What Slate’s Money Podcast Missed About ESG/Impact Investing

It really hurts to do this because I have nothing but admiration for all these guys and they get huge bonus points for a completely hilarious title for this episode. But holy moly did they get it wrong. Here’s their description:

Felix Salmon, senior strategy officer at a political risk startup, Anna Szymanski, Slate Moneybox columnist Jordan Weissmann, and Julia Shin—vice president and managing director of Impact Investing at Enterprise Community Partners—discuss:

the disbanding of Trump’s CEO council

companies’ responsibilities to their shareholders

impact investing

Here’s what they missed, very, very briefly:

Perhaps they think that their audience is primarily made up of the tiny fraction of Americans who sit at home and make individual stock picks. That’s not very likely; they’re over at Motley Fool. Most individuals, as the people on this podcast know very well, invest via mutual funds and pension funds. The story they should be looking at, which they touch on very briefly, is the evolving role of large institutional investors, like Blackrock, in the area they call “impact investing” or ESG, and, just as important, the way that evolving role reflects a more sophisticated understanding of metrics and indicators that are just as quantifiable and just as important for evaluating risk and return as too-easily manipulated traditional metrics like EPS and PE ratios. Both of these points are absolutely fundamental, but most of this podcast skirts those issues by accepting outdated notions about trade-offs between financial gain and investing to warm the cockles of the heart.

I won’t reiterate the extensive writing we have done on those issues, which we will continue to explore even more extensively in the future, I’m sure. We hope some day Slate will, too.

Source: The CEO council disbanding, companies’ responsibilities to shareholders, and impact investing.

New Zealand super goes green | Financial Standard

Guardians of the New Zealand Superannuation Fund announced the $14 billion global passive equity portfolio will employ a low-carbon methodology, exiting active investment in companies including Genesis Energy and NZ Oil and Gas.This, according to fund chief executive Adrian Orr, makes the fund more resilient to climate change investment risks such as stranded assets, and brings its focus on addressing climate change risk in line with current global best practice by institutional investors.

“There is a global consensus that climate change presents material risks for long term investors,” Orr said.

“Leading investors around the world are adjusting their portfolios to address climate change risk and capture opportunities stemming from the transition to a low-carbon economy.”

Fund chief investment officer Matt Whineray said financial markets were under-pricing climate change risk over the fund’s long investment timeframe.

Source: New Zealand super goes green | Financial Standard

On The ESG Horizon — Achieving A Global Standard

ESG integration was once a topic left to the public relations department of the average organization. Now that institutional investors are seeing how responsible integration positively affects a company’s valuation, talks of mandatory government regulation around the world are increasing.

“The pace and scope of regulation as it relates to ESG has risen exponentially since 2005,” says Michael Lewis, a Managing Director who leads the ESG Thematic Research team at Deutsche Asset Management. “Regulation has typically been voluntary, and grouped into four broad themes.”

Those themes, according to Lewis, are:

• Corporate and investor disclosure such as the EU non-financial reporting directive;

ADVERTISING• Stewardship codes and laws which encourage asset managers to engage with investees;

• Regulations aimed specifically at asset owners to incorporate sustainability into their investment decision making;

• Regulations to shift capital to green and sustainable assets.

However, the days of the voluntary regulation practices are coming to a close. Mandated regulation will, before long, be the new global standard in relation to ESG integration.

Source: On The ESG Horizon — Achieving A Global Standard

The space between climate change and financial statements

The TCFD wants to improve the quality of climate-related financial disclosures, and that means company filings that capture the impact of climate change on businesses over time.This goal goes beyond just producing, as the TCFD calls it, “forward-looking” climate information. It also requires that both the risks and opportunities of climate change be broadly integrated with financial statements.

But big challenges arise from the TCFD recommendations. The obvious one is that there are no specific standards or methodologies to integrate such disclosures into accounting practices.Financial accounting standards do not mention “climate change” and by definition are backward looking, designed to produce financial statements that portray the true and fair position of a company at a year-end. They are a snapshot of the past, not the future.

Jon Williams, a member of the TCFD and PwC Sustainability & Climate Change Partner, says: “In my view, rather than trying to spend the next decade coming up with a new climate-change reporting standard, it will be useful for the TCFD or another body to produce an interpretation of accounting standards through the lense of climate change.”

The TCFD final report highlights the “interconnectivity of its recommendations with existing financial statement and disclosure requirements” of the IASB and FASB. It explicitly mentions IAS 36 (impairment of assets) and IAS 37 (provisions, contingent liabilities and contingent assets).

Source: The space between climate change and financial statements

Helping Boards Face Climate Change | Ceres

We think of it differently: climate change creates risks and opportunities in supply chain, operations, product development, compliance, and branding that need to be explicitly and transparently assessed as a part of corporate strategy. We’re uncomfortable with the use of terms like “philanthropy” in this context. But we believe this article is worth reading.

Susan MacCormac, partner with Morrison & Foerster and co-chair of the company’s energy and clean technology groups, tells Corporate Secretary she thinks of sustainability issues in three ways.

The first is as an extension of CSR – a kind of philanthropy involving activities that are not part of a company’s core business but that can be of benefit to the environment or the community. Such activities seldom have board involvement, unless they entail significant expenditures.

The second strand involves the law that has developed over the last five years requiring compliance around supply chains, conflict minerals and – increasingly – ‘integrated reporting’, Mac Cormac observes. This strand of sustainability involves issues on which a company is required to report because they are material to operations and therefore are within the purview of the corporate secretary.

The third area involves how the company’s operations are impacted by ESG issues. ‘And that is core to how the company operates, not the extension of philanthropy and not compliance,’ Mac Cormac points out. In this area – which she calls ‘the meat of the matter’ – the role of the corporate secretary is to determine whether management is focused on the issue, because some aspects of it are operational. The corporate secretary should help the board decide whether it has only an oversight role, or if it needs to take a more active role, Mac Cormac points out: ‘And then you reach the question: if the board has oversight, or active involvement, what does that look like?’

Source: Helping Boards Face Climate Change | Ceres

What millennials want from their CEOs: Activism – The Washington Post

Young consumers — and possibly shareholders — are more inclined to respect companies that support their values.

A new report from the global public relations firm Weber Shandwick and KRC Research surveyed Americans on how they feel about “CEO activism” — when corporate officials make public statements on social issues. In recent years, more and more chief executives have been speaking up, urging the White House to remain in the Paris climate accord, criticizing regulations that limit gay rights, defending journalism amid accusations of “fake news” or criticizing dysfunction in Washington. As Apple CEO Tim Cook said last year: “For a company that’s all about empowering people through our products, and being a collection of people whose goal in life is to change the world for the better — it doesn’t sit right with me that you have that kind of focus, but you’re not making sure your carbon footprint isn’t poisoning the place. Or that you’re not evangelizing moving human rights forward.”

Millennials are the one group that sees this trend in a significantly positive way. In the survey, 56 percent of millennials said CEOs and other business leaders need to engage on hotly debated current issues more today than in the past, compared with just 36 percent of Gen Xers and 35 percent of baby boomers.Forty-seven percent of millennials said CEOs have a responsibility to speak up on social issues that are important to society, compared with just 28 percent of Americans in older generations. And millennials were the only generation in the survey in which the percentage of those who said they view CEOs more favorably for taking public positions actually expanded since last year, rather than declined.

Source: What millennials want from their CEOs: Activism – The Washington Post

Campaign urges U.S. public pension funds to divest from owner of Trump hotel

Advocacy groups launched petitions and sent letters on Wednesday urging two of the biggest U.S. public pension funds to divest from an investment fund unless it stops paying one of President Donald Trump’s companies to run a New York hotel.<P><P>Reuters reported on April 26 that public pension funds in at least seven U.S. states periodically send millions of dollars to an investment fund that owns the upscale Trump SoHo Hotel and Condominium in New York City and pays a Trump company to run it, according to a Reuters review of public records.

Source: Campaign urges U.S. public pension funds to divest from owner of Trump hotel

World’s biggest pension fund goes gender equal for the WIN – Financial News

Japan’s $1.2tn Government Pension Investment Fund is forging ahead with its gender equality drive, picking MSCI’s “Empowering Women” WIN index to benchmark its progress.

The giant fund has begun by shifting about 3% of its passive domestic equity investments, or around one trillion Japanese yen ($8.8bn), into index funds tracking three socially-responsible benchmarks, it said today.

One of these, MSCI’s Japan WIN index tracks companies that “encourage more women to enter or return to the workforce”. It ranks companies according to the gender balance of their new recruits, current workforce, senior management and executive board.

The other two indices it picked today – MSCI’s Environmental, Social and Governance Select Leaders and the FTSE Blossom Japan index – track Japanese firms that perform well on a more general social-responsibility agenda.

Source: World’s biggest pension fund goes gender equal for the WIN – Financial News

Norway Sovereign Wealth Fund Is Refusing to Be Silenced – Bloomberg

Norway’s $960 billion sovereign wealth fund, the world’s biggest, is taking a stance against equity indexes including companies that aren’t subject to shareholder control. The move opens a new front in the fund’s efforts to use its considerable—and growing—clout to force companies to improve their ESG act.

Source: Norway Sovereign Wealth Fund Is Refusing to Be Silenced – Bloomberg