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ESG Weekly News Update: September 10, 2020

General ESG News:

Reuters: The Fund Managers, the Sleuths and the Mystery of the Missing ESG

  • If fund managers are serious about clean investments, they need to get their hands dirty. That's the view of Sasja Beslik, head of sustainable finance at Swiss bank J. Safra Sarasin, as demand surges for companies that perform well on environmental, social and governance (ESG) issues.

  • He himself has turned ESG detective in the past, flying to southern India after reading studies that found high water pollution levels around some factories mass-producing medicines.

  • As much as anything, ESG investments are a way to mitigate risk; Bank of America estimates more than $600 billion of S&P 500 company market capitalization alone was lost to "ESG controversies" in the last seven years.

Green Biz: In defense of Milton Friedman

  • Fifty years ago this week, the New York Times published Milton Friedman’s article "The social responsibility of business is to increase its profits." Sustainability proponents love to hate this article. I suggest, instead, that it is a guide to sustainability thinking today.

  • Relying on the theory that managers are the "agents" of business owners, Friedman argues that the decision to undertake socially responsible initiatives at the expense of profits properly belongs to the owners of the company, not to its managers.

  • He argues that what today we call "shared value" initiatives are fully within the prerogative of "managers." It is only when managers trade "socially responsible" initiatives off against profits that they must seek the approval of owners.

Crain’s Detroit Business: Commentary: True racial justice requires companies to take action

  • Corporations are responding to the demands for racial equity and justice in various ways. Executives of some have given bold statements about their desire to see a more fair and just world, some have formed inchoate working groups or committees to delve into how they can become more just and equitable. Few have come out and specified concrete action items to deal with the injustices.

  • Companies have pledged hundreds of millions of dollars to racial justice causes and to make their own workforce more equitable. Nonprofit organizations like MoveOn and both presidential campaigns have published their staffs' demographic information. These are important but first steps — necessary but insufficient.

ETF Trends: Conscious Capitalism, ESG, & Social Justice

  • Unprecedented times require us to change and adapt… how can we go about it? Human rights, social justice, community impact, inclusion & diversity in the workplace — Now, more than ever, these topics are at the forefront of people’s minds.

  • In these unprecedented times, the world has changed and is continuing to evolve. Investing is no longer solely a game of measuring alpha and relying on financial facts and figures. The ‘who’ of a company is becoming just as important as consumers both look for and demand transparency and authenticity. The humanitarian aspects of corporate America are not only more available but under more speculation than in the past. This global shift in awareness presents new opportunities to invest your money in companies with a positive social impact.

Cap Radio: Wildfires In California Will ‘Continue To Get Worse,’ Climate Change Experts Explore Why

  • California experienced a spree of fires caused by more than 12,000 lightning strikes in August. In many ways, the blazes were unprecedented. But experts say these kinds of wildfires will also become very normal and routine if we do not take significant action to adapt to climate change and reduce greenhouse-gas emissions.

  • There are solutions — more of these prescriptive burns, removing trees killed by bark beetles, cleaning-up the area around homes — but experts say any immediate answer will be futile unless California, and the world, dramatically rethinks its approach to the climate crisis.

ESG Disclosures, Standards and Rankings:

Institutional Investor: Where ESG Ratings Fail: The Case for New Metrics

  • Corporate leaders, investors, and analysts today must deal with two separate and entirely disconnected reporting systems: one for financial results and the other for environmental and social impact, or ESG, performance. Companies can be screened in or out using various criteria, but there is no way to integrate the data into earnings projections or valuation analysis.

  • The result is two separate narratives, one telling how profitable a company is, the other highlighting whether it is good for people and the planet. There is no clear way to discern which company is most profitably doing the most good.

  • Hybrid metrics will change everything, argue Harvard Business School’s Mark Kramer and leaders in the shared-value movement.

Business World Online: Environmental, social and governance factors take center stage

  • Based on the findings of the 2020 EY Climate Change and Sustainability Services (CCaSS) Institutional Investor survey, institutional investors are raising the stakes in assessing company performance through environmental, social and governance (ESG) factors as they look to build insight into long-term value. Companies unable to meet investor expectations in terms of ESG factors risk losing access to capital markets.

  • The survey showed that investors were increasingly dissatisfied with the information received on ESG risks compared to 2018. At 98%, the majority of the investors surveyed signaled a move to a more rigorous approach to evaluating non-financial performance, while 91% also identified how non-financial performance played a pivotal role in investment decision-making.

Reuters Events: ‘As we return to work, it’s time to get real about stakeholder capitalism post Covid-19’

  • WBCSD president Peter Bakker explains what’s at the top of his agenda during the critically important final quarter of 2020

  • This will be a crucial time in our collective fight against the global pandemic, which still rages on in much of the world. These next months will also determine how we give meaning to “building forward better” in a post Covid-19 world. The global pandemic has unmasked our interdependencies, highlighted the stress we place on the environment and in many places greatly increased inequality. As a result, the global landscape is rapidly shifting. Businesses’ approaches to resilience, purpose, society and the environment are all being called into question.

  • The collaboration between WBCSD and PRI is adding a fundamental piece to the puzzle that will complement the move towards a globally harmonized system for ESG disclosure: how to change the engagement between business and investors in a way that will integrate sustainability in financial and strategic decision-making.

Investment Trends:

Investment Executive: Is this ESG’s big break?

  • Dustyn Lanz, CEO of the Responsible Investment Association (RIA), said that if critics were hoping the Covid-19 crisis would confirm their suspicion that ESG funds underperform, they were in for an unpleasant surprise.

  • “In reality, the crisis just confirmed what academics and responsible investors have been saying for years: that integrating environmental, social and governance factors into your investment decisions can help you to identify risks and opportunities that are not visible with traditional financial metrics alone,” Lanz said.

  • “This is the big break for the retail market,” Lanz said. “We’ve seen this by the increased fund flows into ESG products according to Morningstar research, and I think the retail market is about to blow up.”

ETF Trends: ETF Investors Are Taking a Greater Interest in the ESG Theme

  • As more investors reassess their investment portfolios in a post-coronavirus pandemic environment, socially conscientious investments like exchange traded funds that track environmental, social, and governance factors are beginning to gain momentum.

  • According to a recent Morningstar report, both the number of sustainability-focused index funds and their assets under management have doubled over the past three years. As of the end of the second quarter of 2020, there were 534 index funds focused on the sustainability theme with a combined $250 billion in assets. In the U.S., which has fallen behind Europe in the ESG investing category, assets in sustainable index funds have quadrupled over the past three years, now representing 20% of the total.

CNBC: ESG gets pushback at Barclays, but it’s still a ‘significant opportunity,’ strategist says

  • Is ESG worth it? Analysts at Barclays grappled with that question in a recent report titled “ESG funds: Looking beyond the label,” a look at whether investing in assets based on environmental, social and governance factors actually leads to better financial outcomes.

  • In the report, the firm wrote that growth in ESG “has been driven by interest in sustainable investing rather than superior performance,” citing data that showed “ESG funds have delivered roughly similar returns to other equity funds since 2013.” Index provider of the year: MSCI

  • “Bespoke is increasingly normal,” says Walls, referring to a growing number of customized indexes provided in the market, including from MSCI. The rise of tailored ESG – environmental, social and corporate governance – indexes, are a clear sign of the growing interest in sustainability mandates, reflecting specific needs and values, he adds.

  • Data and analytics are the enabler of such an enhanced indexing and tailored tweaks. “For index providers, technical strength and knowledge of portfolio implementation need to be combined with a commercial skill-set when it comes to matching index solutions aligned to client needs,” says Walls.

ETF Trends: Webinar: How Financial Advisors are Using ESG to Attract, Retain and Educate Clients

  • Environmental, social, and governance (ESG) ETFs are exploding in popularity, both with investors and with issuers. There are now over 100 products on the market, which have collected some $31.76 billion in investment assets — overtaking assets invested in traditional energy ETFs for the first time. Environmental, social, and governance (ESG) ETFs are exploding in popularity, both with investors and with issuers.

  • Join Nasdaq’s team of experts on Tuesday, Sept. 22 for a discussion on how they are building and positioning various ESG related funds to fit today’s growing advisor and investor demands.

Denison Bulletin Review: Why Retirement Investors Must Focus on ESG Investing

  • Retirement investing is a long-term play. Even if you're late getting started with your retirement savings, your portfolio should be around for four decades or more. That extended timeline is one reason why ESG investing fits nicely into your retirement savings plan.

  • According to a study by the Morgan Stanley Institute for Sustainable Investing, 71% of people believe they can influence human-caused climate change by their investing decisions. That's the most obvious reason to invest in companies that pursue ESG initiatives -- to support sustainability.

  • A less obvious but more immediate reason to invest in ESG is for the returns. ESG funds produced returns on par with their traditional counterparts, only with lesser volatility. That's a nice profile for your retirement account.

Companies and Industries:

ANZ Bank Blue Notes: Responding to pandemic through ESG lens

  • Our decisions in responding to the COVID-19 crisis have had a very real short term financial impact – on earnings, profitability and of course shareholder value. But our focus remains on the long term. A healthy and sustainable community is in the long term interests of ANZ.

  • How the bank has adapted to the crisis in many ways demonstrates the success of our efforts in recent years to strengthen our governance processes. A key element to this was reviewing our response to the pandemic and deepening Board oversight of the business through an ESG ‘lens’.

Lexology: Responsible investment: Environmental, social and governance principles in the renewable energy sector

  • For Africa-focused developers and sponsors in the renewable energy market, ESG is likely in the forefront of your minds and it is important to show knowledge of what is expected in the responsible investing market in order to ensure swift project development and to enhance bankability.

  • ESG standards are not assessed differently in the renewable energy sector, but the efficacy of their incorporation into a project developer's business practices and adherence to those principles is scrutinized even more fervently by investors in this industry.

  • Renewable energy projects have a head-start on the environmental front but production of clean energy should not eclipse other key environmental issues (eg impact on water sources of a hydroelectric power project; impact on biodiversity as infrastructure is installed). Studiously incorporating good business practices on the social and governance fronts is important too these cannot be ignored to concentrate solely on pro-environment aspects.

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