Category: Sustainability

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ESG and the Commons: From Tragedy to Governance? (Financial Times and CFA Institute)

https://www.ft.com/paidpost/cfa-institute/esg-and-the-commons-from-tragedy-to-governance.html

“A resource arrangement that works in practice can work in theory.” — Elinor Ostrom

Sustainable investing will become the rule and no longer the exception. But this transition comes amid a disquieting change in how we must view capital, production, and their attendant effects.

Promoting the Common Good or Promoting Destruction?

In Adam Smith’s The Wealth of Nations, the pursuit of individual goals brings about — on balance — the right outcomes on a broad community scale. Think of the baker baking bread for profit: The act itself — the supplying of bread — clearly promotes the common good, even if the common good wasn’t the original intent. This, of course, underestimates the role of “externalities” in economics, or how self-interest can lead to the eventual and total destruction of certain resources. As Garrett Hardin wrote in his seminal “The Tragedy of the Commons”:

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Liebreich: Peak Emissions Are Closer Than You Think – and Here’s Why (Bloomberg NEF)

So here we are, standing on the threshold of a new decade. It will be, to paraphrase Winston Churchill, a decade of consequences. Play it right, and we have a chance of avoiding the worst impacts of climate change. Waste it, and we are in uncharted territory.

I am confident that we will end the next decade in a far better place than we are today, just as we are ending this decade in a far better place than we ended the previous one (as described by Angus McCrone in his October article Clean Energy’s Decade Nearly Gone, And Its Decade Ahead).

https://about.bnef.com/blog/peak-emissions-are-closer-than-you-think-and-heres-why/

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Sustainable Investment Skeptics are Becoming Believers (Chief Investment Officer)

Study finds number of  cynics about ESG  cut in half since 2017.

The doubters of sustainable investing are rapidly dwindling in numbers, according to a study by asset manager Schroders, which found that cynics of the sector have fallen by nearly 50% in just three years.

According to Schroders’ Institutional Investor Study 2019, the proportion of investors worldwide who do not believe in environmental, social, and governance investing has fallen to 11% this year from 20% in 2017. It also said that the decline was most notable in Latin America, where the percentage of skeptics fell to 12% from 29% in 2017.

https://www.ai-cio.com/news/sustainable-investment-skeptics-becoming-believers/

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Where ESG Fails (Institutional Investor)

This article recommends that a shift in focus is needed on the ESG drivers of value creation (i.e. materiality).

Despite countless studies, there has never been conclusive evidence that socially responsible screens deliver alpha. A better model exists, argue Harvard Business School luminaries MichaelPorter, George Serafeim, and Mark Kramer.

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Biggest US index funds oppose most climate proposals in shareholder votes (CNBC)

https://www.cnbc.com/2019/10/08/biggest-us-index-funds-oppose-most-climate-proposals-in-shareholder-votes.html

  • Votes on climate-related shareholder resolutions often take center stage at corporate annual meetings, though seldom draw support from the two top U.S. index fund firms, BlackRock and Vanguard Group.
  • BlackRock and its top rivals have not put forward any proposals of their own since at least 2001, according to research firm FactSet.
  • The top index fund firms say they prefer to address issues they have with portfolio companies, including those related to climate change, in private talks with executives rather than through shareholder votes.
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UN Climate Summit: Asset owners commit to carbon neutral portfolios by 2050 (IPE)

https://www.ipe.com/news/esg/un-climate-summit-asset-owners-commit-to-carbon-neutral-portfolios-by-2050/10033434.article

Nordic pension investors have committed to carbon neutral portfolios by 2050 as part of a new asset owner campaign.

Members of the alliance will set and publicly report on intermediate targets “in line with Article 4.9 of the Paris Agreement”, thereby holding themselves publicly accountable, according to a statement about the new initiative.

A spokeswoman said this meant the investors would be setting targets for the same points in time as countries will under the accord.

“The idea is that investors and countries can influence each other towards higher levels of ambition as they set such targets, especially when they set them in synchronicity, and when they proceed in lock-step,” she added.

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What’s Behind the World’s Biggest Climate Victory? Capitalism (Bloomberg)

https://www.bloomberg.com/graphics/2019-can-renewable-energy-power-the-world/

The chief executive of the world’s largest private coal company sat before a group of U.S. lawmakers who wanted to know whether the fuel had a future. He didn’t hesitate. “Coal,” he said, “is the future.”

Not quite. This April, for the first time ever, renewable energy supplied more power to America’s grid than coal—the clearest sign yet that solar and wind can now go head-to-head with fossil fuels. In two-thirds of the world, they’ve become the cheapest forms of power.

Solar and wind will power half the globe by 2050, based on BloombergNEF forecasts. By that time, coal and nuclear will have all but disappeared in the U.S., forced out by cheaper renewables and natural gas.

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JPMorgan Says Shipping Loans Will Go Only to Clean Vessels (WSJ)

https://www.wsj.com/articles/j-p-morgan-says-shipping-loans-will-go-only-to-clean-vessels-11568139086

J.P. Morgan Asset Management is joining a chorus of global financiers saying that protecting the environment will be a key consideration for extending shipping loans.

“There is not an institutional investor today in the Western world that is not thinking about the impact of environmental, social and governance factors,” Andy Dacy, the chief executive of the finance firm’s global transportation group, told a meeting at the International Shipping Week here.

“Anyone looking for [shipping] capital, if you’re not employing such a strategy, it’s going to be increasingly very difficult to get capital.” Mr. Dacy said. 

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ESG Investing: Can You Have Your Cake and Eat It, Too? (CFA Enterprising)

https://blogs.cfainstitute.org/investor/2019/09/03/esg-investing-can-you-have-your-cake-and-eat-it-too/

The ongoing debate about environmental, social, and governance (ESG) investing sometimes feels like a rehash of that age-old rhetorical question.

Proponents of ESG data believe it can help investors better understand the risks and opportunities companies face and may even offer alpha generation potential. On the other hand, skeptics think ESG criteria limit the universe of available stocks and that such restrictions are bound to negatively impact returns.

To return to our metaphor, having the ESG cake means generating strong investment performance, while eating it too implies doing good from an ESG perspective.

So which is it? Can investors have it all?