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ESG is a-changin’, water disclosure demands, greenwashers beware CA100+



One thing to start: we’re launching a series of in-depth reports under the banner of the Moral Money Forum, and we’re keen for your insights. Our first report, to be published early next year, will ask how investors and the companies they invest in can encourage long-term behaviour in a world of short-term pressures. Are quarterly earnings getting in the way of building sustainable businesses? How can boards best navigate the trade-offs? And what’s the most compelling research and data that would inform our reporting. Share your thoughts here.

Deluge of ESG announcements show shift in zeitgeist

There have been so many announcements this year about the corporate world embracing ESG principles that it is temptingly easy to roll your eyes whenever a new survey drops. But sometimes, Moral Money remembers to stop being (almost) blasé and marvel about a crucial point: today’s corporate zeitgeist looks notably different versus two years ago, never mind a decade back.

A recent HSBC survey of 10,000 of its global clients found that 78 per cent of companies have environmental targets, and 72 per cent have social ones. That marks a jump of 10 and 12 percentage points compared with last year. The increase underscores a key point we keep hearing: Covid-19 has not derailed ESG talk, or not among companies that seem able to survive.

Even more startling is that 86 per cent of HSBC clients expect sustainability to boost their profits next year. They view doing good as a revenue-enhancing strategy to a degree that might make Milton Friedman, the economist who promoted the shareholder-first mantra, spin in his grave.

Maybe that is overly optimistic. Some consumer behaviour these days is contradictory (HSBC officials say that while consumers are increasingly picking companies according to their sustainability image, they are not always choosing sustainable products.) But the survey suggests “consumers are the strongest driver for automotive and construction firms to enhance sustainability, whereas government action influences natural resource-intensive businesses in the agricultural, oil and mining sectors”.

Companies are also responding to the mood shift from banks. An FT Moral Money panel at a banking conference on Tuesday showed that entities such as NatWest and UniCredit were increasingly imposing tougher ESG criteria on loans, echoing a wider shift in the industry.

Jean Pierre Mustier, the head of UniCredit, argued that the embrace of sustainability was so marked that Covid-19 was turning into the “redemption moment” for financiers. Cynics might scoff. But the key point remains: this is not language that bankers used during the past decade’s crisis. Sometimes the biggest zeitgeist shifts are the ones that keep stealthily swelling so they become the “new normal” that we almost take for granted — until we stop to look, afresh. (Gillian Tett)

The new frontier for disclosures

© Springdt/Dreamstime

Shareholder resolutions calling for better disclosures of climate change risks and carbon emissions scored successes in 2020, but a lurking problem with equally dangerous risks remains: the scarcity of disclosures around clean, accessible water.

In a report published this week, DWS, Deutsche Bank’s asset management arm, said investors do not have basic information to assess companies’ water risks. Perhaps more troubling, investors lack an understanding of water risks, DWS said.

The debate about water is in its early stages, but will eventually become as important as air and CO2 concerns, DWS said. The group urged other asset managers and companies to adopt a water charter that details guidelines for businesses.

Michael Lewis, head of DWS’s ESG thematic research, said water was viewed as a free resource, but “this idea that it is plentiful and cheap is just wrong”. He called for a water-themed version of the Climate Action 100+, the influential group of nearly 600 investors agitating for global warming prevention. 

“What we have done with climate we could replicate with water,” he told Moral Money. For example, the Task Force on Climate-related Financial Disclosures could be expanded to include water risks, he said.

Companies can expect more pressure from shareholders in 2021 to disclose water risks. This year, As You Sow, a pressure group, filed shareholder proposals at Baker Hughes, Diamondback Energy, Entergy and other energy companies demanding reports on water usage. Several of these petitions were withdrawn after companies agreed to make the requested disclosures.

With CDP, the nonprofit formerly known as the Carbon Disclosure Project, now looking to expand its sustainability questionnaire to include water security, we should expect more companies and asset managers to take DWS’s warnings seriously. (Patrick Temple-West)

Shareholder engagement group plans to tighten screws on greenwashers

When investment managers want to signal they are getting serious about climate change, one of the first things they tend to do is to sign up with groups such as the Climate Action 100+ group we mentioned above.

But there’s just one problem: the act of joining the CA100+ (or many of the other similar groups out there) doesn’t always mean much in practice, a new report from ShareAction has found.

Some notable laggards include BlackRock, which joined the CA100+ this year, but only supported 11 per cent of the climate resolutions that crossed its desk, and Lyxor Asset Management, which joined in 2018 and supported just 2 per cent.

To be sure, the goal of the CA100+ is to cast a wide net and get as many investors involved as it can. Many members do support climate propositions, and the group has made some important progress on getting companies to disclose better climate data and commit to go net zero.

But the potential for greenwashing is clear. And there is little to prevent bad faith actors from joining simply to bolster their ESG branding.

Mindy Lubber, chief executive of Ceres, the sustainability non-profit that founded the CA100+, recognises the problem. “We don’t like it any more than you, if they’re using it for cover,” she said. “They were invited in to help move companies, and they should be doing that. If they’re not doing that, they shouldn’t get away with having the imprimatur.”

Ceres publishes a yearly report on the CA100+ that calls out investors that don’t vote their proxies. And Ms Lubber says the next phase of the CA100+ will be getting asset owners and managers to make their own net zero commitments. Those that don’t comply may be “invited to leave”.

But until that happens it is hard to put much stock into investors touting CA100+ commitments. Without doing your homework, it is impossible to know if they have done anything beyond signing their name to a piece of paper. (Billy Nauman)

Nasdaq to require women, minorities on corporate boards

In one of the biggest corporate governance developments of 2021, the Nasdaq stock exchange on Tuesday proposed a new rule that requires its US listed companies to have at least one woman and one person who self-identifies as an under-represented minority or lesbian, gay, bisexual, transgender or queer.

Companies will have four to five years to find qualified board candidates, Nasdaq said. How significant do you think this will be in driving change throughout corporate culture? Please email us your thoughts at

Grit in the oyster

In an example of the challenges countries face to become carbon neutral by 2050, Sony has warned the Japanese government it may have to shift manufacturing out of the country unless rules on renewable energy are relaxed.

The comments from chief executive Kenichiro Yoshida underscore the pressures Japanese businesses are under to erase the carbon footprint of their manufacturing facilities as Apple, Facebook and other technology groups seek to shift their global supply chains to 100 per cent renewable power.

Chart of the day

October marked the highest ESG monthly flows on record at $36bn (+45% vs $25 Sep flows); 64% passive, 36% active

Despite efforts by the Trump administration to chill ESG investing, investors in October poured a record $36bn into sustainability funds, according to Morgan Stanley. ESG exchange traded funds saw $9.6bn of inflows (compared with a 12-month average of $5.2bn).

This haul accounted for 35 per cent of flows into ETFs broadly. And the whopping amounts came as ESG indices underperformed. The broader market has beaten MSCI’s socially responsible investing indices since mid-October, Morgan Stanley said.

Tips from Tamami

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

In its first China Stewardship Report, Fidelity International found that investors have focused more on stewardship — both through voting and engagement — than ever before and have started to influence corporate behaviour for the better in China.

Voting participation has been steadily rising, even though the speed of progress may look slow to western investors. The average voting participation rate at companies without a controlling shareholder jumped to 36.5 per cent in 2019 — from 33.1 per cent in 2017. Shareholders have also started to use their votes to voice their opposition more openly. The number of resolutions receiving more than 10 per cent “against” votes increased to 385 last year, an increase of approximately 20 per cent over two years.

The report also provided a few examples of Chinese companies — both state-owned and privately owned — that have responded to engagement constructively. For example, a large oil and gas producer in China has addressed its aspirations to cut carbon emissions to near zero by 2050, after a series of informal conversations and engagement calls.

Hurdles remain for overseas ESG investors. But the progress thus far is astonishing for a country where there is no widely accepted Chinese translation for the words “stewardship” or “engagement” yet.

Smart reads

  • Republican SEC commissioner Hester Peirce on Tuesday renewed her concerns with ESG investing. “[F]or all its hype, ESG investing does not require us to turn our rules inside out to accommodate it any more than any other broad genre of investing, like value investing, requires us to do,” she said at an agency meeting. Companies should treat ESG topics with the same materiality filter they apply to everything else, she said.

  • Cargill and Nestlé USA faced the US Supreme Court on Tuesday in a case concerning when companies can be sued for allegedly violating international human rights. Check out the Reuters report on the oral arguments here.

Further reading

  • Amazon to roll out tools to monitor factory workers and machines (FT)

  • Managers Point to Diversity Efforts to Justify CEO Pay (FundFire)

  • Biden’s renewable energy deadline too ambitious says power boss (FT)

  • Reinventing Workers for the Post-Covid Economy (NYT)

  • Activist Shareholders Press Pfizer, J&J, and Other Pharma Companies on Covid Vaccine Price and Access (Barron’s)

  • Bank of America Says It Won’t Finance Oil and Gas Exploration in the Arctic (Bloomberg)

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Financial bubbles also lead to golden ages of productive growth




Sir Alastair Morton had a volcanic temper. I know this because a story I wrote in the early 1990s questioning whether Eurotunnel’s shares were worth anything triggered an eruption from the company’s then boss. Calls were made, voices raised, resignations demanded. 

Thankfully, I kept my job. Eurotunnel’s equity was also soon crushed under a mountain of debt. Nevertheless, the company was refinanced and the project completed. I raised a glass to Morton’s ferocious determination on a Eurostar train to Paris a decade later.

With hindsight, Eurotunnel was a classic example of a productive bubble in miniature. Amid great euphoria about the wonders of sub-Channel travel, capital was sucked into financing a great enterprise of unknown worth.

Sadly, Eurotunnel’s earliest backers were not among its financial beneficiaries. But the infrastructure was built and, pandemics aside, it provides a wonderful service and makes a return. It was a lesson on how markets habitually guess the right direction of travel, even if they misjudge the speed and scale of value creation.

That is worth thinking about as we worry whether our overinflated markets are about to burst. Will something productive emerge from this bubble? Or will it just be a question of apportioning losses? “All productive bubbles generate a lot of waste. The question is what they leave behind,” says Bill Janeway, the veteran investor.

Fuelled by cheap money and fevered imaginations, funds have been pouring into exotic investments typical of a late-stage bull market. Many commentators have drawn comparisons between the tech bubble of 2000 and the environmental, social and governance frenzy of today. Some $347bn flowed into ESG investment funds last year and a record $490bn of ESG bonds were issued. 

Last month, Nicolai Tangen, the head of Norway’s $1.3tn sovereign wealth fund, said that investors had been right to back tech companies in the late 1990s — even if valuations went too high — just as they were right to back ESG stocks today. “What is happening in the green shift is extremely important and real,” Tangen said. “But to what extent stock prices reflect it correctly is another question.”

If the past is any guide to the future, we can hope that this proves to be a productive bubble, whatever short-term financial carnage may ensue.

In her book Technological Revolutions and Financial Capital, the economist Carlota Perez argues that financial excesses and productivity explosions are “interrelated and interdependent”. In fact, past market bubbles were often the mechanisms by which unproven technologies were funded and diffused — even if “brilliant successes and innovations” shared the stage with “great manias and outrageous swindles”.

In Perez’s reckoning, this cycle has occurred five times in the past 250 years: during the Industrial Revolution beginning in the 1770s, the steam and railway revolution in the 1820s, the electricity revolution in the 1870s, the oil, car and mass production revolution in the 1900s and the information technology revolution in the 1970s. 

Each of these revolutions was accompanied by bursts of wild financial speculation and followed by a golden age of productivity increases: the Victorian boom in Britain, the Roaring Twenties in the US, les trente glorieuses in postwar France, for example.

When I spoke with Perez, she guessed we were about halfway through our latest technological revolution, moving from a phase of narrow installation of new technologies such as artificial intelligence, electric vehicles, 3D printing and vertical farms to one of mass deployment.

Whether we will subsequently enter a golden age of productivity, however, will depend on creating new institutions to manage this technological transformation and green transition, and pursuing the right economic policies.

To achieve “smart, green, fair and global” economic growth, Perez argues the top priority should be to transform our taxation system, cutting the burden on labour and long-term investment returns, and further shifting it on to materials, transport and dirty energy.

“We need economic growth but we need to change the nature of economic growth,” she says. “We have to radically change relative cost structures to make it more expensive to do the wrong thing and cheaper to do the right thing.”

Albeit with excessive enthusiasm, financial markets have bet on a greener future and begun funding the technologies needed to bring it to life. But, just as in previous technological revolutions, politicians must now play their part in shaping a productive result.

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US tech stocks fall as government bond sell-off resumes




A sell-off in US government bonds intensified on Wednesday, sending technology stocks sharply lower for a second straight day.

The yield on the 10-year US Treasury bond, which acts as a benchmark for global borrowing costs, climbed to nearly 1.5 per cent at one point. It later settled around 1.47 per cent, up nearly 0.08 percentage points on the day.

Treasury trading has been particularly volatile for a week now — 10-year yields briefly eclipsed 1.6 per cent last Thursday — but the rise in yields has been picking up pace since the start of the year and the moves have begun weighing heavily on US stocks.

This has been especially true for high-growth technology companies whose valuations have been underpinned by low rates. The tech-focused Nasdaq Composite index was down 2.7 per cent on Wednesday, on top of a 1.7 per cent drop the day before.

The broader S&P 500 fell by 1.3 per cent.

The US Senate has begun considering President Joe Biden’s $1.9tn stimulus package, with analysts predicting that the enormous amount of fiscal spending will boost not only economic growth but also consumer prices. The five-year break-even rate — a measure of investors’ medium-term inflation expectations — hit 2.5 per cent on Wednesday for the first time since 2008.

Inflation makes bonds less attractive by eroding the value of their income payments.

“I would expect US Treasuries to continue selling off,” said Didier Borowski, head of global views at fund manager Amundi. “There is clearly a big stimulus package coming and I expect a further US infrastructure plan to pass Congress by the end of the year.”

Mark Holman, chief executive of TwentyFour Asset Management, said he could see 10-year yields eventually trading around 1.75 per cent as the economic recovery gains traction later this year.

“It will be a very strong second half,” he said.

Line chart of Five-year break-even rate (%) showing US medium-term inflation expectations hit 13-year high

Elsewhere, the yield on 10-year UK gilts rose more than 0.09 percentage points to 0.78 per cent, propelled by expectations of a rise in government borrowing and spending following the UK Budget.

Sovereign bonds also sold off across the eurozone, with the yield on Germany’s equivalent benchmark note rising more than 0.06 percentage points to minus 0.29 per cent. This was an example of “contagion” that was not justified “by the economic fundamentals of the eurozone”, Borowski said, where the rollout of coronavirus vaccines in the eurozone has been slower than in the US and UK.

The tumult in global government bond markets partly reflects bets by some traders that the US Federal Reserve will be pushed into tightening monetary policy sooner than expected, influencing the costs of doing business for companies worldwide, although the world’s most powerful central bank has been vocal that it has no immediate plans to do so.

Lael Brainard, a Fed governor, said on Tuesday evening that the ructions in US government bond markets had “caught my eye”. In comments reported by Bloomberg she said it would take “some time” for the central bank to wind down the $120bn-plus of monthly asset purchases it has carried out since last March.

After a series of record highs for global equities as recently as last month, stocks were “priced for perfection” and “very sensitive” to interest rate expectations that determine how investors value companies’ future cash flows, said Tancredi Cordero, chief executive of investment strategy boutique Kuros Associates.

Europe’s Stoxx 600 equity index closed down 0.1 per cent, after early gains evaporated. The UK’s FTSE 100 rose 0.9 per cent, boosted by economic support measures in the Budget speech.

The mid-cap FTSE 250 index, which is more skewed towards the UK economy than the internationally focused FTSE 100, ended the session 1.2 per cent higher.

Brent crude oil prices gained 2 per cent at $64.04 a barrel.

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UK listings/Spacs: the crown duals




City-boosting proposals are not enough to offset lack of EU financial services trade deal

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