What's New(s) in ESG: July 23, 2018

July 23, 2018 Dmitriy Ioselevich

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

NEWS:

An Unlikely Group Of Billionaires And Politicians Has Created The Most Unbelievable Tax Break Ever

• Senator Timothy Scott (R-SC) and tech billionaire Sean Parker are an unlikely pair and are core members of an even more unlikely group of conservatives and liberals, capitalists and philanthropists, U.S. lawmakers and small-town mayors who have successfully created one of the greatest tax-avoidance opportunities in American history, in the service of underperforming American cities and neighborhoods. For all the focus on drastic tax-rate cuts, the fate of the state and local tax deduction and the exploding federal deficits, it's the least-known part of last year's tax-cut law that could be the most consequential. Officially called the Investing in Opportunity Act, it promises to pump a massive amount of cash into America's most impoverished communities by offering wealthy investors and corporations a chance to erase their tax obligations. (Forbes: read more)

How to Reduce Clients’ Taxes While Providing a Social Good

• There’s one section in the 2017 tax cut legislation that most financial advisors know little about but probably should get acquainted with, especially if they have clients interested in impact investing. It’s the section that allows the creation of opportunity zone funds, designed to promote economic development in low-income neighborhoods through private tax-advantaged equity investments. Investors who roll over capital gains into an opportunity zone fund within 180 days can defer those gains until their investment in the fund is sold or until Dec. 31, 2026, when the tax provision sunsets. (see the tax legislation, Section 1400Z ‘‘Subchapter Z — Opportunity Zones”). (ThinkAdvisor: read more)

Early movers are getting a jump on opportunity zones – and the future of community investing

• A tweak to the tax code has set off a race between rival approaches to investing in some of America’s poorest urban and rural neighborhoods. ImpactAlpha has identified at least 10 impact fund managers that are racing to take advantage of the Investing in Opportunity Act, which allows investors to defer, and even reduce, taxes on capital gains rolled into 8,700 designated opportunity zones.  The early movers are seeking to shape the future of opportunity zone investing, and with it, the character of neighborhood and community development in the U.S. for at least the next decade. The provision, included into last year’s tax-cut bill, already is jumpstarting cooperation and mobilizing capital for deployment in American cities and rural communities on a scale not seen in some time. (ImpactAlpha: read more)

For all the Hype, Almost No U.S. Plans Factor in ESG

• Environmental, social, and governance factors carry little weight among American private-sector plan sponsors, according to a new poll by consulting firm NEPC. Just 12 percent of U.S. corporate and health care retirement plan representatives said they had incorporated ESG criteria into their manager selection processes. When defined contribution plans were excluded, only 6 percent considered ESG. (Institutional Investor: read more, Pensions & Investments: read more, Business Newswire: read more)

Think tank takes ESG rating agencies to task

• The American Council for Capital Formation (ACCF) is questioning the ratings process used for ESG investments. In a report released Thursday, the Washington-based, business-backed think tank argued individual companies "can carry vastly divergent (ESG) ratings from different (ESG rating) agencies simultaneously, due to differences in methodology, subjective interpretation or an individual agency's agenda." (Pensions & Investments: read more, Financial Times: read more, ACCF: read more)

Adviser education key to solving 'ESG paradox'

• Call it the "ESG paradox." About 80% of advisers report that clients bring up environmental, social and governance factors in investment conversations, according to research from InvestmentNews. But despite the investor interest, only about 35% of advisers incorporate ESG factors when creating portfolios for their clients, and only about 17% of the clients of those advisers actually have ESG-oriented investments in their portfolios. (InvetmentNews: read more)

US House of Representatives approves development finance bill

• The United State House of Representatives passed the BUILD Act easily on Tuesday, moving the bill yet closer to becoming law. The Better Utilization of Investment Leading to Development Act, would create a new agency that would combine the Overseas Private Investment Corporation and the U.S. Agency for International Development’s Development Credit Authority, as well as expand U.S. development finance capabilities. The new agency will have the ability to make equity investments, have double the capital to invest, and have a grant-making facility for project development and technical assistance. (Devex: read more)

Carbon Traders Brace for U.K.'s Possible Exit From EU Market

• Carbon traders are again preparing for the worst after the U.K. government suggested that it might withdraw from the world’s biggest emissions-trading market when the country leaves the European Union next year.The British government last week said it wanted to avoid signing up to “wider” environmental and climate change rules as it negotiates a new relationship with the EU. It’s considering options including leaving the single market in energy or staying in, retaining possibility that the U.K. won’t remain part of the carbon market after Brexit. (Bloomberg: read more)

OPINION:

Green-Bond Market Needs to Get Tough to Blossom

• The green-bond market is turning 10 years old in a few months. On first glance, it might seem like a burgeoning slice of the financial system. What started with an offering from the World Bank has spread to issuers around the globe, from Belgium and France to Honolulu, Hawaii, and Saint Paul, Minnesota. Volume hit a new high last year and is on pace to set another record in 2018. Dig a little deeper, though, and investors will find a market still very much stuck in infancy. (Bloomberg: read more)

Paul Brest: Are impact investors settling for too little impact?

• Many impact investors are concerned about whether their capital will generate financial returns. Stanford’s Paul Brest cautions that such investors might better ask whether it’s having any impact. “Impact investors—encouraged by fund managers—can readily delude themselves into thinking they’re actually having impact on these issues when their investments are not moving the needle at all,” says Brest, the former dean of Stanford Law School and former president of the Hewlett Foundation. (ImpactAlpha: read more)