One thing to start — last week the Global Reporting Initiative announced that its chief executive Tim Mohin was stepping down. All eyes in the environmental, social and governance space will be watching for his replacement, as the company plays a key role in the push to clean up the alphabet soup of disclosure standards.
Today we have:
US perception of ESG performance lags behind Europe
Short-seller targets recycling company
EU sets pace for global sustainability regulation
Asset owner giants plot decarbonisation pathway
University of Tokyo enters sustainable bond market
A continental divide on ESG performance
It is a truth universally acknowledged among sustainability converts, to paraphrase Jane Austen, that investing in ESG can produce decent returns. Indeed, during the recent months of the Covid-19 shock, there have been a host of studies showing that ESG has performed as well, if not better, than non-ESG investments. That is partly due to the avoidance of fossil fuels but also because any company that tries to meet ESG standards is forced to do a full-blown audit of their supply chains and internal processes, which helps boost resilience.
But are ESG enthusiasts so excited about these findings that they have failed to spot that others outside their bubble see things differently? It is a point worth pondering given the findings of a recent survey from RBC Global Asset Management, to be released this morning. This poll of 800 institutional asset owners, consultants and managers shows that in most parts of the world the Covid-19 crisis has left financiers with an increased faith that ESG improves returns. Apparently, 97.5 per cent of investors think this in Canada, up from 90 per cent last year, while in Europe the figure is at 96 per cent (up from 92 per cent) and in Asia it is 93 per cent (up from 78 per cent).
The outlier, though, is America: just 74 per cent of US investors think ESG improves performance, which is down from 78 per cent the previous year — and 24 per cent think it harms performance. It is not entirely clear why that gap exists. It may reflect Republican politics, which have been sceptical about environmental issues. It may also stem from the mistrust of ESG which seems to be afoot at the Securities and Exchange Commission, or the fact that the Department of Labor seems to have defined fiduciary duty in a way that is not very ESG-supportive either. “When it comes to ESG, Europe is way ahead of the US,” Carmine di Sibio, head of professional services group EY, told a Milken Institute conference yesterday. “The sustainability issue became a very political issue starting 10 years ago in the US — views are different depending on what party is in office.”
Either way, the finding should give ESG activists pause for thought. “This is an area which should be driven by facts and not ideology and emotion,” points out Roger Ferguson, head of TIAA. Quite so. But, in the meantime, investors should ask another question: how might sentiment and market pricing change if Joe Biden wins the election — and policy suddenly changes? (Gillian Tett)
Short-seller report sends shares in plastic recycler plummeting
Hindenburg Research, the short-seller that made headlines alleging that electric truck start-up Nikola was an “intricate fraud”, is coming after another ESG company. This time it has issued a scathing report on Loop Industries, a Canadian plastics recycler, alleging that the company’s technology is “fiction.”
On its website, Loop claims to be able to recycle plastic from sources that would typically be considered garbage, including “plastic bottles and packaging, carpets and polyester textiles of any colour, transparency or condition and even ocean plastics that have been degraded by the sun and salt”.
Hindenburg, which makes money by betting against share prices, said Loop’s claims were “technically and industrially impossible”.
Loop responded that Hindenburg’s claims were “unfounded, incorrect, or based on the first iteration of Loop’s technology”.
However, the company has never reported any revenue. And despite striking numerous high-profile partnerships with companies such as Coca-Cola, it has not yet delivered the recycled plastic it said it would.
If Loop’s technology does not work, as Hindenburg alleges, it will be another blow to the struggling plastic recycling sector. As NPR reported last month, much of the plastic waste separated out to be recycled in the US is just thrown away.
Loop’s share price plummeted after the announcement, which should serve as a warning to ESG investors who do not want to see their portfolios end up in a landfill (like an unrecycled plastic bottle, one might say). But companies making public sustainability pledges should also take note — especially if their plans hinge on technology that has not yet been proven to work. (Billy Nauman)
$5tn investor group shows mettle with decarbonisation goals
Thirty of the world’s largest investors have unveiled details of how they intend to strip damaging carbon emissions from their portfolios by 2050, setting ambitious interim targets that, if delivered on, would have ripple effects across the economy.
The UN-convened Net-Zero Asset Owner Alliance, which comprises investors overseeing $5tn in assets under management, pledged this week to reduce emissions linked to their portfolios by between 16 per cent and 29 per cent by 2025.
The target is the first interim milestone set by the investors since they came together last year with the aim of using their collective heft to push the companies they own to reduce their overall emissions to zero.
Coalition members, which include German insurer Allianz, the largest US pension fund Calpers and France’s Caisse des Dépôts Group, will set individual five-year objectives early next year. The extent of the cuts will depend on the progress that investors have already made in decarbonising their portfolios.
To achieve these goals, the investors, whose focus is on lobbying for change at polluting companies rather than divesting, have committed to engaging with the top 20 emitters in their portfolios or those responsible for the majority of carbon emissions.
Allianz’s chief investment officer Günther Thallinger, who chairs the coalition’s steering committee, said the group would draw inspiration from Climate Action 100+, the $47tn investor group that has succeeded in pushing groups such as Royal Dutch Shell to set carbon reduction targets, applying its tactics to a broader set of companies.
Mr Thallinger said the fact that the investors were bound to concrete decarbonisation targets would give them added leverage in pressuring companies to change. “We are not just sending a letter and asking for change,” he said. “We need these changes to meet our objectives. That gives us a certain credibility.” (Siobhan Riding)
EU green leadership ripples through finance
The EU is securing its status as the global leader for green investments and regulations — and its efforts have global banks scrambling to identify winning and losing companies.
Today, the European Commission is unveiling the latest piece of the European Green Deal, which was announced in December and remains a key priority for president Ursula von der Leyen amid the Covid-19 pandemic. Wednesday’s report aims to reduce methane emissions (though it remains unclear how rigorous the plan will be in cutting methane).
Other parts of the EU’s multi-faceted Green Deal programme have tantalised investors. The clean hydrogen provisions, for example, benefit UK conglomerate Johnson Matthey, said Morgan Stanley analysts in an October 13 report.
“The announcement of the EU Green Deal shows political willingness to move away from fossil fuels,” Bank of America analysts said in a September report. “This could ultimately end a chicken-and-egg problem whereby prohibitive costs have deterred investments in hydrogen which, in turn, prevented the realisation of economies of scale.”
On Tuesday, ArcelorMittal announced a host of green steel projects, including large-scale green hydrogen production in Germany to be deployed in a blast furnace.
The US elections next month might help accelerate America’s sustainable investing development (see the Morgan Stanley survey responses below). But for now, Europe is leading the way.
“I expect that after five years there will be a lot of countries across the world who are following us,” Kadri Simson, the EU’s top energy official, said in a recent FT interview. “This is not just about climate, but about competitiveness.”
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
The growing popularity of social bonds has reached the ivory tower in Asia. The University of Tokyo will become the first national university in Japan to issue social bonds on October 16.
The money raised will be earmarked to fund research for the university’s Future Society Initiative, which aims to contribute to the UN’s Sustainable Development Goals. In particular, the bonds are going to help Japan’s top university to promote global strategies for the post-Covid-19 world.
The University of Tokyo has promised to disclose the usage and impact of the money once a year.
With solid ratings by notable investment agencies, the 40-year debts have been flying off the shelves. Investor demand was six times bigger than the original offer size of ¥20bn ($190m), according to lead underwriter Daiwa Securities. Investors include Nippon Life Insurance, technology company NEC and Japan Women’s University.
“Our brief [stating] that the university can work with capital markets while leading social change is well received by investors,” said Makoto Gonokami, University of Tokyo’s president. He added: “I want other universities to follow.”
While the university has historically enjoyed the top spot in Japan, it is only ranked 36th among global peers in the World University Rankings, behind those in China and Singapore. So becoming competitive academically and financially is very important for the university — and for Japan, too.
In June, the country relaxed rules to allow national universities to tap the bond market to finance research and projects. As government funding declines, other educational institutions in Japan are likely to follow the University of Tokyo’s lead, creating new kinds of investment opportunities for ESG investors.
Chart of the day
Citizens’ trust in companies’ sustainability disclosures has increased, but there are significant differences from country to country, according to a report from GRI, a disclosure adviser, and GlobeScan, a consultant. Their survey asked 1,000 people to indicate whether they agree that companies are honest and truthful about their social and environmental performance. Respondents in Asia were most favourable, while those in Europe and the US were a bit more sceptical.
JPMorgan Chase, known in its earlier incarnation as the “Rockefeller Bank”, is facing pressure from three fifth-generation members of the Rockefeller family to stop fossil fuel financing. The trio’s comments in the New York Times came days after JPMorgan pledged to shift its portfolio away from fossil fuels.
Please check out our special report on impact investing, which includes Gillian Tett’s analysis on the number-crunchers leading the charge to get corporate boards up to speed with ESG. “The direction of travel is clear: finally, more accounting firepower is emerging in the world of impact investing, ESG and sustainability.”
Boohoo ditches another Leicester supplier ‘in light of’ BBC probe (FT)
Companies tread a fine line on executive pay (FT)
Black Lives Matter provokes change on Wall Street (FT)
Why start-ups are more likely to dodge greenwashing label (FT)
The legacy of slavery made my grandmother fear investing (Washington Post)
The Short Tenure and Abrupt Ouster of Banking’s Sole Black C.E.O. (NYT)
Crunch Time: Global Standard Setters Set The Scene For Comprehensive Corporate Reporting (Forbes)
Investor rebellion at Procter & Gamble over environmental concerns (FT)