Green investing 2022
Toronto, Canada (September 28 ) – Canada Pension Plan Investment Board (CPP Investments) has published its Report on Sustainable Investing. ESG investing attempts to make capitalism work better while dealing with climate change, evaluating both the sustainability and social goals. The green economy demonstrates a rapidly growing and sizeable investment So far in its performance to date has lagged global equity markets. ONLINE BETTING TEXAS
First, in attempting to simultaneously tackle such a wide array of objectives from the environment and social governance to diversity, equity, and inclusion, this still provides a poor guide for both investors and firms. Inevitable trade-offs are going to be made as competing objectives determine the ESG status. The Economist recently laid out the prime example of Elon Musk and Tesla.
While Telsa Inc. Similarly, British American Tobacco was rated as the third-highest ESG performer, despite the obvious concerns around tobacco. Answering complex climate questions, such as how to facilitate just transitions or reach wind farm capacity without damaging the local ecology, quickly highlights competing goals in securing emissions mitigation. The second major flaw with ESG is how the ratings are calculated. The Organisation for Economic Co-operation and Development OECD and other regulatory bodies have questioned whether the ratings or numerical scores attached to companies are sufficiently transparent.
ESG ratings consider all three pillars in scoring, but many companies may excel in one or two but perform poorly in another — all while maintaining a high rating. These inconsistencies are reflected in recent research about ESGs. In a study conducted by the University of Columbia and the London School of Economics , they found that companies included within an ESG portfolio actually had worse compliance records for both labor and environmental regulations than those that were not included.
They also did not find a significant change in the environmental or social behaviour of a company upon addition to an ESG fund. Other studies found that issues such as equitable pay for female employees tended to outrank climate considerations, once again highlighting the conflict in the definition of such fund. The increasing skepticism from both individual investors and regulatory bodies, coupled with turmoil in financial markets, have resulted in a decrease in money flow as well as slower economic returns for global ESG funds.
Climate activists have also been calling for a rethink amid accusations of greenwashing. The first point of action is increased regulation of the financial asset management space. At the end of , the European Union outlined its Green Deal commitments. Taken together, these regulatory frameworks would clarify the expectations for disclosure for the companies and allow for more consistent, clearer, and high-quality reports for investors.
What led you to covering climate change and the creation of your newsletter? I've always been interested in extreme weather and environmental extremism, that type of stuff. I came to notice about five or six years ago that the media just wasn't really doing a great job of covering climate change.
We couldn't get past collectively the political dispute over whether it existed or not. And I thought 'let's just assume the climate change is going to happen no matter whose fault it is and let's cover the business of adapting and what they call mitigation of climate change, because it's already here.
How are we going to deal with it? There's a business growing around that and it's called It has that phrase, ESG, environmental, social, and governance kind of wrapped into everything, but not a lot of folks were covering it in that way. I thought this is the perfect time to really get into this subject while everyone's locked down and start a little business. And it's been fascinating. It's been all from my beautiful world headquarters here outside of San Francisco. We will not make recommendations to buy, sell, or hold a particular security or asset, although we may discuss financial products with our guests.
Some of our guests may invest in securities mentioned on this podcast. Some of our guests may sell or market securities mentioned on this podcast, but all listeners should do their own research or consult with a financial advisor or broker before making any investment decisions. Caleb: "Like any good business journalist, David, you follow the money and the money's been pouring into ESG, SRI , climate tech, climate finance over the past decade, but it's still so misunderstood by investors.
What are the biggest misconceptions most investors have about these themes? You hit it right on the head. You can't just shut that off. I think that's one of the misconceptions that this is just an easy fix, right? It's going to be much trickier, Caleb. They call it a fossil fuel transition for a reason. We have to move fast because of the dangers of climate change, but not so fast that we're going to upend the world's economy with this transition to renewable energy.
Fossil fuel costs are going up. At some point, economics takes over and we will have a transition, but we have to make sure it happens cleanly. The other big misconception, I think, Caleb, that people have is that by just investing in an ESG fund or an ESG exchange traded fund that they're contributing to cleaning up the world from climate change, right? These funds are marketed products. There's hundreds of them, maybe thousands.
Mutual fund managers are not stupid people. I mean, many of these funds have oil companies in them. Each fund director, each marketing director can make their own argument over why Amazon should be in that fund or why Exxon should be in that fund or why the car companies, the major polluters should be in the fund. Investors need to really be careful. Do they want to make money? These funds have done pretty well.
Do they want to save the world and clean up climate change? You're going to have to look a little harder to find funds that really hit all those boxes. There are some accusations of greenwashing or that the ESG ratings are really only about the company's bottom line, not about the contribution they're making to reducing climate change.
This is bubbling up right now. You would expect that in this industry, which is, again, going through that evolution, not revolution. But what's missing in the conversation, David, about ESG? Is it about that impact, or is it about what companies can get away with?
What do you feel like we need to have in place there? You mentioned a couple of previous iterations of ESG in your introduction. SRI, for instance, socially responsible investing, right? These acronyms change over time and the reason they do is because they're all poor acronyms for what we're talking about.
And ESG may be the poorest of all. I mean, think about it, environmental, all right, that's something that has to do with the environment. Social, that can be anything. That can be anything from smoking cigarettes to wearing masks in public. Governance is generally kind of defined as corporate governance.
Almost anything lumps into this ESG box. The confusion that comes from that is inevitable, as you said. Everybody jumped on the bandwagon, introduced their own funds, their own investment products. Nobody knows what they really are. One of the things that has to change is we need a tighter definition of what investors are looking to do.
And in general, people that are investing in ESG funds are mostly looking to have some sort of environmental impact and to contribute to that. Everybody jumps in and then the backlash happens, the funds stop selling as well and they're going to start to come out with more focused funds, which will have hopefully better descriptive names of what these do.
The ones that I think focus on the entrepreneurs who are coming up with ideas to clean up the world—from taking plastics out of the ocean, to carbon out of the air, to sustainable fashion—these are the kind of companies that are going to drive the sales of these more focused funds you in the future. You know why the returns are good? Because they've been following the whales. What do you make of the massive multi-trillion dollar asset managers like BlackRock and their ESG in sustainability commitments?
Again, that is going to where the money is or where they think young money wants to go. Maybe it's because I'm close to them and you know them too, but I don't look upon them as just evil money grubbing people. Some of them maybe. But I take Larry Fink for his word when he says we need to do something. And I think part of that is driven from what we just discussed, from a desire to launch new investment products and bring in new customers and prepare a new generation of customers.
A lot of it, I think, comes from concern about risk. BlackRock is arguably the biggest asset holder in the world. They take a lot of abuse for it because they're passive fund managers in many cases, and so they own everything, which includes the fossil fuel companies. But I take them at their word. When I see that they go in there and they actually have negotiations and discussions with some of their holdings and try to influence proxy votes and stuff, I think that we're moving in the right direction.
Maybe not fast enough. Risk is what drives their business one way or the other, so they have a lot of money at risk. As investors or those who part with BlackRock who are our clients, they have that risk as well. But I think that drives a lot of it. But also I think there is something to be said for 'skate to where the puck is going,' and this is where young money wants to go. Venture capital , David, as you know, has been pouring hundreds of billions of dollars into climate tech and finance.
Where's the big money going and who's behind that money? A lot of that money in was going into battery storage and battery capacity. The idea, can we build better, longer lasting batteries for the expected electric car revolution? Battery companies are a little bit like the biotech companies of the s and '90s when we were young journalists.
They're always working on something really sexy and you never really see it develop except in a few cases. A lot of venture money is in battery companies. There are some good ones out there, at least it sound like they're doing stuff.
The money that's going into VC this year has been in carbon storage. Companies that are sucking carbon out of the air and storing it in the ground or making products like plastics and stuff from carbon are drawing a lot of money. It's a little bit confusing to me. I mean, there must be at least three dozen of them I saw on a spreadsheet recently, and they're all getting tons of money from VCs. And none of them have a product that actually does what they say on the scale needed to deal with climate change.
But that said, that's where the VC money's going. That seems to be the play de jure, at least of You don't see the Kleiner's and the Andreessen Horowitz's as much in this game as before. For the most part, they're still kind of doing the old school tech and stuff like that—what we call old school at least. It's breakthrough energy ventures, the Bill Gates product prelude.
There's a bunch of different ones out there that are relatively new and they're smaller funds. They're in the hundreds of millions of dollars or so, maybe billions, but not massive like Kleiner. In large part, they are put together by very a wealthy philanthropist. A lot of these folks are contributing huge amounts of money to these funds to find the next big thing, whether it be carbon storage or battery storage or electric vehicles or what have you.
It's going to be interesting because some of this stuff will stick. When you look at where we were 15 years ago, there was kind of a burst of money poured into what they called then clean tech companies. But some of those companies survived and they're some of the solar companies that are big now, Techwell and Electric. Tesla was one of them. Sun Power, one of them, big solar company.
Even though most people look back on that era as a bust for clean tech, the survivors are doing great. And we will see I certainly think they are in We may see a lot of the sheen come off the ESG story because of that, and the survivors will be the ones that you want to pick up when those clouds have passed.
SRI stands for Socially Responsible Investing , and it is essentially the practice of investing in companies that are considered socially responsible.
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