What's New(s) in ESG: July 16, 2018

July 16, 2018 Dmitriy Ioselevich

Here are the top stories in ESG from the U.S., the EU and around the world.

NEWS:

Rise of Green Investing Triggers Rethink on Disclosure

• As the market for environmental and social investing becomes more prominent, investors are rethinking how they assess the non-financial effects of the companies they back — a process set to swell the pool of green assets available. Funds with responsible investing strategies managed $22.9tn of assets in 2016, up 25 per cent in two years, according to the most recent data available from the Global Sustainable Investment Alliance. The proliferation of these funds has spurred a multiplicity of investing approaches — from a tickbox mentality to a more nuanced scrutiny of each investment opportunity. (Financial Times: read more)

New Hotel or Affordable Housing? Race Is On to Define ‘Opportunity Zones’

• A new Marriott hotel in the Phoenix area might seem a world apart from an affordable-housing complex in the Watts neighborhood of Los Angeles. But both are poised to benefit from the new “opportunity zone” program created in last year’s federal tax overhaul, which gives tax breaks for investments in low-income neighborhoods. Real-estate developers, wealthy investors, nonprofit groups and local officials are among those racing to put their mark on the program, which has few restrictions. The first ventures are likely to shape the direction the program takes and whether it has lasting political support. Some investors are focused on reaping tax benefits from projects like the Phoenix area hotel. Other ventures, like the one under way in Watts, aim to use the tax break to provide housing and other benefits to residents of struggling communities. (The Wall Street Journal: read more)

Nearly Half of Advisors Still not Embracing ESG

• Nearly half of all financial advisors in a recent survey remain skeptical about environmental, social and governance (ESG) investing, putting a damper on the enthusiasm growing amongst distributors’ home office teams and asset managers. Despite burgeoning product development from asset managers, and surveys indicating investor interest, many advisors still aren’t using ESG investments with clients. For many advisors this may be due to doubts about the effects of ESG on investment performance, a recent survey from Cerulli Associates suggests. (FundFire: read more)

Social Equity Investing: Righting Institutional Wrongs

• In this paper we review the current state of social equity in the United States, highlight eight core social equity issue areas, and discuss the lessons we’ve learned in constructing portfolios with these investments. We define social equity investing as investments to promote equal opportunity and access for all, regardless of background, but we understand that many investors have different definitions. While investors need to be mindful of risks, we believe that investments can be made to promote a social equity impact agenda across the portfolio (Globe Newswire: read more, Cambridge Associates: read more)

Banks Pivot Toward Greener Finance in Climate Action Push

• Some of Europe’s largest banks are unveiling plans to lend and manage money in greener ways as pressure mounts to account for risks associated with climate change….Financial institutions are beginning to get on board with the global fight against climate change, a movement that was until recently the territory of non-profit organizations and environmentalists. Natixis, UBS Group AG and ING Groep NV are among lenders unveiling large-scale environmental finance and investing initiatives as central banks and regulators step up their warnings on climate risk. (Bloomberg: read more)

How the Principles of ESG Investing Became Mainstream

• The head of corporate finance and stewardship at M&G, Rupert Krefting, discusses the rise of responsible investment: The “returns-at-any-cost” approach to investing has fallen out of vogue. We appear to be in the midst of a shift in societal expectations. For many people, focusing only on financial returns is not enough. Short-term ends no longer justify short-term means. In recent years we have seen an increasing focus on responsible investment, underpinned by the incorporation of environmental, social and governance (ESG) factors by the investment community, encouraged by wider society, including regulators. (Telegraph: read more)

Facebook Data Privacy Issue Already Identified by ESG Investment Screens

• Shortly after it was revealed that Cambridge Analytica collected data on Facebook users during the 2016 election campaign, Domini Impact Investments, a registered investment advisory firm that specializes in responsible investing, decided to drop Facebook shares from its holdings. It had already flagged the company for data privacy issues the year before. "We decided Facebook was really the most clear-cut example of soliciting intimate details about you and selling it to advertisers," said Amy Lee Domini, founder of Domini. (Investment News: read more)

When Will “Socially Responsible Investing” Become Just “Investing”

• This year marks the 10th anniversary of the global financial crisis, bringing with it an inescapable reminder of the power of the finance industry. While many tangible things have changed over the past decade—from stricter regulation to big banks’ leadership ranks—more subtle, yet no less consequential, shifts are also underway in the financial world. It may be hard to imagine, thinking back to the freewheeling pre-crisis days, but one legacy of the crisis could be a permanent shift in the finance industry’s moral compass. (Quartz: read more)

OPINION:

If Your Business Is Not Sustainable, Pretty Soon it Won’t Exist 

• It is now imperative that investment is made from the ground up, into infrastructure, people, facilities and the nascent private sector. In a recent article in the Financial Times, Nick Butler highlights the untapped business opportunities in energy and associated infrastructure development in Africa. As he points out, there is a huge market of 600 million Africans that need reliable power and other services. The first companies to provide these services will secure top and bottom line growth for decades to come. (Forbes: read more)

Where’s the ‘F’ in ESG?

• While there may not be a consensus, there is a growing body of research demonstrating how environmental, social and governance (ESG) issues can have a direct relationship with financial value - the ‘F’ in ESG. Some investors may believe that discussions about ESG issues are misplaced in an investment context and potentially conflict with their fiduciary obligations. The challenge of meeting investment targets keeps asset allocators awake at night, so it may be tempting to postpone, or even dismiss, the daunting task of determining how long-term, broader financial risks and opportunities – such as resource efficiency, human capital management and board composition – could affect a fund’s value. This attitude is misplaced, however, as ESG risks accelerate to impact the fund’s value faster and to a greater extent than originally anticipated. (FundFire: read more)