Welcome to Moral Money. Today we have:
Goldman sees a bright future for US renewables
Melinda Gates talks to Moral Money about women and financial inclusion
Barclays study finds ESG funds are light on ESG holdings
Shareholder activists eye Airbnb as IPO nears
Young climate activists reflect on progress since last year’s UN assembly
Big Tech, not Biden, may set the US renewable energy agenda
Goldman Sachs is betting big on renewable energy in the US, and expects outsized returns regardless of whether or not Joe Biden manages to beat Donald Trump in this year’s presidential election.
A Biden victory should provide an obvious boost to sustainable investments, as he has committed to spend trillions of dollars on green energy and infrastructure. But even if he loses — or reneges on his promises — companies that have staked out claims in the US renewables market like NextEra, Iberdrola and Orsted are well positioned, says Katie Koch, head of fundamental equities at Goldman Sachs Asset Management.
To see why, one need look no further than the tech sector, where green energy is high on the agenda.
The FAAMNG companies (an ever-expanding acronym that stands for Facebook, Apple, Amazon, Microsoft, Netflix and Google) have a market capitalisation larger than the entire Japanese equity market, Ms Koch explains. “When they’re that big, you’ve got to think about what they are going to do,” she said.
Apple and Google already get all of their power from renewables, and the rest of the group is following hot on their heels. Facebook plans to use 100 per cent renewable power by the end of the year. Amazon, which sourced 42 per cent of its power from renewables in 2019, has set a target of 100 per cent for 2025.
There is, of course, nothing legally binding in these companies’ climate pledges, so they (just like the Democrats) could conceivably back off from their plans. But Ms Koch believes this to be unlikely.
For starters, the cost of renewables is plummeting. On top of that, while these companies are certainly not democracies, they are keen to quell dissent among the employees and investors who have taken them to task over their environmental, social and governance records.
“These big corporates are going to drive a huge amount of innovation in the US,” said Ms Koch. “A Democratic victory could be a tailwind, but [either way] there are incredible catalysts on the horizon.” (Billy Nauman)
When is an ESG fund no more ESG than any other fund?
How much “ESG” is in the typical ESG-focused fund? No more than in any plain vanilla strategy, according to a new study.
Research from Barclays, released on Thursday, looked at ESG scores across US equity mutual funds’ holdings between 2012 and 2019 and could not find any “significant difference” between the average scores of ESG-designated and non-ESG funds. The report noted, however, that measuring the degree of a fund’s ESG focus was “everything but straightforward” given the absence of industry standards.
Barclays’ researchers also looked at funds that had rebranded with a sustainable focus and found that those funds did not necessarily improve their average ESG scores after making the switch either.
This is sure to be fodder for ESG sceptics, but Arik Ben Dor, head of quantitative equity research at Barclays, said not all of the funds were necessarily greenwashing.
“Some funds tend to be doing a better job at delivering on the commitment to ESG, and some may be doing a poorer job,” he said.
The Barclays study used ESG ratings from MSCI and Moody’s Vigeo Eiris, calculating portfolio-wide averages based on funds’ past holding snapshots. Many investment managers use different methodologies or scores to construct ESG funds. That means Barclays’ results might have looked different if researchers had used other agencies’ work, Mr Ben Dor acknowledged.
The research also found that rebranded ESG funds typically did not do so around a period of bad performance, defying the notion that some managers use the “green” label solely to make underperforming funds marketable again.
In general, Barclays found no significant difference in returns between ESG and non-ESG funds (at least for the period it covered), something Mr Ben Dor attributed, in part, to the lack of discernible differences in ESG scores among portfolio companies.
“If you’re not doing anything different, you don’t expect the performance to be materially different,” he said. (Aziza Kasumov)
Will shareholder activists check in to Airbnb’s IPO?
Activists have long accused Airbnb of accelerating gentrification, inflating house prices and pushing working-class residents out of their neighbourhoods. Some have charged it with being complicit in human rights abuses against Palestinians over its listings in Israeli settlements in the West Bank.
Earlier this year, Airbnb set out a plan to turn itself into a “stakeholder” company, outlining metrics for how it intended to serve its “guests”, “hosts”, “communities”, and “employees” — in addition to its shareholders.
Now, with an IPO filing on the calendar for this month and its shares possibly trading by the end of the year, Airbnb can probably expect some of its new shareholders to hold its feet to the fire on those promises.
“I wouldn’t be surprised to see a group of investors targeting Airbnb with proxy proposals around a range of sustainability issues,” said Kirsten Snow Spalding, senior programme director at the Ceres investor network. She added that engagement efforts from buyside analysts might even start well before the actual IPO. Ceres members have not launched any co-ordinated campaigns yet, however.
Airbnb’s handling of the coronavirus pandemic could be another focus of shareholder campaigns, industry professionals say. The company announced in May that it would cut 1,900 jobs, laying off a quarter of its workforce. Management blamed the sharp drop in appetite for vacation rentals for its decision. The company’s private valuation has tanked from $31bn in 2017 to $18bn this spring.
Investors rushing to secure “a slice of another hot tech stock . . . might ask themselves why a company that can raise capital in this way, and generate a premium for its private owners in the process, has just made 25 per cent of its workforce redundant”, said Simon Rawson, director of corporate engagement at ShareAction. “Perhaps a company that was thinking about generating long-term value would preserve talent within the company, protecting jobs.”
Investors might also raise questions over how Airbnb was ensuring the safety of its customers for the remainder of the pandemic, and what the company was doing to boost diversity and inclusion, said Fionna Ross, senior analyst on Aberdeen Standard Investments’ responsible investing equities team.
Despite Covid-19 having moved the ‘S’ in ESG into the spotlight, investors were unlikely to look past environmental concerns entirely, she added, predicting that shareholders would, at the very least, demand more disclosures from the get-go.
“You can’t really put a pause on a social or environmental issue that’s being created by a company,” said Ms Ross. (Aziza Kasumov)
Melinda Gates: financial inclusion critical in fight for gender equality
The Gates Foundation and the World Bank have set out a three-pronged plan to promote financial inclusion among women, as part of a larger strategy to combat gender inequality around the world.
Women and girls — who by some estimates are still 257 years away from achieving equality in the workplace — are among those groups.
But a new scheme to “Digitise, Direct and Design” cash payments could go a long way to help fix the problem, Melinda Gates told Moral Money in an interview last month.
Silicon Valley titans have long touted fintech as a way to “bridge the inequality gap” by steering resources to those historically excluded from the finance arena. Now the Gates Foundation sees the pandemic as an opportunity to “fast track” progress towards overcoming existing financial barriers for women.
Mahesh Uttamchandani, a practice manager at the World Bank, told Moral Money that facilitating financial transactions digitally could increase women’s financial inclusion in some countries by 20 per cent. Key to that would be putting mobile devices “in women’s hands”, according to Ms Gates, who argues that manufacturers should be incentivised to further women’s financial empowerment this way.
The report highlights new cash transfer programmes in countries ranging from Turkey to Peru, but the more critical question may be how that cash is being distributed. And are mobile manufacturers willing to aid in increasing mobile access to ensure that women get access to the funds? (Kristen Talman)
UN’s ‘green ticket’ winners point to challenges ahead
A year ago this month, the UN picked 100 young “green ticket” winners to attend its first youth climate summit, which coincided with the general assembly in New York last September.
To see how Greta Thunberg’s cohort is tackling green issues, Moral Money caught up with some green ticket recipients to ask about their work in the intervening year and their plans for the months ahead.
Mayumi Sato, Japan’s green ticket winner, talked for example about her transition from environmental field work in Laos last year to studying at Cambridge.
“Even though people at Cambridge are highly aware and passionate about alleviating climate change, it is easy for people to become complacent here, because the majority of the demographic living here is not adversely affected by climate change vis-à-vis other marginalised populations,” she said.
This frustration was echoed by Brandon Nguyen, Canada’s green ticket winner. The University of Pennsylvania student wrote his thesis on how tweets affect public perceptions of corporate greenwashing. This summer, he has been researching environmental racism in Canada and the unintended consequences of well-intentioned environmental policies.
He found that the transition to a green economy would produce windfall profits for some already wealthy stakeholders — those who receive electric vehicle subsidies or benefit from government energy efficiency programmes. While these programmes were laudable, “it’s also important to be cognisant of who these programmes are benefiting and who they aren’t”, he cautioned.
Last year’s event provided much-needed inspiration to keep up the climate fight, said Vishnu PR, India’s winner, who runs a climate change action organisation in Thiruvananthapuram.
“An average Indian kid believes that climate change is just melting glaciers and polar bear extinction,” he remarked.
The green ticket holders may be working on diverse issues, but their responses carry an important message: for all the green bonds companies have issued and carbon-neutral pledges they have made, income inequality, corporate greenwashing and youth apathy remain intricate challenges for those committed to the fight against climate change. (Patrick Temple-West)
Companies desperate for cash must be better corporate citizens (FT)
Ben & Jerry’s clashes with UK home secretary over migrants (FT)
CEO changes could be more of a catalyst for pay reform than Covid (FT)
Trump administration overturns rules on methane leaks (FT)
Ares Scraps Oil and Gas in its Private Equity Funds (FundFire)
Snam pioneers natural gas sector’s green transition (The Banker)
Senator Kamala Harris Brings An Equity Focus To The Climate Crisis (Forbes)
Child labour still prevalent in West Africa cocoa sector despite industry efforts — report (Reuters)