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Sustainability simplified, PR pushed to clean up, Norway’s $1tn man

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One thing to start: Moral Money will not be publishing this Friday as the team will be celebrating the US Thanksgiving holiday. But fear not, loyal readers, we’ve got an overstuffed edition for you today with a scoop on ESG standards and a special guest appearance from Free Lunch’s Martin Sandbu.

Today we have:

  • SASB merges with International Integrated Reporting Council

  • PR companies draw fire from climate campaigners

  • Climate roles for Team Biden

  • Norway’s $1tn man talks ESG

  • Japanese beverage giant addresses Myanmar human rights issues

ESG ‘alphabet soup’ sheds a few letters

Two of the biggest players in the unwieldy world of corporate sustainability reporting are joining forces to simplify the way companies disclose environmental, social and governance information.

The Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) announced today they are merging to form a new organisation called the Value Reporting Foundation. The new group will be led by SASB chief executive Janine Guillot and will link up the IIRC’s integrated reporting framework with SASB’s disclosure standards. 

This may sound nerdy, technical and boring (because it is), but it is an important development for ESG investing. As it stands, there is little regulation directing how companies report non-financial data. Investors that want to compare how different companies are exposed to, say, climate or diversity risks have to comb through a patchwork of surveys, voluntary corporate sustainability reports and other documents to find what they need.

An integrated reporting framework (as created by IIRC) helps fix this by telling companies the topics they need to report on. And a set of disclosure standards (as provided by SASB) is necessary to make sure all the data is reported the same way. Bringing the two groups together should help make ESG investors’ lives a lot easier.

“We do different things, but they’re not in conflict,” said Bob Steel, chairman of Perella Weinberg Partners, who is chair of the SASB board.* “We view them as coming together hand-in-glove, much like a skeleton and a circulatory system are both part of the body.”

The first step on this journey came in September when SASB and the IIRC announced a formal plan to work with CDP, the Climate Disclosure Standards Board (CDSB) and the Global Reporting Initiative (GRI) on a unified disclosure regime. And Mr Steel says there may soon be more consolidation to come. The CDSB has already started talking about integrating with the Value Reporting Foundation.

“By doing this, we’re creating a rallying cry and opportunity for others to come talk with us . . . It begins to signal we’ve got to come together,” said Richard Sexton, non-executive director at the IIRC.

This should be music to the ears of investors that have grown weary of the bickering in the ESG world. And even if these groups don’t all continue playing nice, it seems inevitable — especially with the powerful International Financial Reporting Standards (IFRS) Foundation getting involved — that unified disclosure standards are closer than ever. (Billy Nauman)

PR next on climate campaigners’ hit list

Earlier this week, some big ESG names cut ties with communications company FTI Consulting after a New York Times report on its work for the fossil fuel industry.

Now, a group of climate activists are looking to ratchet up the pressure on other public relations companies with a new campaign called “Clean Creatives”.

“[The fossil fuel industry] knew everything there was to know about climate change 40 years ago and just started telling lies about it,” Bill McKibben, activist and co-founder of 350.org, told Moral Money. “And so we need to go after the people who are helping them tell those lies.”

The goal is similar to the “Stop the Money Pipeline” movement, which has pressured banks to cut off funding to fossil fuel companies. Now, the campaigners are looking to cut off their intellectual support.

“By exposing relationships with fossil fuel clients and by pressuring PR firms and ad firms to not work with fossil fuel clients . . . we will make it harder for these companies to advance their agendas and we will actually open the door for cleaner technologies and energy sources to emerge,” said Christine Arena, former Edelman employee who said she quit over its work with fossil fuel companies.

Given the image-conscious nature of the industry, the campaign should make a splash.

“It goes very much counter to the stories that [PR people] have been trying to tell themselves — that you’re creative and a force for change in the world,” said Mr McKibben. “I think if people just sit back for a minute and confront the fact that instead they’re being used as a force for destruction, this part of the fight may be pushing on an open door.” (Billy Nauman)

Martin Sandbu: one on one with Norway’s $1tn man

© Bloomberg

Shortly before London’s second lockdown, I met with Yngve Slyngstad (pictured), who had just finished 13 years as chief executive of Norway’s sovereign wealth fund. Popularly known as the “oil fund” as it saves the government’s revenues from North Sea oil extraction, the fund is unique in many ways. Its very existence is unlikely: there are few other examples of natural resource funds in transparent democracies, and none that are anywhere near as big. Norway’s oil fund now holds $1.2tn, or some $200,000 for every Norwegian citizen, many times the country’s annual GDP and more than its total net private wealth.

But beyond its function as a national piggy bank, how it acts as an investor is fascinating. Most interesting for Moral Money readers is that the fund (despite its fossil fuel roots) is a pioneer in responsible investing, and Mr Slyngstad is the man who has presided over this development. In a three-hour Lunch with the FT, we could get quite deep into how he thinks about ESG.

As he tells me in the interview, the most significant part of the fund’s ESG approach is not simply to select companies that are environmentally friendly or socially minded — although they have done that — but because they think companies that impose “negative externalities” on others are poor investments over time.

Rather, the main approach is to influence the companies they buy and hold. “It’s not just that we sell some companies in one tail of the distribution and buy some in the other tail, but what happens to those in-between”, he told me.

The fund also publishes how it votes in shareholder meetings — with the reasons for and against, in what Mr Slyngstad says is an example of German philosopher Jürgen Habermas’s theory of communicative social action: “let the best argument win”. Read more fascinating insights (such as why he hired a moral philosopher to work for the fund) from one of the biggest investing jobs in the world here. (Martin Sandbu)

John Kerry and Janet Yellen: climate stalwarts? 

© Getty Images

During the previous Democratic administration, John Kerry was not an obvious green warrior. He is better known for trying to orchestrate Middle East diplomacy than discussing the finer details of carbon taxes.

But the decision by president-elect Joe Biden to name Mr Kerry as the new climate special envoy — and put Janet Yellen into the role of Treasury secretary — seems to underscore a newfound US focus on combating climate change. 

Mr Kerry’s new national security role will put the climate at the pinnacle of White House influence. And Mr Kerry has recently become more engaged in green issues by arranging discussions with climate-conscious Republicans as part of his World War Zero environmental advocacy group.

Critics might still carp about his (wobbly) green credentials; at least compared with someone such as Mark Carney, who co-founded the Task Force on Climate-related Financial Disclosures (TCFD). Additionally, Mr Kerry’s financial disclosure from his last year as secretary of state shows family investments in Anadarko and Marathon Oil, among other oil-and-gas companies. 

But the selection of Ms Yellen, the former US Federal Reserve chair, is easier for ESG enthusiasts to embrace. She has done research on environmental policy issues and has repeatedly called for a carbon tax in the US as part of a bipartisan coalition with moderate Democrats and Republicans. In October, she co-launched a report from the Group of 30, a think-tank, that called for radical action from governments and companies to phase out fossil fuels, as Moral Money reported.

© REUTERS

“We need disclosure to get the market’s attention on it and get more focus on stress testing,” Ms Yellen said in an interview with the Financial Times last month. “The major global firms are interested, particularly those with operations in Europe and they have commitment on this. They are using carbon prices internally.”

Brace yourself for policy action. (Patrick Temple-West)

Chart of the day

Global economic losses resulting from weather-related catastrophes

The Financial Stability Board (FSB) on Monday warned that climate change poses systemic risks that could jump from one financial institution to another — and ultimately bring the whole system down. These issues could force financial institutions to get squeamish and withdraw from certain economies altogether.

Grit in the Oyster

Coronavirus may be limiting travel for American families this Thanksgiving season, but the holiday is still putting a strain on the environment.

A 16-pound turkey alone is responsible for 34.2 pounds of CO2 emissions, research from Statista has found.

This highlights the need for more efficient food supply chains, according to HSBC Global Research. However, a bigger piece of the pie, according to the bank, is the need for more consumer education on labelling, food expiration, and packaging.

For our readers, we’re thankful for you. But, we would be especially grateful this week if you would use the recycling and trash bins appropriately. Or conjure up a solution to simplifying food supply chains. As always, we’re all ears at moralmoneyreply@ft.com.

If you haven’t registered for FT Investing for Good USA: Accelerating Global Climate Action on December 2 at 12:30 EST, register here for your free pass.

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

Human rights issues have often gone overlooked in Asia, but there are some signs that things are changing for the better.

Kirin Holdings, one of the top beverage companies in Japan, announced earlier this month that it has suspended all dividend payments to Myanmar Economic Holdings Limited (MEHL), its business partner in two joint ventures.

The decision followed Amnesty International’s investigation that revealed more than one-third of MEHL’s shares are owned by military units and high-ranking officers directly connected to international crimes and serious human rights violations. In June, Kirin appointed Deloitte Tohmatsu Financial Advisory to conduct an independent review of MEHL’s financial and governance structures. The review is due to conclude by the end of this year.

“Kirin takes its responsibilities in Myanmar seriously and will take necessary action to ensure our business activities in the region adhere to the highest standards” said Kirin, whose brands include Kirin Ichiban, San Miguel, and Lion.

Amnesty International praised Kirin’s action as an important step, but insisted that suspension of payment is not enough. “Kirin had tried to engage with MEHL first, but MEHL didn’t corporate with the process,” said Montse Ferrer, a business and human rights researcher at Amnesty International. The only solution for Kirin would be to end its business relationship with MEHL, Ms Ferrer said.

Kirin is not the only Asian company that responded to Amnesty’s call. Pan-Pacific, a South Korean clothing manufacturer, and Kanbawza Group, a Myanmar conglomerate, said that they were terminating their business ties with MEHL, according to Ms Ferrer.

Further reading

  • 7-Eleven parent eyes net-zero emissions by 2050 in Japan and US (Nikkei)

  • Biden focuses on US climate diplomacy with key role for John Kerry (FT)

  • African-Americans suffer as public-sector jobs are cut (FT)

  • Suu Kyi’s Myanmar election win fails to excite foreign investors (Nikkei)

  • Europe’s Biggest Utility Company to Ramp Up Spending on Wind, Solar Power (WSJ)

  • Rape, abuses in palm oilfields linked to top beauty brands (AP)

  • When “Creatives” Turn Destructive: Image-Makers and the Climate Crisis (The New Yorker)

* An earlier version of this article misstated Bob Steel’s position at Perella Weinberg



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European markets recover after tech stock fall

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European equities rebounded from falls in the previous session, when fears of a US interest rate rise sent shares tumbling in a broad decline led by technology stocks.

The Stoxx 600 index gained 1.3 per cent in early dealings, almost erasing losses incurred on Tuesday. The UK’s FTSE 100 gained 1 per cent.

Treasury secretary Janet Yellen said at an event on Tuesday that rock-bottom US interest rates might have to rise to stop the rapidly recovering economy overheating, causing markets to fall.

Yellen then clarified her remarks later in the day, saying she did not think there was “going to be an inflationary problem” and that she appreciated the independence of the US central bank.

Investors had also banked gains from technology shares on Tuesday, after a strong run of quarterly results from the sector underscored how it had benefited from coronavirus lockdowns. Apple fell by 3.5 per cent, the most since January, losing another 0.2 per cent in after-hours trading.

Didier Rabattu, head of equities at Lombard Odier, said that while investors were cooling on the tech sector, a rebound in global growth at the same time as the cost of capital remained ultra-low would continue to support stock markets in general.

“I’m seeing a healthy correction [in tech] and people taking their profits,” he said. “Investors want to be much more exposed to reflation and the reopening trades, so they are getting out of lockdown stocks and into companies that benefit from normal life resuming.”

Basic materials and energy businesses were the best performers on the Stoxx on Tuesday morning, while investors continued to sell out of pandemic winners such as online food providers Delivery Hero and HelloFresh.

Futures markets signalled technology shares were unlikely to recover when New York trading begins on Wednesday. Contracts that bet on the direction of the top 100 stocks on the technology and growth-focused Nasdaq Composite added 0.2 per cent.

Those on the broader S&P 500 index, which also has a large concentration of tech shares, gained 0.3 per cent.

Franziska Palmas, of Capital Economics, argued that European stock markets would probably do better than the US counterparts this year as eurozone governments expand their vaccination drives.

“While a lot of good news on the economy appears to be already discounted in the US, we suspect this may not be the case in the eurozone,” she said.

Brent crude, the international oil benchmark, was on course for its third day of gains, adding 0.7 per cent to $69.34 a barrel.

Despite surging coronavirus infections in India, the world’s third-largest oil importer, “oil prices have moved higher on growing vaccination numbers in developed markets”, said Bank of America commodity strategist Francisco Blanch.

Government debt markets were subdued on Wednesday morning as investors weighed up Yellen’s comments with a pledge last week by Federal Reserve chair Jay Powell that the central bank was a long way from withdrawing its support for financial markets.

The yield on the 10-year US Treasury bond, which moves inversely to its price, added 0.01 of a percentage point to 1.605 per cent.

The dollar, as measured against a basket of trading partners’ currencies, gained 0.2 per cent to its strongest in almost a month.

The euro lost 0.2 per cent against the dollar to purchase $1.199.



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Yellen says rates may have to rise to prevent ‘overheating’

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US Treasury secretary Janet Yellen warned on Tuesday that interest rates may need to rise to keep the US economy from overheating, comments that exacerbated a sell-off in technology stocks.

The former Federal Reserve chair made the remarks in the context of the Biden administration’s plans for $4tn of infrastructure and welfare spending, on top of several rounds of economic stimulus because of the pandemic.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said at an event hosted by The Atlantic magazine.

“So it could cause some very modest increases in interest rates to get that reallocation. But these are investments our economy needs to be competitive and to be productive.”

Investors and economists have been hotly debating whether the trillions of dollars of extra federal spending, combined with the rapid vaccination rollout, will cause a jolt of inflation. The debate comes as stimulus cheques sent to consumers contribute to a market rally that has lifted equities to record levels.

Jay Powell, the Fed chair, has said that he believes inflation will only be “transitory”; the central bank has promised to stick firmly to an ultra-loose monetary policy until substantially more progress has been made in the economic recovery.

The possibility of interest rates rising has been a risk flagged by many investors since Joe Biden’s US presidential victory, even as markets have continued to rally.

Yellen’s comments added extra pressure to shares of high-growth companies, whose future earnings look relatively less valuable when rates are higher and which had already fallen sharply early in Tuesday’s trading session. The tech-heavy Nasdaq Composite was down 2.8 per cent at noon in New York, while the benchmark S&P 500 was 1.4 per cent lower.

Market interest rates, however, were little changed after the remarks, with the yield on the 10-year Treasury at 1.59 per cent. Yellen recently insisted that the US stimulus bill and plans for more massive government investment in the economy were unlikely to trigger an unhealthy jump in inflation. The US treasury secretary also expressed confidence that if inflation were to rise more persistently than expected, the Federal Reserve had the “tools” to deal with it.

Treasury secretaries generally do not opine on specific monetary policy actions, which are the purview of the Fed. The Fed chair generally refrains from commenting on US policy towards the dollar, which is considered the prerogative of the Treasury secretary.

Yellen’s comments at the Atlantic event were taped on Monday — and she used the opportunity to make the case that Biden’s spending plans would address structural deficiencies that have afflicted the US economy for a long time.

Biden plans to pump more government investment into infrastructure, child care spending, manufacturing subsidies and green energy, to tackle a swath of issues ranging from climate change to income and racial disparities.

“We’ve gone for way too long letting long-term problems fester in our economy,” she said.



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Senior Fed official in line to lead top US banking regulator

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Michael Hsu, a senior Federal Reserve official responsible for supervising the largest US banks, is poised to become the next acting comptroller of the currency, ending weeks of uncertainty over the US financial regulator’s leadership.

Janet Yellen, the US Treasury secretary, was set to tap Hsu for a senior post at the Office of the Comptroller of the Currency that would pave the way for him to become acting chief, according to people familiar with the matter. The timing of the announcement could not be determined.

Hsu is currently associate director of the Fed’s bank supervision and regulation division.

He has emerged as a more technocratic choice to lead the OCC compared with other possible choices with higher political profiles, such as Michael Barr, a professor at the University of Michigan and former Treasury official under Barack Obama who was a leading contender for the job. Some progressive Democrats have also been pushing for Mehrsa Baradaran, a professor at the University of California at Irvine, to be selected for the job.

President Joe Biden has not yet chosen anyone to permanently fill the post, which requires Senate confirmation. The White House declined to comment. Yellen’s decision to choose Hsu to lead the agency on an interim basis was first reported by The Wall Street Journal.

Through his role at the Fed, Hsu has great familiarity with the health of the largest banks. The mission of the OCC, which is housed within the Treasury department, is to ensure that national banks “operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations”, according to its website.

The Biden administration is expected to take a tougher approach to financial regulation than Donald Trump’s officials, amid concerns that hefty doses of fiscal and monetary stimulus flowing through the US economy as it rebounds from the pandemic is fuelling greater risk-taking on Wall Street.

Blake Paulson, the current acting chief of the OCC, was installed by Steven Mnuchin, the former US Treasury secretary, on January 14, less than a week before he left office.



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