Category: Links to External Postings

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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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A fiasco in the making? As the coronavirus pandemic takes hold, we are making decisions without reliable data (STAT)

https://www.statnews.com/2020/03/17/a-fiasco-in-the-making-as-the-coronavirus-pandemic-takes-hold-we-are-making-decisions-without-reliable-data/

The current coronavirus disease, Covid-19, has been called a once-in-a-century pandemic. But it may also be a once-in-a-century evidence fiasco.

At a time when everyone needs better information, from disease modelers and governments to people quarantined or just social distancing, we lack reliable evidence on how many people have been infected with SARS-CoV-2 or who continue to become infected. Better information is needed to guide decisions and actions of monumental significance and to monitor their impact.

Draconian countermeasures have been adopted in many countries. If the pandemic dissipates — either on its own or because of these measures — short-term extreme social distancing and lockdowns may be bearable. How long, though, should measures like these be continued if the pandemic churns across the globe unabated? How can policymakers tell if they are doing more good than harm?

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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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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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Why Invest? A 22-Year-Old’s Tough Questions About Capitalism (WSJ)

https://www.wsj.com/articles/why-invest-a-22-year-olds-tough-questions-about-capitalism-11579882164?emailToken=1f6f40da21c2a67f4c5d3cefc394a4ef321sWZm7l91akMf29D3jectUr4s5BbuodUHQ15r53k/VLpRgJBHlM22HDkmaMULdEvcS+gzG9uVohhM7aK9jCLO6LA0M+fnOjtCyjC04thC/WhtPLrayQCYOxOlP4FsD&reflink=article_email_share

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.”

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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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Ignoring climate risk is more costly than grappling with it (Huw van Steenis-FT)

Regulators and activists are driving global warming concerns into the mainstream

https://www.ft.com/content/dc2bdac0-316c-11ea-9703-eea0cae3f0de

A trio of recent deals tells us something important about capital markets: that 2020 may be the year when climate-risk analysis of portfolios moves out of a niche into the mainstream. Investors and boards have begun to realise that it can be more costly to ignore these issues, than to try to grapple with them. Last September MSCI, the global index company, bought Carbon Delta, a boutique focusing on climate risk analysis. A few months earlier Moody’s acquired Four Twenty Seven, a similar boutique. Last year ended with S&P making a move for sustainable index player RobecoSAM.

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Part 1 of Ethics, ESG, and ERISA: Ethical-Factor Investing of Savings and Retirement Benefits (Albert Feuer)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3501203

Abstract

Ethical-factor investing is investment decision-making that takes into account ethical factors. It includes faith-based investing, Environmental, Social or Governance (ESG) investing, and sustainable investing. It is becoming more and more widespread. This has occurred despite a lack of widely accepted definitions, performance metrics, or ethical preferences. There is increasing broad agreement that some ethical factors highlight business risks and opportunities in a predictable fashion, such as the effects of climate change, human capital needs, or corporate governance. Thus, more and more investors and enterprises are seeking to profit (including mitigating risks) from these factors in the same way they do from all business risks and opportunities. There are three prudent approaches to ethical-factor investing. The most widely used is the Incorporation approach. Such investing uses the value of doing the right thing to decide how to improve financial returns. Also, quite common is the Tie-Breaker approach. Such investing does the right thing if there no financial cost to doing so. Least common is the concessionary approach. Such investing does the right thing if it does not cost too much. Each of these approaches can be socially beneficial, i.e., improve the norms and behavior of enterprises in a cost effective manner. Investors can generate such benefits by funding enterprises with thinly traded securities whose preferred ethical-factor activities would not otherwise occur, or by participating in engagement campaigns to change the policies of widely traded securities in which they invest.