to June period offset by what will likely be similarly outsized growth numbers in the third and fourth quarters.

^[1] Chetty, Friedman, Hendren, Stepner
^[2] Baird-Strategas
[3] Bloomberg
[4] Bloomberg, quoted from Craig Johnson, president of Customer Growth Partners
[5] Reuters.

August 9, 2020

Climate change: asset managers join forces with the eco-warriors (FT)

The pandemic has persuaded some investors of the potential financial damage from global warming

As 2020 kicked off, Dan Gocher at the Australasian Centre for Corporate Responsibility, a shareholder advocacy organisation, was feeling “pretty optimistic” about its plans to force big Australian energy companies to tackle climate change.

BlackRock, the $6.8tn asset manager, and other large investors had proclaimed an urgent need to arrest global warming. With the renewed focus on climate change following the devastating bushfires in Australia, the ACCR was hopeful several climate-related resolutions filed at oil and gas producers Santos and Woodside would gain strong shareholder support at their annual meetings in April.

https://amp.ft.com/content/78167e0b-fdc5-461b-9d95-d8e068971364#

Author: Christopher K. Merker, Ph.D., CFA

Climate Change Considerations in Real Estate (GRI)