Category: ESG

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Sustainable investing is set to surge in the wake of the coronavirus pandemic (CNBC)

KEY POINTS 

  • The outbreak of Covid-19 could prove to be a major turning point for ESG investing, or strategies that consider a company’s environmental, social and governance ratings alongside traditional financial metrics.
  • Sustainable funds attracted record inflows in the first quarter amid the market turmoil, according to data from Morningstar, and many of these funds are outperforming the broader market for the year.
  • Critics have said that ESG investing is merely a bull-market phenomenon, while others argue it represents a fundamental shift in investing.
  • “Prior to this crisis there was a meaningful and increasing focus on ESG investing and it is likely that this focus will only increase following the coronavirus,” Goldman Sachs said in a recent note to clients.

https://www.cnbc.com/amp/2020/06/07/sustainable-investing-is-set-to-surge-in-the-wake-of-the-coronavirus-pandemic.html

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A Framework for Sovereign ESG Risk Assessment (SAGE Advisory)

https://www.sageadvisory.com/media-assets/a-framework-for-sovereign-esg-risk-assessment/

Even though government debt represents approximately 41% of the $255 trillion global bond market, the level of vigor in Environmental, Social, and Governance (ESG) analysis that is applied to the issuer is not always the same as it is in the corporate space. Sovereign debt, which is issued by central governments, is particular- ly vulnerable to a lack of adequate ESG assessment. It is often passed off as a risk-free asset meant for capital preservation and stability, especially in the case of developed countries’ debt issuance, but events of the past two decades have showcased the need to rethink this notion. Greece struggled mightily after the 2008 fi- nancial crisis, requiring bailouts from the International Monetary Fund, European Central Bank, and the Euro- group, and lenders still took a huge hit on defaulted loans. And possibly even worse, Argentina (on the cusp of being classified as a developed country) has been engulfed in a debt crisis for the past 20 years, and creditors continue to get punished for holding its debt, with no real viable solutions moving forward.

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Letter: Perhaps the New Mantra Should Be ESG Materiality (FT)

https://www.ft.com/content/7de1b83c-7752-11ea-af44-daa3def9ae03

David Stevenson, in “Are ESG and sustainability the new alpha mantra?” (FTfm, April 6), identifies an important paradigm shift: rather than using environmental, social and governance considerations as an “add-on” to a typical investment process, many are discovering that investors can use ESG concerns as a screen to avoid future poor-performing companies. But this suggests that ESG screens can also be used to find attractive companies to short. Indeed, as some past studies of mine and others show, negatively linked ESG can generate even greater alpha than positively linked ones. I liken this principle to the observation that we tend to like good companies but hate bad ones. In addition to avoiding bad companies, ESG screens can also help find excellent companies. For example, approximately 40 per cent of large US companies now explicitly compensate their top executives for various ESG outcomes. These executive contracts tend to increase both future ESG and financial performance.

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Marquette Business Continues to Lead in Sustainable Finance and Investment Education (Marquette Business)

https://medium.com/@MUBusiness/marquette-business-continues-to-lead-in-sustainable-finance-and-investment-education-c5280cc7345b

“Sustainable finance and investing are taking off- and the world’s top business schools are climbing on board” — Wall Street Journal, 6/10/2019

An article in the Wall Street Journal recently declared that sustainable finance and investment education is making its way into higher education curriculum. But at Marquette, that change happened over a decade ago.

In the 2005-2006 academic year, Dr. Sarah Peck developed and taught the course Investment Ethics. Dedicated to understanding the central role that ethical concepts and consequences play in the practice of finance and specifically investments,this course was one of the first of its kind across the country. Taken up and taught by Dr. David Krause, director of the Applied Investment Management program thereafter, the course eventually landed in the capable hands of Dr. Christopher Merker, Instructor of Practice for Marquette University who has taught the course since 2009.

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Honor and Responsibility: The Five Stewardship Imperatives (Trusteeship)

https://agb.org/trusteeship-article/honor-and-responsibility-the-five-stewardship-imperatives/

It should come as no surprise to trustees that boards have come under increased pressure in recent years to be more purposeful in the how they govern, specifically when it comes to mission and overall governance. There are several possible reasons for this increased attention on mission and governance but a pioneer in the field of governance and investment research, Keith Ambachtsheer, identifies three most likely explanations. In his foreword in The Trustee Governance Guide: Five Imperatives of 21st Century Investing, he reflected on the three main reasons nonprofit organizations have become increasingly focused on their mission and governance in recent years.¹

■ Governance as a process is finally receiving the bright spot it deserves;
■ The time has come to recognize the rise of behavioral economics and its lessons for trustee decision making; and
■ Sustainable investing is increasingly displacing “quarterly capitalism” as the philosophical foundation for long-term wealth creation.

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How passive investment dulls the green wave (FT)

https://on.ft.com/2Sqcjbn

Passive index trackers help to keep money flowing to high-carbon industries

With such a strong financial case against fossil fuels coming into focus, and starting to convince holdouts, activists’ plans to starve oil, gas and coal companies of capital should get a boost as investors abandon the sector for non-ideological reasons. Yet even with this tailwind, the impact of their campaign will be limited as long as people continue ploughing money into market-tracking passive funds.

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The ESG Debate Heats Up: Four More Challenges (CFA Enterprising Investor)

https://blogs.cfainstitute.org/investor/2020/02/04/the-esg-debate-heats-up-four-more-challenges/

Investors and Managers: Now Join Hands.

As fires continue to ravage Australia, debates among environmental, social, and governance (ESG) investment professionals have been blazing as well.

One LinkedIn commentator, Dr. Raj Thamotheram, observed:

“There is so much ‘sdg washing’ and ‘impact washing’ going on at the moment, it drives me mad. We shouldn’t pretend that buying a share of XXX in the secondary market is changing the world. Change is slow and incremental. [My employer] isn’t perfect, we try to put our best foot forward, that inevitably leads us to be optimistic in describing what we do on ESG. But I try to be as brutally honest as I can. I’m amazed at how many peers say in the PRI reports that they do ESG integration across all asset classes 100%. Really? And if so, what does that actually mean?

“The answers aren’t easy but the challenge is urgent and CEOs of member firms need to mandate corrective action in 2020.

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New Investments and Research Indicate Multi-Trillion Dollar Market for Climate Restoration Through Carbon-Capture (Thunderbird)

https://thunderbird.asu.edu/knowledge-network/wef

Thunderbird Convenes Global Leaders Across Sectors to Advance Climate Action

Davos, Switzerland – Thunderbird School of Global Management released a new report today projecting that the world can realize at least $1 trillion – $3 trillion dollars in market opportunities and $3 trillion – $5 trillion dollars in broader economic, social and environmental benefits per year by 2030.

Thunderbird’s Director-General and Dean, Dr. Sanjeev Khagram authored the new report and shared it at a cross-sectoral gathering hosted by Thunderbird with the Foundation for Climate Restoration in Davos during the World Economic Forum’s annual meeting. 

“Together, we must rapidly deploy natural and technological solutions to remove gigatons of carbon dioxide from our air, restore ocean ecosystems, and preserve Arctic ice, while dramatically reducing emissions and adapting to climate change impacts,” said Dr. Khagram. “Climate restoration is the critical third pillar of climate action alongside climate mitigation and adaptation.”

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Larry Fink rules on the best global standards for climate risk reporting (FT)

https://www.ft.com/content/fc51227b-9d64-4e5a-b1e2-f6c07f4caa58

BlackRock chief Larry Fink has warned that the world’s largest asset manager will take a “harsh view” of companies that fail to provide hard data on the risks they face from climate change.

In the letter, Mr Fink said that by the end of the year he wanted all companies to “disclose in line with industry-specific” guidelines set out by the SASB — the Sustainability Accounting Standards Board, a non-profit organisation that sets voluntary financial reporting standards.  He also called for businesses to report under the TCFD, or the Task Force on Climate-related Disclosures, a voluntary framework that was spearheaded by Mark Carney, the outgoing governor of the Bank of England

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BlackRock shakes up business to focus on sustainable investing (FT)

Fund manager to double number of sustainability-focused exchange traded funds it offers

https://www.ft.com/content/57db9dc2-3690-11ea-a6d3-9a26f8c3cba4

BlackRock has unveiled sweeping changes in an effort to position itself as a leader in sustainable investing after criticism that the company has failed to use its clout to combat climate change. The world’s largest fund manager, with $7tn in assets, will double the number of sustainability-focused exchange traded funds it offers to 150. It will also cut companies that derive a quarter or more of their revenues from thermal coal from its actively managed portfolios, as it aims to increase its sustainable assets 10-fold from $90bn today to $1tn within a decade.