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What's New(s) in ESG: May 21, 2018

Dmitriy Ioselevich

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


FTfm Special Report on Responsible Investing

Big Oil Investors Say More Needed to Tackle Climate Change

  • Some of the world’s biggest fund managers are ratcheting up the pressure on oil and gas companies, expressing fear that a lack of action over tackling climate change could risk their investments. The comments come days before Big Oil kicks off annual shareholder meetings, where they are already facing calls from smaller investors to set clear targets on climate change and even cut their investments in fossil fuels. That could now gain momentum with the nudge from large investors who manage trillions of dollars of funds. Companies must take tougher action on emissions if they want to survive the energy transition and make a success of the Paris climate deal, according to a letter from a group of investors, including Standard Life Aberdeen Plc and Legal & General Group Plc, which together oversee about $10.4 trillion of funds. They plan to take up the issue with the world’s biggest oil companies at their upcoming AGMs, the investors said in the letter published in the Financial Times on Friday. (Bloomberg: read more, Financial Times: read more, The Guardian: read more)

Managers Face ESG Transparency Demands in Booming Sector

  • Asset managers fighting for environmental, social and governance (ESG) mandates are finding institutional investors require a heightened level of transparency when assessing whether strategies deliver on their promises. ESG and peer strategies such as socially responsible and impact investing have gained popularity and assets, yet are relatively new areas for many institutional investors and managers. The values-based approach to these strategies is prompting investors and their consultants to ask questions managers don’t usually face when competing for a mandate. Earlier this month, Aon Hewitt confirmed that it was unveiling a new system in which an ESG rating would be added to all approved strategies in its manager recommended list. (FundFire: read more, FundFire, read more)

The Fastest Growing Strategy in Smart Beta

  • Mutual funds have been driving the surge of assets in ESG, but quants are rapidly getting in on the investment strategy, according to a Bank of America Merrill Lynch research report. ESG was the fastest-growing smart beta strategy in the five years through 2017, with assets expanding at a compound annual growth rate of more than 50 percent. How companies score in ESG is a strong indicator of future stock volatility, risks to earnings, and the potential for bankruptcy, the bank’s analysts found. Bank of America estimates that over the next few decades equity investments aligned with ESG criteria could attract assets equal to the size of the Standard & Poor’s 500 index today. (Institutional Investor: read more, MarketWatch: read more, BAML: read more)

TD Ameritrade, E*Trade Add ESG Options for Advisors

  • Following in the footsteps of larger distributors including Merrill Lynch and UBS, TD Ameritrade and E*Trade’s Trust Company of America unit are targeting advisors with new ESG investment options and planing tools. TD Ameritrade Institutional is adding four new ESG models from Nuveen to its Model Market Center, a spokeswoman for the custodian says, giving the center a total of 10 model providers. The four new models will be the only ESG-focused options within the platform menu. (Ignites: read more, read more, Planadviser: read more, TD Ameritrade: read more)

Union pension plans welcome DOL guidance

  • While some ESG investors feel like they are stuck in a game of pingpong with new guidance from the Department of Labor on ESG and economically targeted investing, North America building trades union pension fund officials welcome it. Economically targeted investments bring investment returns and other benefits. In the case of the building trades unions, investing in real estate and infrastructure projects that are tied to union manpower can mean successful completion of those projects and more work hours and pension contributions for union members. (Pensions & Investments: read more)

Pay-For-Success: The Latest Thinking on Social Impact Bonds

  • 2018 has seen a tremendous amount of activity around impact investment policy in the US, says Fran Seegull, director of the US Impact Investing Alliance. In the first few weeks of the year, the Tax Cuts and Jobs Act passed with new tax incentives for investments into US low-income communities; there has been a bipartisan bill introduced in the Senate to create what Seegull describes as a “true development finance institution” in the US; and most significantly, the US Congress passed a bipartisan bill to create a $92m fund for social impact bonds. (Responsible Investor: read more)

The ’Black Hole’ That Sucks Up Silicon Valley’s Money

  • The San Francisco Bay Area has rapidly become the richest region in the country—the Census Bureau said last year that median household income was $96,777…That’s not to say that Silicon Valley’s wealthy aren’t donating their money to charity. Many, including Mark Zuckerberg, Elon Musk, and Larry Page, have signed the Giving Pledge, committing to dedicating the majority of their wealth to philanthropic causes. But much of that money is not making its way out into the community. There are many reasons for this, but one of them is likely the increasing popularity of a certain type of charitable account called a donor-advised fund. These funds allow donors to receive big tax breaks for giving money or stock, but have little transparency and no requirement that money put into them is actually spent. Fidelity Charitable and Schwab Charitable, two of the biggest charities with donor-advised fund programs, held $2.2 billion in donor-advised funds from clients located in San Mateo and Santa Clara Counties in 2014. That’s a 946 percent increase from 2005, according to The Giving Codea 2016 report about philanthropy in Silicon Valley. (The Atlantic: read more)


Everyone Wants to See Green Bonds

  • How do you decide if an investment is socially responsible? You do research, you talk to the issuer, you figure out your list of criteria, and you do your best to determine if the investment meets the criteria. But this is a lot of work and you may not have time for it. Especially if you are a bond investor. And as environmentally conscious investing becomes more popular, a business has developed…Sales of green bonds rose 9.4 per cent year on year in the first quarter of 2018 to $29.6bn, according to data from law firm Linklaters, fueling concern that more scrutiny is needed of the companies that judge how green the bonds are. Some industry observers argue that these third-party verifiers should be subject to regulation in the way that credit rating agencies are in the established debt markets. Third-party verifiers include credit rating agencies and accounting firms, but independent environmental consultancies and research institutes have also become involved. (Bloomberg: read more)

How Asset Managers Can Help Fuel the Fight Against Climate Change

  • The challenge of solving climate change begins with disclosing and tracking emissions in order to identify ways to reduce them. Several financial institutions are now working to address this challenge by pressuring companies to open up about the impact of their businesses on climate change, and vice versa…But often lost in the discussion of disclosures is the investment management industry. With few exceptions, the majority of the fund management industry does not publicly report how climate change could impact its investments or measure how many emissions its assets generate. This needs to change. (Bloomberg BNA: read more)

Determining a proper level of ESG portfolio integration

  • Investors have long debated the performance impact when including environment, social and governance factors. While ESG purists might be perfectly comfortable potentially sacrificing basis points, no hard evidence exists to suggest ESG factors compromise returns. And certainly no one can guarantee that any investment choice will have a positive — or negative — outcome in the long term. Yet the Department of Labor appears to think otherwise. (Pensions & Investments: read more)

For the Perfect Social-Impact Investment, Look No Further Than Cannabis

  • The pursuit of this so-called double-bottom-line is the Holy Grail for the impact investing industry. However, the challenge still facing many investors is how to make a significant impact without sacrificing returns. This is especially true of institutional investors, who often need to write eight- or nine-figure checks in order to justify an allocation. Cannabis is one of the few industries that satisfies all of the above conditions, making it the perfect impact investment. (Entrepreneur: read more)

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