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JPMorgan surges to top of sustainable lending league tables



Hello from New York, where I think it’s safe to say we are all getting a little tired of living through one historical event after another. It will admittedly be hard to take our eyes off Washington until Joe Biden takes office on January 20. But once he does, it should be a new dawn for ESG in the US and we are anxious to see what changes may be coming.

That of course does not mean the news has stopped elsewhere (or even here!) and we have a full slate today, including the top story on who’s up and who’s down in the world of sustainable finance.

Moral Money

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JPMorgan tops sustainable bond underwriters for 2020

The pandemic year turned out to be a gold rush for the world’s biggest banks. With the 2020 books closed, Refinitiv on Thursday unveiled its league tables for sustainable financing. JPMorgan climbed to the top of the bond rankings by dollar amount of deals for 2020, Refinitiv said.

JPMorgan edged out HSBC, which led in mid-2020 but dropped to fifth by the end of the year. BNP Paribas, Crédit Agricole and Citi rounded out the top five. 

Green debt continued to set records in 2020 as the social bond market roared to life. Social bond issuance accounted for 30 per cent of the sustainable finance bond market in 2020, up from just 5 per cent in 2019, Refinitiv said.

Japan stood out in this arena, becoming the 14th-largest sustainable bond issuer for the year — up from 25th in 2019 — with $4.6bn of debt. Mitsubishi UFJ Financial jumped to second place among banks in underwriting sustainable loans, up from 13th in 2019.


The deals came with innovative financing. In October 2020, Enel issued £500m of sustainability-linked bonds, which tied the company’s increases in renewable energy output to the interest rate. The deal also included an interest-rate swap between Enel and JPMorgan that is tied to the companies’ environmental targets. And the bonds’ interest cost can rise if JPMorgan fails to fulfil its pledge to facilitate $200bn for the climate and UN sustainable development goals.

Another example: Rival HSBC did an interest rate swap with Siemens Gamesa that will require HSBC to donate cash to non-profits if Siemens Gamesa’s ESG rating improves during the life of the derivative. If Siemens Gamesa’s rating drops, it will be required to make donations.

Moral Money would love to hear more about innovations such as these. Remember, you can contact us at Hopefully, as we find a way out of the pandemic, we don’t discover that the key to bankers’ creativity was working at home in their pyjamas. (Patrick Temple-West)

AllianceBernstein teams with Columbia University on climate research


In late 2019, we told you about a new initiative between AllianceBernstein and Columbia University’s Earth Institute, where the $686bn asset manager would send its investment staff back to school to learn about how climate risks should be factored into their investment decisions.

At that time, the initiative was just getting off the ground with a pilot group of 35 portfolio managers and analysts attending sessions on climate. Now, more than 250 AllianceBernstein employees have gone through the programme, including its chief executive and board of directors.

“We think this is critically important for everyone to understand because climate is something that affects us not just as a society, but it is going to have an increasing effect on investment, cash flows and valuations,” said Michelle Dunstan, the firm’s global head of responsible investing.

But the programme is not just about getting investors up to speed on climate change. AB’s investors are also teaching Columbia scientists about finance — and collaborating on projects that will use their research in ways that have a real-world impact.

“We’re really trying to move from, ‘let’s bring everyone at AB up to a baseline, where they understand, appreciate and can start to integrate climate change’, to ‘let’s work together to actually get research, reorient capital flows and truly understand the implications of what’s going on’,” said Ms Dunstan.

“If we have questions on how does sea level rise and sea temperature rise impact fisheries in regions as diverse or disparate as Norway, Scotland or Chile, we do some research together. And we are contemplating larger-scale projects where we can combine the financial, economic capital markets aspect with some of the research.”

At the end of the day, AB and Columbia are striving for different goals. AB has a fiduciary duty to make money for its clients and the Earth Institute’s stated mission is to “guide the world on to a path toward sustainability”. But working together makes it much easier for the scientists to see their academic work implemented in the real world, said Arthur Lerner-Lam, deputy director of Columbia’s Lamont-Doherty Earth Observatory. And investing sustainably has proven profitable.

“This is changing the model with which the university needs to interact on these big, global-scale problems — climate and Covid being two examples of that,” he said. “This relationship has taught us so much about how the university can structure these sorts of things. And I see it acting not just as a prototype, [but also as] an educational model that is scalable. Frankly [we hope it] will be picked up by our peers.” (Billy Nauman)

Too hot to handle? Renewable energy companies face bubble

© Airubon/Dreamstime

At the start of the year, private equity firm Carlyle announced a $374m investment in Amp Solar, a Canadian renewable energy company.

The deal underscored the intense investor interest in renewable energy going into 2021 from private equity to retail investors. But it also came with a warning that the market may be overheating.

“The space is getting crowded,” Pooja Goyal, head of Carlyle’s renewable and sustainable energy team, told Moral Money. Private equity funds that specialise in energy investments have turned to renewable businesses, and “that is creating a lot of noise in the system”, she said.

Also this month, South Korea’s SK Group said it would invest $1.5bn into US hydrogen fuel cell maker Plug Power. The New York-based company’s share price was already up 738 per cent in the days just before the deal was announced. Plug Power’s shares closed at $66 on Thursday, up 1,000 per cent from a year ago.

But other investors think there is still room to run into. Raj Agrawal, global head of infrastructure at KKR, said that renewables were likely to see structural, multi-decade secular growth. “The renewables space is getting hot, but for good reason.”

“Renewables will remain a large and growing sector of investment for us and we are growing our capabilities and ramping up our activity level accordingly,” Mr Agrawal said. (Patrick Temple-West)

UK pensions going green by default

One announcement from the UK this week that caught our eye was investment manager Aegon pledging that it would make all of its “auto-enrolment default pension funds” net-zero carbon by 2050. This may sound boring, but bear with us . . . we assure you it’s important!

First things first, all the normal caveats around far-off net-zero commitments apply here: it’s easy to say you’ll do something when it’s 30 years away. And we have not vetted Aegon’s plan for achieving the goal.

But putting that aside, the reason this commitment is noteworthy is that it highlights an important area of the investment market where asset managers that are serious about cutting carbon can have a big impact.

To understand how, it’s important to understand what an “auto-enrolment default pension fund” is. The name is pretty self-explanatory. When an employer automatically signs its employees up for a defined contribution retirement plan, the “auto enrolment default pension fund” is where their money goes if they don’t log in and pick something different for themselves.

Since most people never bother to change out of the default option, this is an easy way to nudge investors to invest in a climate-friendly way. If they want to invest differently, they can always pick a different fund on the menu. But since a survey of Aegon customers found 77 per cent believe climate risk is important, it seems unlikely that this move will spur an exodus out of the defaults.

In the UK, private sector defined contribution schemes held £146bn in assets, according to the Office for National Statistics. So it will be a big deal if it becomes the norm.

What would really move the needle is if this happened in the US, where the DC market tops $6.5tn in assets — but a rule passed in the final months of the Trump administration makes that unlikely. With Joe Biden taking office soon, it will be worth watching how the new labour department reacts. We suspect it may quickly seek to reverse course. (Billy Nauman)

Veeva shareholders see value of a public benefit corporation structure

We told you last September that Veeva Systems, the cloud computing group, was sounding investors out on the idea of becoming the first publicly traded US company to convert to a public benefit corporation. 

Chief executive Peter Gassner favoured the move and controls a majority of the votes, so there wasn’t too much dramatic tension about the outcome. But the proposal passed this week with striking support from shareholders you might have expected to raise questions about a legal mandate that will require Veeva to weigh their interests against those of customers, employees and other stakeholders. 

In all, 99 per cent of voting shareholders backed Veeva’s adoption of a new certificate of incorporation, which mandates it to “help to make the industries it serves more productive and create high-quality employment opportunities”.

In a press release pointedly sprinkled with quotes from Veeva stakeholders, Tim Youmans of Federated Hermes hailed the conversion as a prime example of how public companies could put talk about purpose into action in the interest of long-term value and societal benefit. Moral Money will be watching how it plays out for Veeva’s shareholders and other stakeholders. (Andrew Edgecliffe-Johnson)

Grit in the oyster

Consumers may say they want fashion-forward retailers to also be ESG-forward, but their actions do not seem to line up with their demands.

Last July, Boohoo faced allegations of poor working conditions at its Leicester factories that caused many to question the vetting process investors had deployed.

But consumers — for now at least — don’t seem to mind terribly. Boohoo, despite its image problem, revised its revenue projections upward to predict growth between 36 and 38 per cent, with online sales surging. (Kristen Talman)

Further reading

  • The carbon tax that Brussels hopes will catch on (FT Trade Secrets)

  • Oil and gas contracts should drive climate gains (FT)

  • Fund manager bets on new source of renewable power: old river dams (FT)

  • Do games have a role to play in saving the planet? (FT)

  • Investor Pressure Boosted Climate Disclosures in 2020, Says CDP (Bloomberg)

  • Sephora’s plan to combat racial bias: Fewer security guards, more Black-owned brands and new protocols (Washington Post)

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‘Digital big bang’ needed if UK fintech to compete, says review




Sweeping policy changes and reform of London’s company listing regime will spark a “digital big bang” for the City and turbocharge the UK’s fintech industry, according to a government-commissioned review.

The report, to be published on Friday, warns that the UK’s leading position in fintech is at risk from growing global competition and regulatory uncertainty caused by Brexit

The review, carried out by former Worldpay chief Ron Kalifa, is one of a series commissioned by the government to help strengthen the UK’s position in finance and technology.

Both sectors are under greater threat from rivals since the UK left the EU in January amid growing global competition to attract and retain the fastest growing tech start-ups. 

Changes to the UK’s listing regime are recommended, such as allowing dual-class share structures to let founders maintain greater control of their companies after IPO. The review also proposes a lower free-float threshold to allow companies to list less of their stock.

Kalifa said the rapid evolution of financial services, from online banking and investment to digital identity and cryptocurrencies, meant that the UK needed to move quickly.

“This is a critical moment. We have to make sure we stay at the forefront of a global industry. We should be setting the standards and the protocols for these emerging solutions.”

John Glen, economic secretary to the Treasury, said more than 70 per cent of digitally active adults in the UK use a fintech service “but we must not rest on our laurels . . . all it takes is a bit of complacency to slip from being a leader of the pack to an also ran”.

He said the government would consider the report’s recommendations in detail. 

The review was welcomed by executives at many of the UK’s largest fintechs and leading financial institutions such as Barclays. Mark Mullen, chief executive of Atom Bank, said the review was “essential to maintain momentum in this key part of our economy and to continue to drive better — and cheaper outcomes for all of us”.

The review also recommended the government create a new visa to allow access to global talent for tech businesses, a move likely to be endorsed by ministers as early as next week’s Budget, according to people familiar with the matter.

Fintechs have been lobbying for a visa scheme since shortly after the 2016 Brexit vote, but the success of remote working since the onset of the coronavirus crisis has reduced its importance for some firms.

Revolut, for example, has ramped up its hiring of fully remote workers in Europe and Asia to reduce costs and widen its potential talent pool, according to chief executive Nik Storonsky.

Charles Delingpole, chief executive of ComplyAdvantage, a regulatory specialist, agreed that fintech was becoming more decentralised. He added that the shift in tone from the government could have as big an impact as specific policy changes. “Whilst none of the policies is in itself a silver bullet . . . the fact that the government recognises the threat to the fintech sector and is publicly acting should definitely help.”

The review also proposed a £1bn privately financed “fintech growth fund” that could be co-ordinated by the government. It identified a £2bn fintech funding gap in the UK, which has meant that many entrepreneurs have in the past preferred to sell rather than continue to build promising companies. It wants to make it easier for UK private pension schemes to invest in fintech firms. 

The report also recommended the establishment of a Centre for Innovation, Finance and Technology, run by the private sector and sponsored by government, to oversee implementation of its recommendations, alongside a digital economy task force to align government efforts.

The review has identified 10 fintech “clusters” in cities around the UK that it says needs to be further developed, with a three-year strategy to support growth and foster specialist capabilities.

Dom Hallas, executive director at the Coalition for a Digital Economy (Coadec), said it was now important that people “follow through and actually implement” the ideas in the review. The sector’s direct contribution to the economy, it is estimated, will reach £13.7bn by 2030.

However, the review also raised questions over the role of the Competition and Markets Authority, saying that the CMA should better balance competition and growth. 

“There is a case for more flexibility in the assessment of mergers and investments for nascent and fast-growing markets such as fintech,” it said. 

“Success brings scale but as some businesses thrive, others inevitably will fail. Some consolidation will therefore be critical in facilitating the growth that UK fintechs need in order to become global champions.”

Charlotte Crosswell, chief executive of Innovate Finance, which helped produce the report, said: “It’s crucial we act on the recommendations in the review to deliver this ambitious strategy that will accelerate the growth of the sector.

“The UK is well positioned to lead this charge but we must act swiftly, decisively and with urgency.”

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Coinbase: digital marketing | Financial Times




Coinbase will be a stock riding a runaway train. The US cryptocurrency platform wants investors to think long term about the prospects for a global “open financial system”. Most will be unable to tear their eyes away from wild, short-term price swings in bitcoin, the world’s largest digital asset. 

This has its benefits. Coinbase, which has filed for a US direct listing, makes most of its money from commissions on crypto trades. Sales more than doubled to $1.3bn last year. The company has swung from a loss to net income of $322m as crypto prices jumped.

But the company has given no detail on the financial impact of the 2018 bitcoin price crash. Will Coinbase’s 2.8m active retail users and 7,000 institutions hang on if there is another protracted price fall? 

Coinbase was valued at $8bn in a 2018 private funding round and $100bn in a recent private share sale, according to Axois. That rise looks remarkably similar to the increase in bitcoin’s price from less than $5,000 to more than $50,000 this year.

The rally is hard to justify. Bitcoin has not become a widely used currency — nor is the US ever likely to countenance that. It offers investors no yield. Volatility remains high. Elon Musk’s tweet this weekend that bitcoin prices “seem high lol” propelled a sharp fall that hit shares in crypto-related companies. Shares in bitcoin miner Riot Blockchain have lost a quarter of their value this week. 

Prospective investors in Coinbase should keep this in mind. Its listing will take cryptocurrencies further towards the financial mainstream. But risk factors are unusually numerous, including the volatility of crypto assets and regulatory enforcement. 

Both threats are widely known. Another risk factor in the listing document deserves more attention. Vaccination campaigns and the reopening of shuttered sectors of the economy is raising yields in safe assets such as Treasuries. Risky trades may become less attractive. Coinbase might be about to go public just as the incentive to trade cryptocurrencies is undermined. 

If you are a subscriber and would like to receive alerts when Lex articles are published, just click the button “Add to myFT”, which appears at the top of this page above the headline.

This thread is closed to comments due to a history of posts on this subject that breach FT user guidelines

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US stocks make gains on Fed message of patience over monetary policy




Stocks on Wall Street reversed earlier losses after Jay Powell, the Federal Reserve chairman, reiterated the central bank’s desire to stick with accommodative policies during his second day of testimony to Congress.

The tech-heavy Nasdaq Composite ended the day up 1 per cent, having fallen almost 1 per cent at the opening bell. The S&P 500 climbed 1.1 per cent, marking the blue-chip benchmark’s second consecutive rise after five sessions of back-to-back losses.

A morning sell-off in US Treasuries also faded, with the yield on the 10-year note having climbed as much as 0.07 percentage points to slightly less than 1.43 per cent, its highest level since February last year, before settling back to 1.37 per cent.

Treasuries have been hit by expectations that US president Joe Biden’s $1.9tn stimulus plan will stoke inflation, which erodes the cash value of the debt instruments’ interest payments. However, the more recent rise in yields has also been accompanied by a rise in real rates, which are more indicative of the return investors make after inflation and signal an improving growth outlook for the economy.

Higher yields, which move inversely to the price of the security, also knock-on to equity valuations by affecting the price-to-earnings multiples investors are willing to pay for companies’ shares. A higher yield, analysts say, makes fast-growth companies whose earnings represent a slim proportion of their stock market value less attractive in comparison.

Shares in the 100 largest companies on the Nasdaq are valued at a multiple of 37 times current earnings, against 17 times for the global FTSE All-World index of developed market equities.

“When bonds yield close to zero, you are not losing out by investing in those companies whose cash flows could be years into the future,” said Nick Nelson, head of European equity strategy at UBS. “[But] as bond yields start to rise, that cost of waiting [for companies’ earnings growth] increases.”

Earlier on Wednesday, investors’ retreat from growth stocks rippled into Asia. Hong Kong’s Hang Seng index sank 3 per cent, its worst daily performance in nine months. Chinese investors using market link-ups with bourses in Shanghai and Shenzhen dumped Hong Kong-listed shares at a record pace, selling a net HK$20bn ($2.6bn) on Wednesday. China’s CSI 300 index fell 2.6 per cent. Japan’s Topix slipped 1.8 per cent, dragged down by tech stocks.

Column chart of Hang Seng index, daily % change showing worst day for Hong Kong stocks in 9 months

European equity markets closed higher, with the Stoxx 600 regional index rising 0.5 per cent and London’s FTSE 100 index up 0.5 per cent. UBS’s Nelson said European equities were less vulnerable to rising yields because European stocks generally traded at lower valuations than in Asia and the US. “We have fewer big technology companies here.”

While the bond market ructions have unsettled many equity investors, some believe this should not affect stock markets because the inflation expectations that have driven the Treasury sell-off are linked to bets of a global recovery.

“Rising bond yields and rising inflation from low levels provide a historically attractive environment for equities,” said Patrik Lang, head of equity strategy and research at Julius Baer. Traditional businesses whose fortunes are linked to economic growth, such as “industrials, materials and especially financials”, should do better in a reflationary environment than tech stocks, added Lang.

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