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US investors sceptical of ESG, Hindenburg targets Loop, EU rises as green leader 



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

© AFP/Getty Images

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.

Q: Which of these is going to be most impactful for sustainable investing over the next 12 months?

“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.”

(Patrick Temple-West)

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

Companies communicate honestly about sustainability performance

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.

Smart reads

  • 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.”

Further reading

  • 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)

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ExxonMobil proposes carbon storage plan for Texas port




ExxonMobil is pitching a plan to capture and store carbon dioxide emitted by industrial facilities around Houston that it said could attract $100bn in investment if the Biden administration put a price on the greenhouse gas.

The oil supermajor is touting the scheme ahead of the US climate summit starting on Thursday, where President Joe Biden plans to announce more aggressive national emissions targets and hopes to spur world leaders to increase their own carbon-cutting goals.

Carbon capture and storage, or CCS, “should be a key part of the US strategy for meeting its Paris goals and included as part of the administration’s upcoming Nationally Determined Contributions”, said Joe Blommaert, head of Exxon’s low-carbon focused business, referring to the targets that countries are required to submit under the 2015 Paris climate agreement.

Oil and gas producers have sought to highlight their commitments to tackle emissions ahead of this week’s climate talks, which promise to heap pressure on the fossil fuel industry. BP pledged to stop flaring natural gas in Texas’ Permian oilfields by 2025, while EQT, the country’s largest natural gas producer, said it backed federal methane regulations.

The International Energy Agency has called carbon capture and storage, which uses chemicals to strip carbon dioxide from industrial emissions, “critical for putting energy systems around the world on a sustainable path”.

But the technology has struggled to gain traction as costs have remained persistently high. The most recent setback in the US came last year with the mothballing of the Petra Nova project, the country’s largest, which captured carbon from a Texas coal-fired power plant.

Many environmental groups have been critical of the oil and gas industry’s focus on carbon capture, arguing it is used to justify continued investment in oil and gas production and is not economical, especially as the costs of zero-carbon wind and solar power have plummeted.

Exxon said that establishing a market price on carbon — which has been attempted by a handful of US states, Texas not among them — would be important. The US government should “implement policies to enable CCS to receive direct investment and incentives similar to those available to other efforts to reduce emissions”, Blommaert said.

Exxon declined to comment on the carbon price it thought was needed to justify the investment, but said its plan would generate $100bn of investment from companies and government in the Houston region.

The company’s plans call for a hub that would capture emissions from the 50 largest emitting industrial facilities along the Houston Ship Channel, such as oil refineries and petrochemical plants, and ship the carbon by pipeline to reservoirs for storage deep under the sea floor of the Gulf of Mexico.

The project could capture and store about 100m tonnes of CO2 a year by 2040 if developed, Exxon said. That is 2 per cent of the roughly 4.6bn tonnes of US energy-related carbon emissions in 2020, according to the Energy Information Administration.

Exxon has been under intense pressure from investors, including a proxy fight with the activist hedge fund Engine No 1, to bolster its strategy for the transition to cleaner fuels. In February, it created a low-carbon business line that it said would spend about $3bn over the next five years.

Biden’s $2tn clean-energy focused infrastructure plan would expand carbon capture and storage tax credits. The administration said it would back 10 projects focused on capturing carbon from heavy industry, but it did not endorse a price on carbon.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here 

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European stocks hit record after strong US earnings and economic data




European equities hovered around record levels, the dollar dropped and government bonds nudged higher on Monday as markets continued to cheer strong economic data while also banking on continued support from the US Federal Reserve.

The regional Stoxx Europe 600 index gained 0.3 per cent during the morning to set a new record, before falling back to trade flat.

This follows a week of upbeat earnings from US banks as investors await results from big businesses including Coca-Cola and IBM later on Monday. Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months.

The dollar, as measured against a basket of currencies, fell 0.4 per cent as bets on higher interest rates receded. The euro rose 0.4 per cent against the dollar to buy at $1.203. Sterling also gained 0.4 per cent to €1.389.

Federal Reserve chair Jay Powell told the Economic Club of Washington DC last week that the central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.

Haven assets such as government debt remained in demand. As prices ticked up, the yield on the benchmark 10-year US Treasury note fell 0.02 percentage points to 1.557 per cent, while the yield on the equivalent German Bund slid 0.01 percentage points to minus 0.271 per cent.

Investing convention assumes that US Treasuries and global equities move in opposite directions to cushion against falls in either asset class, but both have now rallied in tandem for an unusually sustained period.

The S&P 500, the blue-chip US stock index, has risen for four consecutive weeks to set new records. The yield on the 10-year Treasury has fallen from about 1.74 per cent at the end of March to just under 1.56 per cent on Monday as investors bought the debt. Treasuries and US stocks not have risen together for so long since 2008, according to Deutsche Bank.

Futures markets indicated the S&P would drift 0.2 per cent lower as Wall Street trading opens.

“I am not saying it’s a rational time in the markets,” said Yuko Takano, equity fund manager at Newton Investment Management. A reason for caution, she added, was signs of “bubbles” in alternative assets such as cryptocurrencies and non-fungible tokens. “There is really an abundance of liquidity. There will be a correction at some point but it is hard to time when it will come.”

“Markets may have become temporarily overbought,” strategists at Credit Suisse commented. “For now, we prefer to keep equity allocations at neutral” rather than buying more stocks, they said.

In Asia, Hong Kong’s Hang Seng index closed up 0.5 per cent and Japan’s Topix slid 0.2 per cent.

Global oil benchmark Brent crude fell 0.3 per cent to $66.57 a barrel.

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EU split over delay to decision on classing gas as green investment




The European Commission is split over whether to postpone a decision on classifying gas generated from fossil fuels as green energy under its landmark classification system for investors.

Brussels had planned to publish an updated draft of a taxonomy for sustainable finance later this week. The document is designed to guide those who want to direct their money into environmentally friendly investments, and help stamp out the misreporting of companies’ environmental impact, known as greenwashing. 

The commission was forced to revamp its initial proposals earlier this year after the text was criticised by member states which want gas to be explicitly recognised as a low-emission technology that can help the EU meet its goal of becoming a net-zero polluter by 2050. 

Now the publication of the draft rules could be postponed again as the commission seeks to resolve the impasse. According to a draft of the text seen by the Financial Times, the commission proposed to delay the decision in order to carry out a separate assessment of how gas and nuclear “contribute to decarbonisation” to allow for a more “transparent” debate about the technologies.

But officials told the FT that some commissioners were pushing for gas to be awarded the green label now, rather than delaying the decision until later this year. 

“There are a sizeable number of voices in the commission who want gas to be included in the taxonomy,” said one official. A final decision on whether to approve the current text or delay it again for further redrafting is likely to be made on Monday.

The EU’s taxonomy is being closely watched by investors as the first big attempt by a leading regulatory body to create a labelling scheme that will help guide billions of euros of investment into green financial products.

But the process has proved divisive, as several EU governments have demanded recognition for lower-emissions energy sources such as gas. 

Coal-reliant countries such as Poland, Hungary, Romania and others that are banking on gas to help reduce their emissions do not want the labelling system to discriminate against them. France and the Czech Republic, meanwhile, are also pushing for the recognition of nuclear as a “transitional” technology in the taxonomy.

A leaked legal text seen by the FT earlier this month paved the way for gas to be considered green in some limited circumstances. That has since been removed along with other sensitive topics such as how best to classify the agricultural sector, according to the latest draft the FT has seen.

EU governments and the European Parliament have the power to block the draft if they can muster a qualified majority of countries and MEPs against it. 

Environmental groups have hailed the exercise, and urged Brussels to stick to science-based criteria in defining the thresholds for sustainable economic activity.

Luca Bonaccorsi from the Transport & Environment NGO said delaying decisions on gas and nuclear risked allowing pro-nuclear countries like France and the Czech Republic to join up with pro-gas member states “to forge an alliance that will obtain the greening and inclusion of both energy sources”.

“Should they ally, it will be impossible to resist the greenwashing of these two unsustainable energy sources,” said Bonaccorsi. 

The delays in agreeing the taxonomy have forced Brussels to abandon an attempt to use it as the basis for EU green bonds that will be issued as part of the bloc’s €800bn recovery and resilience fund. About €250bn of debt will be issued in the form of sustainable bonds over the next few years, which will make the commission one of the world’s biggest issuers of sustainable debt.

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