However, while the concept has actually been around for some time, it is only in the last few years that sustainable investing was gaining any significant traction. Then the COVID-19 pandemic hit and, as it rippled across the world, many proponents feared the worse for sustainable investing’s trajectory, as governments, regulators and investors switched attention to short term recovery measures.
But the worst did not happen, in fact, quite the opposite. The buzz about sustainable investing has continued to grow louder, as we are increasingly aware of how interconnected we are, but also the glaring inequalities we face. So, what does this mean for us now, as we look beyond the pandemic? 2022 appears to be the year that sustainable investing is set to skyrocket.
Sustainable investing explained
Sustainable investing is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact. Various other terms are often used such as responsible investing, impact investing or ethical investing – while there are nuanced differences, it’s fair to say that the commonality is to achieve positive change, invariably with a social or environmental dimension.
However, sustainable investing isn’t just about avoiding investing in companies that do harm. There is a new class of investors actively seeking out companies that address daunting social and environmental challenges while also delivering financial returns. These companies fall into a wide range of industries and sectors - ranging from food to transportation, from healthcare to education – the universe for sustainable investors is extensive.
Jumping on board
Even as recent as five years ago, the mainstream investment community was largely disengaged from discussions about sustainable investing. These conversations remained firmly within niche corners of the industry. This is shifting dramatically, with most big investors now believing sustainable investing to be good risk management, leveraging the practice to help manage risk in uncertain times. For sure, the COVID-19 pandemic has been somewhat of a game-changer in this regard because it turns out that companies that manage sustainability risks better, manage other risks better as well.
It helps also that some big names are getting more vocal about sustainable investing. Perhaps a pivotal moment happened in early 2020 when Larry Fink in his annual letter famously stated that Blackrock would put sustainability at the centre of its investment strategy. With all this momentum underway, we are going to see investors strengthening their ESG commitments and demand for sustainable and green products growing at a rapid pace.
The role of policy and regulation
There is a great deal happening on the global policy agenda too which is shaping the way many investors are thinking about sustainability. The Paris Agreement on Climate Change gave us a global carbon budget, and we are seeing widespread commitments being made by corporates and investors alike to achieving the Sustainable Development Goals. All this bodes well - and let’s face it, now we have the US back at the table, things are certainly looking up.
On the regulatory front, the European Union is leading the charge, with its Sustainable Finance Action Plan a sea change for investors. This includes new requirements to disclose the sustainability credentials of funds and regulations aimed at boosting transparency. The EU is certainly out front on sustainable finance regulation but countries around the world are watching closely on its success in implementation and are likely to follow suit in the months and years to come.
Looking out for sustainable stocks – what is out there?
The sustainable investing universe is wide and ESG is a broad church. However, as we look to the future certain themes and issues will gain more attention than others. For example, climate change will remain a top priority for many investors. At the end of last year, COP26 pulled together some significant private-sector commitments, particularly around driving trillions of dollars towards climate solutions. The momentum is clear as many large corporates make net-zero commitments, often more ambitious than national commitments. These are the companies that are worth looking at because they are embracing the inevitable.
At the same time, these actions are also being spurred on by a push back against high-carbon companies, especially Big Oil. Last year, a number of global fossil-fuel giants suffered embarrassing rebukes over their lack of climate change action. Investors are taking note and are increasingly willing to force companies to reduce their carbon dioxide emissions quickly.
Interestingly, the pandemic has shone a spotlight on social issues, pushing many investors to reconsider the management of social risks within their portfolios. This elevation of the ‘S’ in ESG is likely to continue. At the same time, the Black Lives Matter movement is bringing into sharper focus the lack of meaningful progress on racial equality and progressive investors are considering what action they can take. Diversity will continue to matter.
Take, for example, the growth and traction of gender-lens investing – an approach that integrates gender-based factors into investment strategy, process and analysis, in order to deliver positive benefits to women and girls. It is a growing sector and attention is not only coming from sustainable and impact investors. The evidence is stacking up as research continues to demonstrate the compelling case for gender diversity in the workforce, for overall economic growth, as well as improvements in innovation and productivity.
Still some challenges to overcome
There are still challenges to overcome to embed sustainable investing as the ‘new norm’. Disclosure and ESG data remain thorny issues, with concern that data is still fragmented, disclosure is inconsistent, and the lack of standardisation holds investors back. We still have some way to go on the regulatory front too – while the EU has been a front runner with its sustainable finance agenda, there are some delays as well as ongoing heated debates.
There is also increasing concern over the issue of greenwashing which is leading investors down the wrong path in some instances. Particularly for retail investors, where many are relying on certain labels such as ‘green’ or ‘SDGs’ or ‘gender diversity’ to guide them in the right direction when they make an investment decision. The problem is that sometimes these labels are not properly assigned, or maybe stretching the trust. This gives the investor a false sense of comfort, not to mention the damage it does to the reputation of the sustainable investment industry.
The important thing is to be aware of ‘greenwashing’ - some companies and funds can do a good job at ‘greenwashing’. Corporate marketing and PR efforts can hide a whole host of sins and this makes the job of sustainable investors even harder. It requires sustainable investors to do their research, check against third-party sources and undertake thorough due diligence.
Reasons for optimism
Despite these challenges, we have many reasons for optimism and 2022 is likely to see a sustainable investing boom. Perhaps one of the most exciting developments is how retail investors are waking up to the sustainable investing trend. Interestingly, research tells us that a lot of this drive is coming from women as well as younger generations. For certain, new audiences and new conversations are to be had – and the finance industry needs to be ready to deliver.
About the Author
Jessica Robinson is a leading expert on sustainable finance and responsible investing, and author of Financial Feminism: A Woman's Guide to Investing for a Sustainable Future.
Find out more at moxiefuture.com
Armed with an investment of up to $150 million, the newly formed team will target growth-stage private companies that create climate solutions related to resource efficiency and climate adaptation for numerous industries.
Tanya Barnes, who previously led Blackstone Inc’s impact investing platform, has been hired by JPMorgan to jointly manage the new team alongside Osei Van Horne. Horne has served as managing partner of sustainable growth equity investing at the bank since May last year.
“We believe environmental, social and governance (ESG) factors will increasingly affect the ability of companies to operate and generate returns, today and over the long term. ESG factors also represent opportunities that investors can capture as companies innovate to build a sustainable future,” says JPMorgan Asset Management’s website.
As the pressure to mitigate the climate crisis intensifies, other major US financial institutions have also been making renewed efforts toward their environmental, social and governance (ESG) related activities. Last week, Blackstone said it launched a platform for investments and lending to renewable energy companies.
As the world watched on, global leaders, scientists and academics convened at the COP26 Summit in Glasgow just weeks ago, as Prime Minister Boris Johnson warned that the “doomsday clock is still ticking” in the effort against climate change. While this enormous undertaking has truly only just begun, traders and investors have no doubt been pricing new commitments into their portfolio management strategies.
All things considered, the path to a greener future is paved with investment opportunities, but this has not necessarily translated immediately to the stock market. Although the first day of trading on the London Stock Exchange following the summit saw some global mining giants take a hit, the FTSE 100 still managed to close the day out up 3.95 points, or 0.05%, at 7351.86. Typically, the markets struggle to account for any long-term view, and this remains the case post-COP26. This is especially the case considering that world leaders have mostly been speaking in terms of “phasing down”, rather than “phasing out” coal.
For this reason, it is not exactly surprising that research* commissioned on behalf of HYCM has shown that only 45% of investors consider sustainable investing to be important to them. Without concrete and robust action to tackle climate change, it is perhaps even less surprising that caution still prevails among investors, with just 19% considering ESG investment to be a savvy investment strategy at present.
So, what exactly is driving this mindset, and what should investors be watching as we transition to a zero-carbon economy?
‘Too much hype’ around ESG?
One potential answer to this question could be that concerns surrounding ‘greenwashing’ are deterring traders and investors from upping their investment in ESG assets. According to that same HYCM survey*, more than a third (38%) said that there is “too much hype” surrounding ESG investing at present.
The question, then, is whether these trepidations are substantiated. The answer is yes and no; while investors are quite right to be sceptical of companies hopping on the green bandwagon with re-branding and lofty environmental claims, they should make themselves aware of genuinely green initiatives.
In the months and years to come, there will be many opportunities for traders and investors in the race to net-zero across many areas. From a growth perspective, in the capital goods area, there is a huge amount of potential in the supply chain for climate solutions. Likewise, the technology field will be a crucial enabler for climate solutions in the long-term, so investors should monitor these opportunities closely.
At the moment, just one third (33%) of the investors surveyed* by HYCM plan to invest (or increase their investment) in green energy such as wind power, water stocks and solar energy in the next 12 months. That said, we can expect these figures to grow in line with changing environmental policy, such as a global carbon tax which would shock the stock market in the future. Green metals, such as copper, aluminium, nickel and lithium could also see gains over the medium term as their demand is expected to increase. Likewise, it is also important to note the fact that alternatives to traditional energy, such as oil, are already proving popular with traders and investors – right now, oil is one of the top traded commodities at HYCM.
Young investors will lead the charge
Another trend to be aware of is the fact that younger investors appear to be at the forefront of the shift towards net-zero. Compared with the smaller number (45%) of investors who said that sustainable investing was important to them, comparatively, the majority (60%) of younger investors aged 18-34 said that these investments were a priority, indicating a more values-driven approach towards investment.
When compared with other bodies of research, these figures stand up; research from MSCI has also shown that millennials have spurred the growth of sustainable investing throughout the 2010s – specifically, investors contributed $51.1 billion in sustainable funds in 2020, compared to the figure five years ago, which came in at $5 billion.
Traders and investors should expect these trends to stick, and this sunnier outlook will no doubt feed into the corporate mentality, as industry titans like Microsoft and Nike will be keen to establish their ESG credentials. All told, although COP26 may have failed to have an immediate impact on the stock market, the summit has likely set the tone for change over the medium to long-term, and traders and investors should ensure that they are kept in the loop with any policy changes and developments in this area.
HYCM recognises this trend and offers traders exposure to the renewable space through commodities and ESG stocks such as Tesla, and copper, which is expected to be more in demand as we build a greener future.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information, please refer to HYCM’s Risk Disclosure.
About the author: Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, the United Kingdom, Dubai, and Cyprus.
*About the research: The market research was carried out between 5th and 10th November 2021 among 2,000 UK adults via an online survey by independent market research agency Opinium. Opinium is a member of the Market Research Society (MRS) Company Partner Service, whose code of conduct and quality commitment it strictly adheres to. Its MRS membership means that it adheres to strict guidelines regarding all phases of research, including research design and data collection; communicating with respondents; conducting fieldwork; analysis and reporting; data storage. The data sample of 2,000 UK adults is fully nationally representative. This means the sample is weighted to ONS criteria so that the gender, age, social grade, region and city of the respondents corresponds to the UK population as a whole. Within this sample, 857 respondents had investment portfolios worth in excess of £10,000 – this includes all assets from bonds and currencies to commodities and stocks and shares but excludes any savings, pensions or property that is used as their primary residency.
Factset estimates that around 70% of global investment companies are still exploring how to best deploy and understand the growing opportunity presented by ESG alt-data. A Vanson Bourne survey also revealed organisations that incorporate ESG alt-data into their business strategies found that an average of 76% (USA) and 67% (UK) of their investment decisions are now informed by ESG factors.
This type of research highlights the importance of ESG considerations in investing and demonstrates the importance that organisations place on environmental and social impact when doing business. It’s no wonder that most professional investors out there, having seen the value that this data can deliver to their clients, are now exploring more avenues for collecting ESG alt-data. Ultimately, this information is mission critical for savvy investors.
But before you decide to make use of ESG alt-data, you need to first understand clearly what it is, what its benefits and limitations are, and how you can most effectively deploy it to help your business's decision-making be more impactful and successful. Omri Orgad, Regional Managing Director at Bright Data, tells us all about it.
What is ESG alt-data?
Alternative (alt) or external data is a subset of data, driven by the growing demand for real-time, on-the-spot insights. While all industries can benefit from analysing alt data, its key uses lie within the financial sector, where startups, VCs, and all manner of organisations have a really heightened need for it. This is because their decisions and future innovations involve product development and predicting future market trends. But to really bring something unique and disruptive to saturated markets, investment heads must perform comprehensive market research and dig deep into data lakes such as ESG. However, doing so is not always the easiest of tasks!
The phrase “ESG alt-data” covers all information related to the impact an organisation has on its surroundings. This includes metrics such as air quality, board independence, water use, discrimination lawsuits, executive pay, etc. Given the diverse nature of the potential data points, this data varies in type and size, making it complex and daunting to collect and understand. The financial services sector can now measure sustainability at a far deeper level than ever before, thanks to the increased availability of non-traditional ESG data sets. It is now possible to create a comprehensive framework that identifies the organisations that are best positioned for long-term profitability using ESG alt-data.
While all industries can benefit from analysing alt data, its key uses lie within the financial sector, where startups, VCs, and all manner of organisations have a really heightened need for it.
Where does web-based ESG alt-data shine?
ESG alt-data can help examine Unique Selling Propositions (USPs) by aggregating similar solutions in the industry that are currently being invested in by venture capitalists (VCs). Finding the same type of companies trying to solve similar pain points can form a better view of who the future competitors might be. Alt-data can also aid in making the right kind of investment-focused decisions. During the past year, more and more hedge funds have increased their use of online data to analyse present market shifts and anticipate future ones as well as tune their investment strategies accordingly.
ESG alt-data helps to accurately inform you of the short- and long-term risks and returns of an investment venture, too. For example, it would be wise to consider climate change data and information about historical natural disasters before investing in construction in a particular region. Much of this public data exists across the largest database in the world – the World Wide Web. This is where public online data collection comes in – providing new and innovative ways to look at ESG data that go far beyond the traditional ways we have all become accustomed to.
When it comes to ESG alt-data, bigger isn't always better
According to AIMA and other sources, by 2024, there will be over 5,000 separate alt-data sets available. Even though the amount of ESG data available continues to grow, not all of it is of high quality, and some will be irrelevant to your specific use case. As a result, merely gathering any raw ESG alt-data you may find will not provide you with the information you require. Also, make sure you verify the source of the information you’re collecting or having collected for you and first ask yourself “why is this data valuable to me?”
It’s also important to allocate sufficient time to test and analyse the data you collect. Every hour spent on this task will be well worth it, enabling you to more accurately determine how a company or sector is performing from an ESG perspective. It’s important not to cut corners at this stage, however tempting it may be. There are also faster-automated tools that can take care of the “heavy lifting” for you and swiftly deliver top-quality data.
Web-based data collection for ESG alt-data
Speaking of faster-automated tools, the bigger question now is, how? How do I collect these large amounts of public data from the web? How do I make sense of and analyse it?
Well, automated data collection tools can help tap into those publicly available data pools. Such tools help to gather information and relate it back to those groups that need it to guide their predictive insights. Collecting publicly available images, statistics, social media posts, news articles, etc. enables investors to gain a much more holistic view of an organisation’s ESG picture. Investors can also simply get consumable information by accumulating their own ESG alt-data, which is useful for reporting progress to stakeholders who lack in-depth financial services knowledge. For, example, it’s preferable to say, “the organisations we’ve invested in have 20% more female employees than the sector average” than quoting an opaque figure, by saying, for example, “the organisations we’ve invested in have an average ESG score of 89.3”.
Given that 97% of information specialists in the UK and US financial services sectors report that ESG data is used in some or all strategy decisions, there’s no doubt that the importance of ESG alt-data in financial decision-making will continue to grow for many years to come. To get the best possible results, investors should take advantage of the new data-gathering opportunities on offer – including online data collection tools. With such platforms, calculating investment returns, future growth opportunities, and possible profits has become much easier and significantly faster.
What is your group’s history with responsible investing?
For more than 30 years, the SRI Wealth Management Group has helped clients to achieve their financial objectives while driving positive social and environmental impact. We are one of the leading financial adviser teams in the country exclusively focused on sustainable, responsible and impact investing (SRI). Our clients want to receive top-quality investment advice and believe their investments are an extension of their mission. We guide our clients through financial uncertainty and can help them to concurrently meet their long-term financial goals while making investments that are in alignment with their organisation’s or personal values.
Our mission is to advance social equity and environmental sustainability using capital markets. While legal or government policy seek to make a change, too often such means can be slowed down by political gridlock. Investors can often have a swifter impact on companies and their behaviour. How often have we seen market valuations be negatively impacted by environmental fines, product recalls or poor management decisions? We have also seen that companies that have strong labour practices, mitigate environmental risk and pay attention to good corporate governance are quickly rewarded in the financial markets.
Today we consult on approximately $3 billion of assets, all of which are ESG integrated and focused on sustainable investments. In addition to our scale, we have over 30 years of experience in responsible investing starting in 1984, well before responsible investing started to pick up mainstream attention. We have been at the forefront of important social equity and environmental movements: apartheid, LGBTQ+ rights, divesting from fossil fuels and reinvesting in the clean energy economy and racial / gender equity. Along the way, my partner Tom Van Dyck and I have been recognised with top industry awards, including the Financial Times Top 400 Financial Adviser award in 2019, the Forbes/SHOOK Best in State Wealth Adviser award in 2020 and 2021, and with awards from Working Mothers in 2019 and 2020.[1]
The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect!
The responsible investing field has a lot of different terminology and there are a variety of ways to invest for impact. How would you help clarify this for potential investors and what is your group’s approach?
True! As responsible investing has grown and evolved, we as an industry have not done ourselves any favours with respect to jargon! Here is how The SRI Group thinks about it: Sustainable, responsible and impact (SRI) investing incorporates qualitative environmental, social and governance (ESG) factors into investment analyses alongside traditional, quantitative factors to evaluate risks and opportunities that impact an investment’s intrinsic value. ESG factors help identify longer-term risks that eventually turn into financial issues and is a more complete way of investing focused on double bottom line outcomes. Investors should be focused on these longer-term ESG risks as a way to identify good management teams, opportunities and risks. It is a process that can be applied in all asset classes throughout a portfolio. Anyone can focus on quarterly results but as investors, we need to look for other trends that can influence a company’s financial results, such as how companies treat their employees - do they treat them as assets or costs? Studies have shown that employers that treat their employees well can retain and attract talent, leading to less job turnover. This is a very disruptive process in any company, which can lead to a big drain on productivity and therefore financial results. As another example, management teams who are not thinking about the risks and opportunities posed by climate change to their business model can be missing a huge opportunity (or a huge potential problem!).
Integrating ESG into the investment analysis to reduce risk and identify opportunities is just one of several sustainable investing strategies clients can employ to minimise the negative impact on society or to pursue positive outcomes. Another strategy clients use is applying positive and negative screening to the portfolio (i.e. including or excluding certain sectors). Most of our clients are fully divested from fossil fuels - including both the reserves and the rest of the supply chain. We help clients pursue impact investing in companies mitigating climate change and working to transition to the clean energy economy. We also identify impact investment opportunities in community investing and gender / racial equity investing which clients can target alongside financial returns. All asset classes offer opportunities for these targeted initiatives, but the private capital and fixed income asset classes are both popular avenues through which clients invest for very specific outcomes. Shareholder activism is also a popular strategy with clients. This can involve proxy voting or engaging in dialogue with management teams and can be very effective at initiating change. For example, in recent years, shareholders have targeted large oil & gas companies to force them to develop plans to deal with climate change impacts to the environment. We have also seen a large increase in resolutions to increase companies’ disclosure of employee compensation so that gender and racial equity pay gaps are more transparent. You can’t improve what you can’t measure!
What do you want people to know about responsible investing?
There are a few myths out there about responsible investing, which are worth debunking. Myth #1 is you will sacrifice returns to invest responsibly. The data demonstrates this has not been true historically. The MSCI KLD 400 Index is a responsible version of the S&P 500 and is the longest-running responsible investing index that has been live since 1990. Since its inception, the MSCI KLD 400 Index has outperformed the S&P 500 on an absolute and a risk-adjusted basis. As the field has grown, there have been more and more studies showing responsible investing can offer competitive returns. Morningstar recently analysed companies with high Morningstar ESG ratings in the Large Cap Blend US Equity Fund and ETF category and compared their trailing 3, 5 and 10-year performance as of 31 January 2021 to companies in the same category with low Morningstar ESG ratings. They found that ESG leaders out-performed the ESG laggards on an absolute and a risk-adjusted basis in each of the 3, 5 and 10-year trailing time frames. In our view, this is one of the best ways to invest and we have seen how investing with ESG factors has brought value and appreciation to client portfolios over the years[2].
The second myth we hear frequently is that responsible investing does not allow for a diversified portfolio. This is completely incorrect! ESG investing refers to a process and therefore we can apply that process across all asset classes, geographies, market capitalisations, and industries. We work with our clients to understand their long-term risk and return objectives as well as their near-term liquidity needs so that we are able to construct a tailored allocation to invest given their objectives. Our clients are invested across industries such as retail, healthcare, technology, industrials, etc. They do not tend to invest in oil & gas companies though. We can use environmental, social and governance factors as a part of the investment analysis for companies in any sector and in all asset classes.
The third myth is that ESG investing runs afoul of fiduciary obligations. Several organisations have stated the importance of ESG in satisfying fiduciary duty because ESG investing considers the whole picture of both quantitative and qualitative factors. As an example, the CFA Institute, a global association of investment professionals that offers the respected Chartered Financial Analyst (CFA) designation, said “integrating ESG factors can – and should – be seen as simply being a more complete approach to investing.”
What are the challenges you see with the growth of responsible investing recently?
20 years ago, the options around responsible investing were few and far between. Today, it seems like every financial institution is now offering some sort of responsible investing product because they see a market opportunity. Clients have more options than ever when selecting a responsible investing product, which is a positive development. However, just because the title of an investment product states it is responsible does not necessarily deem it so. For example, we have come across funds that state they are proactively investing in climate change initiatives, only to find several oil & gas companies in the fund. With so many options and choices, we see clients often get confused. Therefore, it is important for clients to work with an experienced investment adviser who has fully researched the investment, including the portfolio management firm and its professionals, the underlying holdings of the funds, and whether or not the investment satisfies a client’s financial goals and values. With so many options today, it pays to find a skilled and experienced financial adviser who can help you navigate through the ever-changing landscape.
Who is ESG investing appropriate for?
We see some demographics, such as women and millennials, as particularly strong in adopting ESG investing, but ultimately, we view it as being appropriate for all institutions and individuals when implemented thoughtfully throughout all asset classes in a diversified portfolio.
RBC Wealth Management recently issued a client study about responsible investing. We learned that more than 60% of clients are interested in increasing the share of ESG investing in their portfolio. While that is an impressive number, the share of women interested in increasing ESG in their portfolio was even higher at 74%! Millennials are also a leading demographic in adopting ESG investing, according to a 2019 report by Cerulli Edge. I think younger people understand it intuitively because they understand the confluence of the environment, economic growth and social justice issues. To them, investing is not just “OK, we’re going to make a ton of money and let’s forget about everything else.” You can’t let externalities fly off all the products and services that you use, or there will be big problems down the road.
While women and millennials get a lot of the attention, adoption has in fact been quite broad. The US Forum for Sustainable and Responsible Investment recently issued its 2020 Report on Sustainable and Impact Investing Trends showing responsible investing in the US growing 42% in just two years, from $12 trillion in 2018 to $17 trillion in 2020. This means that one out of every three dollars in the US is invested with some sort of responsible investing strategy. Our clients include people of all ages, genders, and professions as well as foundations and non-profits. People of all demographics buy certain products because of their values. We vote because of our values. Why shouldn’t we invest our savings—our number one financial asset—based on our values?
*value as of 3/31/2021
Due diligence processes do not assure a profit or protect against loss. Like any type of investing, ESG investing involves risks, including possible loss of principal.
Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.
RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.
[1] The Financial Times 400 Top Financial Advisers is an independent listing produced annually by the Financial Times. The FT 400 is based on data gathered from advisers, broker-dealer home offices, regulatory disclosures, and the FT’s research. The listing reflects each adviser’s status in six primary areas: assets under management (AUM), asset growth, compliance record, experience, credentials and online accessibility. The financial adviser does not pay a fee to be considered for or to receive this award. This award does not evaluate the quality of services provided to clients. This is not indicative of this financial adviser’s future performance.
Source: Forbes.com. Forbes Best-in-State Wealth Advisers ranking was developed by SHOOK Research and is based on in-person and telephone due diligence meetings to evaluate each adviser qualitatively, which is a major component of a ranking algorithm that includes: client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisers rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research, LLC and not indicative of future performance or representative of any one client’s experience. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. This award does not evaluate the quality of services provided to clients and is not indicative of this adviser’s future performance. The financial adviser does not pay a fee to be considered for or to receive this award. For more information: www.SHOOKresearch.com.
[2] Past performance is no guarantee of future results. It is not possible to invest directly in an index.
How can investors benefit from the information and guidance that companies like Ethical Screening provide?
Investors have become increasingly interested in the non-financial performance of the companies they invest in and this trend is growing at a rapid rate.
Research companies specialising in responsible investment are critical due to the range and complexity of the issues a client may want to avoid or endorse. Understanding an organisation’s approach to environmental management, social issues such as human rights or governance, taxation and corruption can create an overwhelming array of subjects that need to be understood. Research companies are able to deliver accurate information on these issues to aid decision making. Our methodology is used to distill and analyse the wide range of non-financial information that is available and cut through any greenwashing. We have the ability to summarise this information effectively and fully arm investment managers/IFAs to have these complex conversations.
Responsible investment is no longer an area that can be ignored. It is critical investors find a method or provider they can trust.
Why should more investors consider working with Ethical Screening?
Ethical Screening is a well-established research business that has been enabling responsible investment for the past 23 years.
Our information is relevant, detailed and accurate - we provide the information you need to know before you invest in a company, both the positive and the negative. The methodology is vital. Ours is supported by detailed key indicators for each sector which focus the research and ensure companies are rated consistently. Our SDG research is made more robust than many (particularly company's own reporting), by focusing only on material issues linked to the underlying targets to the goals. Our data is complex but we are able to translate this into clear narrative that makes sense to our clients.
We are accessible. Ethical Screening provides tools and reports, via our Ethical Screening Portal (ESP) to enable investment managers and IFAs to engage with their clients on relevant issues. This empowers the investment manager or IFA to be able to confidently discuss issues with their clients, and communicate exactly how their requirements are being implemented.
We employ passionate, knowledgeable people. By working with Ethical Screening you are able to phone us to discuss points in detail with our experts. We often have conversations with clients acknowledging the subjectivity of some of the subject matter - ethical issues can have many grey areas. Similarly, the Sustainable Development Goals were not written for companies, so there is much interpretation needed - we are happy to engage with the users of the data to discuss such matters, which increases accuracy and understanding.
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change.
Have you seen an increase in the number of clients wishing to work with you with the rise of responsible investment from the past few years? What’s the impact this has had on the company?
There has been a steady rise in interest and regulation in this area over recent years, which has fueled an increase in the number of clients. The impact on the company is we need to provide much broader research, and on more companies. Long gone are the days of screening to only negative issues. Our database has over 2,500 companies across ethical, ESG and (positive) impact analysis. The principal challenge for us currently is keeping up with regulatory developments and the wealth of data that is being produced.
How do you deal with ‘greenwashing’?
I think there is a real danger, as the popularity of ESG increases, that industry players will jump on the bandwagon and make claims that look good, but are not supported by meaningful change. This is strongly related to problems in terminology, for example, the interchangeable nature of the terms responsible, ESG and sustainable. From a client perspective, it is therefore important to be completely clear on what is being discussed or proposed. Ask the client what they understand by 'sustainable' - are they comfortable with the best-managed companies in a particular sector, or do they want to exclude all companies with that activity. An oil & gas company with a very high ESG score is not likely to appeal to an investor who is looking for truly sustainable investments.
From a research perspective, we look at the information the company provides (typically more positive) and then a wide range of other sources to get the other side of the story (typically more negative). Putting these two together provides a full picture of activities. Our research team are very experienced and with this experience comes the ability to see through 'non-robust' claims - for example, if there is a target is there any evidence or reported progress towards the target? If the company self-reports it meets SDG 5, Gender Equality, is this reflected in its gender pay ratios?
What do you hope to achieve in the future with Ethical Screening?
In March this year, we refreshed and re-launched our core product, the Ethical Screening Portal (ESP). The portal is an online system that allows investment managers and IFAs to screen companies and funds based on clients ethical and sustainability criteria. The portal really is a game-changer in regards to its selection criteria and provision easily accessible reports for clients – I would like to see the Ethical Screening Portal becoming an essential part of the investment manager or IFA toolkit.
We have been working a lot on internal processes and strategy for the company, which has been more behind the scenes. 2021 has been a great year for us so far, we are lucky that the pandemic has not slowed us down and we hope to continue to move the company forwards.
Responsible Investment is so dynamic at the moment, it is a very exciting place to be. Our core objective will remain the same - to provide accurate, useful information and useable tools that enable responsible investment, and thereby do our part in turning the financial system to a more sustainable future.
For more information, please visit www.ethicalscreening.com or email enquiries@ethicalscreening.com.
Finance and the banking sector, more often than not, get credit for, or have the infamy of being the destroyers of the planet, rather than a force for good. Corporate social responsibility initiatives make small gestures, very frequently for the sake of public relations or to appease a certain contingent of investors, but banks and the financial services industry are still very much in the business of making money for their executives and shareholders at all costs.
Because the global economy and political order is so dependent upon finance, however, rather than being an unavoidable destroyer of the planet - in fact, very much to the contrary - finance is actually, perhaps uniquely, positioned to save it.
Investing in Renewable Energy
Many of the more sustainable banks and green energy funds around the world already invest a significant amount in renewable energy. The world’s biggest and most influential banks, unfortunately, continue to put a tremendous amount of their capital into fossil fuels because it remains profitable. Barclays, BNP Paribas, Chase Bank and Goldman Sachs are all key players in international finance and they are all, for the time being, inextricably linked with the perpetuation of the global fossil fuel industry.
Helping Developing Countries Revamp Agriculture
The World Bank and other development banks around the world are already focused on and investing in ways to make agriculture more efficient and sustainable in developing countries. Climate change, population grown and accompanying land use changes are all putting strain on not only the ability of countries to feed their populations, but also on the surrounding ecosystems and biodiversity.
From international finance’s perspective, investments in sustainable agriculture aren’t just good for the environment, but they can also have a positive impact on the bottom line. Investment in better agricultural techniques is not only something that will help the global south, but stands to have significant positive economic and environmental impacts in northern countries as well.
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Capitalise Domestic Waste Management in Developing Countries
90% of waste is openly dumped or burned in low-income countries. This inevitably means that much of it either ends up polluting the earth, becoming a major health hazard for the surrounding, largely poor communities, and making its way into rivers and oceans, contributing to the degradation of marine ecosystems, threatening commercial fisheries, tourism industries and much more.
Finance could make it part of their corporate social responsibility mission to help provide governments and communities with the means to better handle solid waste and it could be done in a way that reflects both a social and environmental conscience, as well as an interest in a positive return on investment.
Help Develop a Market for Ecosystem Management and Restoration
It is difficult to quantify the economic value of a rainforest or a coral reef. Difficult, but not impossible. The worth of a healthy reef or forest can be measured in its contributions to local livelihoods and economies through tourism and fishing; the amount of carbon it captures; and the protection it offers against land and ocean-based natural disasters like soil erosion, coastal erosion and tsunamis, among other ways. Investments in projects which seek to repair and preserve don’t need to be thought of as purely philanthropic ventures, but sound business investments as well.
Conclusion
Reorienting and redeploying significant amounts of international capital, controlled and managed by the world’s largest banks and financial institutions, will require both a philosophical shift as well as the legitimisation of the idea that saving the planet is something that can and perhaps should be done with a profit motive in mind. The above examples are by no means exhaustive, but they represent some of the most meaningful things we, as a species, could do with the considerable amount of wealth our economic activities generate every year.
JPMorgan Chase & Co said on Thursday that it will commit $2.5 trillion towards sustainability and development initiatives over the next decade.
$1 trillion of the pledged funding has been earmarked solely for investment in green projects, including renewable energy and clean technologies.
The $2.5 trillion target for investment, which begins in 2021 and will run through to the end of 2030, will also be concerned with facilitating transactions to support socioeconomic progress in developing nations.
In 2020, the bank said it facilitated $220 billion worth of transactions that it designated as supporting sustainable development, which included $55 billion in green initiatives. The total exceeded its $200 billion target for the year.
Last week, JPMorgan CEO Jamie Dimon issued a letter to shareholders naming climate change as one of the world’s biggest issues alongside poverty, economic development and racial inequality, which he said the bank was engaged in trying to solve.
“Reducing greenhouse gas (GHG) emissions — the main cause of climate change — requires collective ambition and cooperation across the public and private sectors,” he wrote.
ESG investment rose to greater prominence in 2020, with many asset managers launching funds to capitalise on the wave of interest. JPMorgan launched its first green ETF in December 2020 and in February it revealed that global sales of “green bonds” might hit $150 billion this year.
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However, some climate organisations remain concerned that JPMorgan is not doing as much as it could to support climate action. In 2020, the company’s total fossil fuel financing came to $317 billion, greater than any other major US bank.
The only thing faster than light is the speed at which new ESG (Environment, Social and Governance) conferences, funds and advisers are emerging. Every corporate finance desk now boasts an abundance of Green funding expertise, there are more articles on environmental economics and corporate social responsibility than one could ever read, and the market can explain multiple variations of “sustainability” in at least 21 different languages.
Sadly, in my jaundiced dotage, I have become an ESG sceptic. Initially, I welcomed ESG as a promising conceptual framework for improving the global economy – but is becoming something less.
The concept of directing markets to achieve positive social and environmental outcomes for the economy is a good one – whatever nonsense Milton Freidman believed about the purpose of markets only being to deliver returns to shareholders. For years, socially responsible fund managers have tried to steer their funds towards investments likely to do social and environmental good, responding to the public sense of rising environmental and social crisis around the globe.
Now that these fears have become very real, they’ve been formalised – ESG has become an investment imperative.
But it’s also become a lucrative opportunity. ESG “experts” are right up there with compliance officers in getting the big bonuses. Asset management CEOs back it because they believe the ESG zeitgeist attracts client money. It’s all a bit pick and mix as everyone jumps on the bandwagon. There are, apparently, over 160 different voluntary ESG reporting standards and 64 standards-setting agencies worldwide.
Far from empowering stronger corporate governance – by far the most important, yet most neglected aspect of ESG – to frame a discussion on how finance and government can drive social and environmental goals, ESG is morphing into an ill-informed plethora of rules and opinions presented as irrefutable facts. It’s becoming a wall behind which the financially credulous are targets, and where demagogues promote their own agendas. The history of finance is the history of arbitraging bad rules.
The volume of funds with a Green or ESG related theme has doubled to $1.7 trillion over the past year. Predictably, assets perceived to be ESG “good” have risen in price, incentivising the “greenwashing” of less pristine investments. ESG proponents say ESG funds outperform – which is exactly what you would expect when everyone is trying to buy scarce ESG compatible assets. It’s not that green investments are outperforming – their price is distorted by the market’s need to buy them.
According to Fund Performance analyst Morningstar, nearly 250 existing funds were rebranded as ESG, Green, Socially Responsible or Sustainable in the last quarter of 2020. New funds claiming ESG credentials outnumber unbranded firms by at least 10 to 1. Only an idiot would try to finance any new business or project without first carefully outlining its ESG credentials.
There are estimates that over $500 billion of “green/sustainable bonds” will be issued this year. When the European Union recently launched a new social-bond programme to help European Nations recover from the coronavirus pandemic, the press release contained a paragraph about how the funds would be used, and 3 pages explaining how the social impact of the programme would be measured and delivered.
A somewhat bemused UK Government Debt Management Office found itself issuing the first Green Gilt (UK Government Bond) earlier this year – largely because some cabinet minister thought it would be a great idea for the UK to jump on board the bandwagon. I doubt any senior banker, financial or debt management official believes that calling Gilts “Green Gilts” will fundamentally change the UK. Yet the deal was a blowout success as investment managers loaded up to meet ESG quotas.
ESG is morphing into an ill-informed plethora of rules and opinions presented as irrefutable facts.
The variation between what is and what isn’t ESG is often contradictory: one fund will rank a corporate on its gold-star ESG list while another will place the same name on its worst list. It’s not unusual to discover oil majors as large holdings in ESG Funds.
ESG Funds often cite a well-known electric car maker as a core ESG holding, praising it for initiating the shift away from petrol. That firm has a history of spats with the US regulator, bought $1.5 billion of Bitcoin on a whim, is led by a cannabis-smoking CEO who recently changed his title to Technoking, has a poor workplace record, and advocates mining lithium (which is mined in appalling conditions and is almost impossible to recycle). That firm fails every Environment, Social and Good Governance test – but it’s still worth more than the next 5 largest automakers – begging the question of whether ESG investment principals can really direct the market.
A whole industry certifying ESG credentials has sprung up. The nomenklatura of market bureaucrats who administer, report and measure performance want regulations and rules to benchmark and justify their ESG decisions, and the regulators are only too willing to provide them and demand they are enforced. The European Union’s 600-page SFDR (Sustainable Finance Disclosure Regulation) came into effect in March, and it’s a great substitute for any sleeping pill.
Rules and regulation are seldom a problem for Corporate Finance Desks: rules exist to be tested, arbitraged and broken.
Don’t misunderstand me – I am convinced the global economy has major ESG problems to address – but they need to be addressed holistically and sensibly, not in a welter of claims about what is and what is not ESG.
There won’t be much point in saving the environment without simultaneously solving for growth, society and equality. There has to be an agreement on how to allocate scarce financial resources between public goods like infrastructure, transport, health and education versus the investment returns the market seeks from private investments into businesses and commerce. That’s a pretty wide agenda.
Nearly 250 existing funds were rebranded as ESG, Green, Socially Responsible or Sustainable in the last quarter of 2020.
Now we’ve reached a stage where there is a danger of ESG mutating into something very sub-optimal – threatening to distort the efficient allocation of capital in the financial system. In addition to the sudden legion of experts in the field, two other trends are underway:
- Authorities seek to regulate and control the ESG behaviour of the economy – and nothing is so certain to distort markets and decrease economic efficiency as ill-conceived regulation, and
- ESG has morphed from being a framework into a quasi-religious crusade, dictating how companies and economies should fit. To question the precepts of ESG, however wrong-headed these are, has become a heresy – punishable by exclusion.
The ESG agenda has quite rightly become all-pervading in markets. It should be about a discussion on investment aims and objectives and the creation of a stakeholder society between government and markets. But rather than promoting discussion, it could become the financial equivalent of “Wokery”. Just as we all fear to offend society’s Woke Collective Mindset, there is a growing reticence to question the developing ESG scripture on what is green, sustainable and socially justified.
Increasingly, it feels like ESG is heading the same way as the woke discussion: telling us what to think, rather than guiding us how to think about how financial markets could improve our planet, economy and society for the benefit of all.
Ill-informed and ill-considered ESG investment rules could prove as distorting to global markets as anything I’ve seen over the past 35 years – which includes multiple Central Bank and government monetary and fiscal policy mistakes, incorrect assumptions about liquidity, leverage, credit and expectations driving multiple market crashes, and financial skulduggery that would make even Lex Greensill blush.
ESG is still an opportunity for success. Government needs to set the agenda towards a stakeholder society that answers the distribution of resources to ensure a sustainable environment and social equality, but when it comes down to the business and commerce aspect of that trade-off, and the role of markets, then there is a simpler solution – Good Corporate Governance, the most neglected ESG principle.
Through 35 years in financial markets, I’ve learnt a simple very basic truth: any firm which is not well managed… will ultimately fail. Any firm that is well managed with clear governance isn’t guaranteed success – but is far more likely to thrive. Good, well-run companies will tend to do the right things. In contrast, firms that are beholden to bad regulation tend to fade into irrelevance.
It’s time to put ESG back on the right track.
2020 saw a flurry of announcements from companies across the world, pledging ambitious, and often aggressive, carbon targets. From Microsoft’s carbon negative goal to BlackRock’s pledge to stop investing in companies with high sustainability-related risks, organisations are becoming increasingly accountable for their actions when it comes to the environment and climate change.
A recent study into the sustainability attitudes and actions of senior executives found that 75% of executives believe sustainability will provide a competitive advantage in the future, yet only 30% believe they are successful today. Of course, setting and publicising goals is only the first step. To become a true leader in sustainability transformation, it must be embedded in every part of the business, especially the finance department.
Only one in 25 (4%) of Chief Financial Officers currently have responsibility for developing and monitoring corporate sustainability goals, according to ENGIE Impact’s study. Instead, executives pointed to Chief Sustainability Officers (26%) and Chief Operation Officers (25%) as bearers of that responsibility. This finding points to a missed opportunity to ensure that the strategy, funding, and execution of sustainability projects are optimised to meet an organisation’s goals. Given that capital and investment is critical to the success of corporate sustainability initiatives, as underscored by finance authorities such as the Bank of England, the question for CFOs and their teams is “How can we position finance as a lever to make sustainability happen?”.
Accelerating decarbonisation: integrating sustainable finance
As demand for more sustainable action from organisations rises, so does the need for capital. With their oversight of an organisation’s budgets and investments, CFOs and finance departments should be firmly in the driving seat of the sustainability transformation journey. Finance teams need to think beyond their traditional investment approaches if they are to succeed and help the organisation meet its carbon goals.
For example, corporate capital expense budgets often have strict payback periods (typically two years or less). As a result, companies defer sustainability projects, such as carbon mitigation strategies that don’t offer direct operational benefits or quick paybacks, which only serves to increase the long-term costs of meeting carbon reduction goals. Subject to these constraints, sustainability and operation teams focus instead on quick payback projects that don’t necessarily have a significant sustainability impact. With many companies pledging to meet carbon reduction goals by 2030 or sooner, they can’t afford to delay more transformational projects.
The benefits of portfolio financing
In our survey, only 6% of all C-suite respondents revealed their companies had significantly adopted third-party financing to meet ambitious carbon goals, presenting a potential sticking point for finance teams when it comes to addressing sustainability.
In a general business context, third-party relationships are often used to boost capacity for projects and provide additional expertise. In a finance and sustainability context, third-party financing also allows companies to smooth out the costs of sustainability projects. Unlike the payback constraints of internal financing, external financing benefits from longer tenors, enabling finance teams to accommodate a range of projects, as those with quicker payback periods balance those with longer paybacks. In this way, they can optimise for the portfolio of projects that deliver deeper and more cost-effective carbon levels than if they were financed separately. This approach is a popular one - according to our survey, 64% of companies that are successful in sustainability transformation used the portfolio approach to finance projects at scale.
Still, third-party financing is not a solution that is likely to scale with a company’s increasing sustainability ambitions. Although it allows for companies to take on more projects than with internal financing, executing a large portfolio of projects can prove challenging (both technically and from a financial structuring perspective), and companies may be wary of increasing their debt load for projects that they and their investors do not deem core to their business.
The Energy-as-a-Service approach
For finance teams to truly maximise sustainability outcomes within their organisation, one of the most robust financing models is Energy-as-a-Service (EaaS). Unlike internal and third-party financing, the EaaS model allows a company to shift responsibility for its energy assets to a third-party. Responsibility for the design, implementation, financing, maintenance, and performance of the target portfolio of projects is externalised and transferred to EaaS providers, with the goal of ensuring that its customers’ expected energy targets are achieved.
EaaS contracts tend to be longer than third-party financing, especially when more capital-intensive projects, like on-site renewable energy generation, are involved. But this longer contract term also means that, if scoped correctly, an organisation can generate enough savings (from lower energy costs and more efficiencies) to cover the contractual EaaS payments.
Another advantage for companies is that there is also less risk involved with EaaS approaches―both in terms of reputation and pressure to meet goals―since the performance risk also shifts to the EaaS providers. Rather than financing the investment in particular energy assets, a company’s payments are tied to particular energy outcomes being delivered (e.g., units of renewable energy generated, or certain levels of efficiency attained).
The opportunity to step up
Achieving the important carbon goals and sustainability targets that companies have established will require tightly coordinated and well-resourced internal efforts. CFOs and other finance leaders are key players in this undertaking; they have an opportunity to partner with sustainability and operational teams to drive sustainability strategies and projects forward by applying the financing approaches that best match their organisation’s ambitions. Indeed, internal capex financing may not be a viable, long-term investment option for many ambitious sustainability projects due to the risk of not being able to meet carbon goals.
Instead, companies and finance departments must invest with a portfolio lens, balancing the financial benefit of short-term payback projects with the deep carbon reductions of more intensive projects. As companies adopt more significant sustainability targets, EaaS contracts will become an increasingly attractive way to achieve their goals while managing risk and externalising financing. By rethinking finance approaches to be more innovative and in line with future demands, finance departments can ensure that their company stays on track to achieve its sustainability goals.
Finance Monthly hears from Stuart Lane, CEO of Trade Nation.
2020 was an extraordinary year for traders as the coronavirus spread across the globe, triggering worldwide lockdowns and restrictions and bringing unprecedented volatility to the markets. And while the effects of the pandemic are still far from over, 2021 is set to look very different. Not only do the new vaccination programmes give hope for an eventual return to normality, but we will also see how major political changes play out, such as Brexit and Joe Biden’s first year as President of the United States.
For traders hoping to get ahead of the markets in 2021, here are five key areas for them to keep their eyes on over the next twelve months.
Brexit
With Brexit now pretty much done and dusted, we may see the pound sterling continue to recover from the lows seen last March. However, the big question is whether its strength will hold back possible gains made on the FTSE 100, which has been lagging behind US indices and the German DAX — both of which recently hit record rights. The FTSE, on the other hand, is still more than 12% below the highs experienced in early 2020.
It’s commonly believed that sterling strength weighs heavily on the FTSE due to the fact the majority of the index’s constituents export goods abroad. The higher the value of sterling, the more these goods cost foreign importers, which in turn means less are sold.
Biden Presidency
On the first full trading day of 2021, all five of the major US tech giants (Alphabet, Apple, Amazon, Facebook and Microsoft) — which have effectively driven the extraordinary rally in the US stock indices since the pandemic lows of last March — were down 1.8-2.2%. This is because it looked like the Democrats were about to win control of the Senate, giving the party a clean sweep: Presidency, Senate and House.
As it turned out, the Democrats did win those two vital Senate seats in Georgia. For now, the Republicans have no majority anymore. It also means that Vice President Kamala Harris has the deciding vote whenever there’s a 50:50 Senate split. The Democrats now have the clean sweep they were hoping for, making them much more likely to pursue a radical programme of high spending reforms. This has gone down well with investors who have already rushed to buy stocks, pushing all the major US indices to fresh record highs.
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The Future of Retail
The high street changed beyond recognition in 2020, although it’s well-known that the move away from bricks and mortar to eCommerce was already well-advanced. Now, old-style department stores which were once the foundation of every mid-sized town shopping centre look unlikely to survive. Therefore, a strong online presence is vital for retailers. There will be considerable pressure on the UK government to get involved and save the high street. But will this mean a shake-up on things like business rates and rents, or a lazier approach that simply involved dishing out temporary relief?
As we have seen from early reports on holiday-period spending, food retailers continue to perform well, as do online retailers. But following a boost to high streets in early December, footfall collapsed before Christmas as fresh COVID-19 restrictions were brought in. It’s now reported to be down by 43% in 2020 compared to the previous year. The big question is whether this misfortune will reverse once restrictions are lifted, or will the hope offered by vaccination programmes come too late to save many of our high street favourites?
Technology
When it comes to technology, perhaps the most exciting thing for traders to follow are the advances in medical tech. The mRNA vaccines are a massive development; a new method of vaccine production that will help bring fresh vaccines to market much faster than was previously possible. Also, mRNA vaccines can be adapted quickly and cheaply to address new virus variants, thereby opening up the prospect of vaccines for previously untreatable conditions too.
Elsewhere in tech, Tesla’s stock price soared to a fresh record high in the first week of 2021, making founder Elon Musk the richest person on the planet — overtaking Amazon owner Jeff Bezos. Many analysts continue to insist that Tesla, along with Bitcoin, is in an unsustainable bubble, and one day all those paper-millionaire investors will wake up broke. But for now, the owners of Tesla shares and Bitcoin are laughing the loudest.
‘Ethical’ Stocks
Ethical investment could be one of the biggest buzz areas in 2021. The sector has matured to a great extent, so ethical investment no longer means merely pruning portfolios of defence, tobacco, oil, and mining stocks. Now, there is a large and expanding ‘green’ industry to consider. Last year the UK saw more than $4 billion put into funds claiming to focus on ESG — environmental, social and governance investing. However, not all funds are the same, and careful diligence must be taken to separate those with a genuine will to manage their businesses ethically, and the bandwagon jumpers.
We are already seeing a rise in ethically questionable investments too, water being the most notable. CME Group has recently started offering water futures, and this is also relevant to farmland which is a very big consideration in the US. In fact, these are both areas in which Michael Burry (of The Big Short fame) is now heavily invested. Will more traders now be tempted to follow his lead? Only time will tell.
BlackRock, the world’s largest asset manager, has been accused of “greenwashing” its investment activities in a report showing that it continues to hold as much as $85 billion worth of investments in coal companies.
The report, which was published by NGOs Reclaim Finance and Urgewald on Wednesday, revealed that the company’s climate policy contains a loophole allowing it to hold shares in companies that earn less than a quarter of their revenues from coal. As a result, it has retained shares or bonds in many notable coalminers and polluters.
BlackRock still holds investments in BHP, Glencore, RWE, Adani and other companies involved in the fossil fuel industry.
The findings come a year after BlackRock chairman and CEO Larry Fink wrote a letter to clients claiming that sustainability had become the firm’s “new standard for investing.” As part of its new climate policies, it abandoned all of its actively managed investments in companies making more than 25% of their revenues from coal and introduced a range of new ESG fund options for clients to invest in.
However, the campaigners who carried out the latest research are now calling for BlackRock to divest fully from coal, including from companies like Japan’s Sumitomo and Korea’s Kepco that are planning to expand coal production. BlackRock holds $24 billion in assets in such companies.
Lara Cuvelier, a sustainable investment campaigner at Reclaim Finance, said BlackRock should fully distance itself from coal as a “bare minimum” change as global temperatures rise.
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“One year on, it’s hard to see Larry Fink’s sustainability commitment as anything other than greenwashing,” Cuvelier said in a statement. “If he really wants BlackRock to be a climate leader instead of a climate pariah, he needs to start aligning green words with green deeds, and direct BlackRock’s awesome financial power towards a sustainable future.”
