Tag: Impact Investing

Sustainable and ESG Investors Advocacy

From 2020 through the first half of 2022, 154 institutional investors and 70 investment managers collectively controlling nearly $3.0 trillion in assets at the start of 2022 filed or co-filed shareholder resolutions on environmental, social or governance issues.

  • As shown in Figure G below, public funds were the leading category of investors—in asset-weighted terms—that filed shareholder resolutions during this period, accounting for 67 percent of the assets of all institutional investor and money manager filers. However, they represented just 7 percent of the filing institutions. When the number of institutions rather than assets are considered, money managers were the leading segment filing resolutions.

 

Fig G - Types of Investors Filing Shareholder Proposals 2020-22 - US SIF

  • As shown in Figure H at top of page, the leading issue raised in shareholder proposals, based on the number of proposals filed from 2020 through 2022, was on ensuring fair workplace practices, and particularly on ending de facto discrimination based on ethnicity and sex. From 2020 through mid-2022, investors filed a total of 311 proposals on these fair labor issues.
  • Investors also focused on disclosure and management of corporate political spending and lobbying. Shareholders filed 288 proposals on this subject during this period. Continuing a trend of several years, many of the targets were companies that have supported trade associations that oppose regulations to curb greenhouse gas emissions.
  • A surge in shareholder proposals on climate change that began in 2014 has continued, as investors have wrestled with whether US corporations are doing enough to assess their climate risk or to meet the greenhouse gas reduction challenges laid down by the Paris Climate Accord: 265 proposals were filed from 2020 through 2022.
  • The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2014 through 2016, just 2 percent of shareholder proposals on environmental and social issues received majority support. From 2017 through 2019, that proportion rose to 6 percent. From 2020 through mid-2022, 14 percent of environmental and social proposals, on average, received majority support.

 

US SIF 2022 US Sustainable Investing Trends ReportOrder a copy of the 2022 Report on US Sustainable Investing Trends from the US SIF.

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

ESG Incorporation by Institutional Investors

The US SIF Foundation also researched the ESG incorporation practices of institutional asset owners. Because money managers generally do not disclose confidential information about their institutional clients, the data received from our direct research of institutional investors show how and why they incorporate ESG criteria into their investment analysis and portfolio selection. The group included institutional asset owners and plan sponsors such as public funds, insurance companies, educational institutions, philanthropic foundations, labor funds, hospitals and healthcare plans, faith-based institutions, other nonprofits and family offices.

Using the modified methodology, this Trends Report identified 497 institutional asset owners applying ESG incorporation practices across $6.6 trillion in assets under management.

  • Among the institutional investors, public funds hold the largest share of assets using ESG criteria and represent the greatest number of institutions reporting the incorporation of some form of ESG criteria in their investments. See Figure E.

 

Fig E - Institutional Investor ESG 2022 Assets by Investor Type - US SIF

  • For the first time, institutional investors reported climate change as the leading ESG criterion they addressed in asset-weighted terms, affecting $4.0 trillion. See Figure F at top of page.
  • Another leading environmental issue investors considered is sustainable natural resources and agriculture, reflected in $2.8 trillion in assets.
  • The top social issue in asset-weighted terms is the restriction of investments in companies doing business with conflict risk countries, affecting $3.3 trillion.
  • Other prominent social issues are health and safety criteria, tracked for the first time and addressed across $2.1 trillion, and EEO/diversity, affecting $2.0 trillion.
  • The top governance criterion identified for institutional investors is board issues, which includes the consideration of the directors’ independence, diversity, pay and responsiveness to shareholders, across $2.9 trillion.
  • Tobacco, a sustainable investment issue for decades, affects $2.7 trillion in institutional investor capital.

 

US SIF 2022 US Sustainable Investing Trends ReportOrder a copy of the 2022 Report on US Sustainable Investing Trends from the US SIF.

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

ESG Incorporation by Money Managers

Using the US SIF Foundation’s modified methodology, this report identified 349 money managers and 1,359 community investment institutions incorporating ESG criteria into their investment decision-making processes across a total of $5.6 trillion in assets under management.

Figure C provides a breakdown by investment vehicles1:

  • $1.2 trillion—22 percent— in assets were managed through registered investment companies such as mutual funds, exchange-traded funds, variable annuities and closed-end funds.
  • $762 billion—14 percent— in assets were managed through alternative investment vehicles, such as private equity and venture capital funds, hedge funds and property funds.
  • $458 billion in assets were managed by community investing institutions.
  • $186 billion in assets were managed through other commingled funds.

Fifty-three percent of the total assets reported by 135 money managers using specific ESG criteria could not readily be categorized by investment vehicle type, such as mutual fund or private equity fund, because those managers did not provide adequate disclosures. These “Undisclosed Investment Vehicle Assets” therefore constitute a pool of $3 trillion in reported ESG assets under management, as shown in Figure C.

Figure D, at top of page shows the leading ESG criteria reported by money managers:

  • Climate change is the most important specific ESG issue reported by money managers in asset-weighted terms, addressed across $3.4 trillion in assets.
  • In terms of other environmental criteria, money managers reported applying fossil fuel divestment policies across $1.2 trillion in assets, ranking it as fourth among all specific ESG criteria.
  • Avoidance of military / weapons and tobacco are ranked as second and third, affecting $1.8 trillion and $1.7 trillion in assets under management, respectively.
  • The leading specific governance criterion is anti-corruption, addressed across $1.0 trillion, followed by board issues across $926 billion in assets under management.
  • Human rights are the most prominent social issue in asset-weighted terms, addressed across $987 billion, followed by equal employment opportunity (EEO)/diversity across $765 billion, and health and safety across $701 billion in assets under management.
Footnote:
[1]  This report provides a breakdown of money manager sustainable investment AUM by type of investment vehicle used. “Investment vehicles” refer to pooled investment products organized as registered investment companies (e.g., mutual funds and ETFs) or as private commingled funds (e.g., private equity, venture capital, and hedge funds), separately managed accounts, CDFIs and other community investment institutions.

 

US SIF 2022 US Sustainable Investing Trends ReportOrder a copy of the 2022 Report on US Sustainable Investing Trends from the US SIF.

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

2022 Report on US Sustainable Investing Trends: Executive Summary

This edition of the Trends report, like the 13 previous editions, tallies the assets under management (AUM) of investment professionals who use one or more strategies of ESG incorporation and/or file or co-file shareholder resolutions at publicly traded companies on environmental, social and governance (ESG) issues. ESG incorporation strategies used by investors include: ESG integration, positive/best in-class screening, negative screening, impact investing and sustainability-themed investing.

After the 2020 Trends report, however, the US SIF Foundation decided to modify its methodology for the 2022 report. In a departure from previous editions, this report does not include the AUM of investors who stated that they practice firm-wide ESG integration but did not provide information on any specific ESG criteria they used (such as biodiversity, human rights or tobacco) in their investment decision-making and portfolio construction. The US SIF Foundation committed to this approach after the 2020 Trends report found that ESG integration had become mainstream and was applied across trillions of dollars, but with limited disclosure on specifics. This continued a phenomenon first identified in the 2014 Trends report.

The US SIF Foundation’s new modified methodology includes the following for ESG incorporation:

  • The AUM of investors, investment vehicles (e.g., mutual funds, private equity funds, separate accounts, other commingled funds), and pools of assets with one or more specific ESG criteria incorporated in investment decision-making and portfolio construction.
  • The AUM of specific funds (e.g., mutual funds, exchange-traded funds, closed-end funds) for which money managers identify ESG or sustainability as integral to their investment decision-making and portfolio construction in the fund’s prospectus, even without providing specific ESG criteria.

Fig B - 2022 Sustainable Investing Assets Trends - Fig B - US SIF

This modified methodology distinguishes between a firmwide reference to ESG integration and a fund-level ESG strategy. While the total assets of a money manager that references ESG integration across the firm without the identification of any specific criteria are not counted in this year’s report, a fund that explicitly references ESG integration as part of its investment decision-making and portfolio construction in its prospectus is included in total ESG assets under management. However, the name of a fund with “ESG,” “sustainable” or similar terms was insufficient, in itself, for the fund to be included.

At the same time that respondents were reporting their data to the US SIF Foundation, the Securities and Exchange Commission (SEC) released two proposals that focused on preventing misleading or deceptive fund names and requiring more detailed ESG disclosure by funds and advisors. Trends researchers immediately began to see multiple asset managers reporting a modest to steep decline in ESG AUM as compared to their responses in 2020. The US SIF Foundation believes that these SEC proposals are motivating asset managers to be more circumspect in what they consider to be assets that incorporate ESG criteria. The organization supports the intent of the SEC proposals and submitted comments that it believes will lead to more effective rulemakings.

The modified methodology, as well as the change in asset manager reporting, has resulted in the sustainable investment AUM in this report coming in significantly lower—$8.4 trillion in 2022, compared to $17.1 trillion in 2020 (see Figure A at Top of page). The $8.4 trillion represents 12.6 percent, or one in eight dollars, of the $66.6 trillion in total US assets under professional management.

This phenomenon is similar to what occurred in Europe after the EU’s Sustainable Finance Disclosure Regulation required enhanced disclosure on sustainable investment products. See the Methodology chapter of the report for further details.

Overview

Through surveying and research undertaken in 2022, the US SIF Foundation identified, as shown in Figure B, above:

  • $7.6 trillion in US-domiciled assets at the beginning of 2022 held by 497 institutional investors, 349 money managers and 1,359 community investment institutions that practice ESG incorporation—applying various ESG criteria in their investment decision-making and portfolio selection.
  • $3.0 trillion in US-domiciled assets at the beginning of 2022 held by 224 institutional investors or money managers that filed or co-filed shareholder resolutions on ESG issues at publicly traded companies from 2020 through 2022.

 

US SIF 2022 US Sustainable Investing Trends ReportOrder a copy of the 2022 Report on US Sustainable Investing Trends from the US SIF.

 

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

Biodiversity Finance Guide Offers Investors a Blueprint to Protect Nature

IFC recently issued the world’s first guidance to help investors, financiers, companies, and governments identify investments that protect and rehabilitate biodiversity and ecosystems.

The Biodiversity Finance Reference Guide is the first market framework for biodiversity finance, a fast-growing domain of green finance that aims to support activities that conserve and restore biodiversity and ecosystem services.

While the market has increasingly expressed interest in these types of investments, it has lacked criteria for eligible projects. IFC’s guide addresses this gap by providing an indicative list of investment projects, activities, and components that help protect, maintain, and enhance biodiversity and ecosystem services, as well as promote sustainable management of natural resources.

“Protecting and restoring biodiversity and ecosystems is critical to ensuring sustainable economic growth,” said Makhtar Diop, IFC’s Managing Director.

“It is also a key component of our response to climate change mitigation, resilience, and adaptation. The private sector has a central role to play in these efforts. This guide is a compass for businesses and investors seeking to align their activities with the goals of sustainable growth and a healthy planet.”

The Guide builds on IFC’s experience in setting global standards for green bonds and blue finance, and enumerates specific activities that positively contribute to biodiversity.

Among other recommendations, it advocates addressing certain infrastructure needs with nature-based rather than manmade solutions, such as constructing mangroves, wetlands, green roofs, and raingardens. This approach offers a cost-effective way of building resilience and adapting to the physical impacts of climate change and contributes toward emissions reductions to meet the goals of the Paris Agreement.

More than half of the world’s GDP is generated in industries that depend on nature and its services. Yet economic activity has resulted in dramatic disappearance of species, with some 70% of biodiversity being lost in the last 50 years. This degradation of natural foundations presents a risk to livelihoods, health, economies, and achieving climate goals.

Nature-smart investments are particularly important in emerging markets, where economies have a particular reliance on natural capital and stand to bear the brunt of economic damages from biodiversity loss.

IFC partnered with the Wildlife Conservation Society for an external expert review of the Guide. The Guide also benefited from inputs from the public and private sector, academia, international organizations, civil society representatives, and individuals during a public comment period.

The publication will continue to evolve as the market for biodiversity finance develops and matures.

 

About IFC
IFC — a member of the World Bank Group — is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2022, IFC committed a record $32.8 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of global compounding crises. For more information, visit www.ifc.org.

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How do ESGs Compare to Other Eco-friendly Investments?

Socially and environmentally responsible investing is all the rage lately, and today’s investors can choose from hundreds of stocks, mutual funds, and municipal bonds that are marketed as beneficial to the environment.

Eco-friendly investing puts money behind companies that claim to be better for the environment by actively trying to lower their carbon emissions. But investors who want to make decisions with the environment in mind can find themselves trying to navigate a confusing landscape.

What are ESGs?

ESGs (i.e., environment, social, and governance) are mutual funds made up of companies that claim to benefit the environment through their business practices; commit to fair compensation and social responsibility for their employees, vendors, and communities; and offer executive compensation and shareholder rights transparency.

ESG funds have been rated by Wall Street for their eco-social business models. While they’ve grown by trillions of dollars worldwide in the last several years, they’ve started to cool in 2022 as more people have analyzed their costs and returns.

The Downside of ESGs

Wall Street’s researchers developed rating criteria that analyzes several aspects of company-reported practices. But in reality, many ESGs are large, multinational companies that also have holdings in dirty energy, such as oil and gas that want to “greenwash” their business model.

Greenwashing is an attempt to gives people false or misleading information about a company’s practices and products in order to capitalize on consumers’ preference for eco-friendly products. Greenwashed investments are publicly traded companies that are portraying themselves as environmentally friendly, except they don’t have the receipts to prove it, and the Wall Street analysts don’t require them, anyway.

ESG’s, like all publicly traded companies, are dedicated to providing returns to shareholders, not the environment. Many are not developing innovative environmental solutions. They invest shareholders’ money in the entire company, not just the green initiatives.

There’s also evidence that ESG investors pay as much as 40% higher broker and fund management fees, and for years their returns have underperformed the market.

Investment Alternatives with No Fees and More Impact

Investors can have more positive environmental impact by diversifying their portfolios with money market accounts and CDs from “green banks”, such as Clean Energy Credit Union. Diversified portfolios are better protected during times of market volatility, and Clean Energy Credit Union’s savings vehicles are an excellent hedge with no fees and interest rates as high as 3.75% APY on a 1-year CD.

ESG investing is pretty far removed from having a direct impact on the environment. The funds deposited in Clean Energy Credit Union money market accounts and CDs are pooled and made available as loans to qualified members, so they can buy electric vehicles, make energy-efficient home improvements, install solar panels, heat pumps, and more. Clean Energy Credit Union’s loans accelerate the adoption of renewable energy to make everyday people – homeowners, business owners, and families – able to afford the future of energy that will lower their carbon emissions and energy costs.

For investors that want proof of impact, Clean Energy Credit Union has a carbon offset calculator that shows the amount of carbon emissions that could be reduced by the money held in their savings account.

Investors could also look for green technology and manufacturing stocks. Several companies are making progress in battery storage, electric vehicles, solar and wind energy, and new renewable energies, such as hydroelectric. They need investors to fund the hard work of discovery, rigorous testing, and manufacturing.

Considerations When Making “Green” Investments

There are many ways to invest your hard-earned money in funds and savings that represent your values, but be sure to do plenty of research first:

  • Read prospectuses, disclosure statements, and annual reports carefully
  • Look at stocks’ historical returns to make sure they’re meeting their projections, and if not, why not
  • Make sure ESGs are truly having a positive impact on our planet and not just greenwashing
  • Compare fees from different institutions to get the best rates
  • Look for green alternatives to stocks to complement and diversify your portfolio

Clean Energy Credit Union offers its members financing for all types of carbon-reducing home and lifestyle improvements. Our mission is to make clean energy accessible to more people. If you’re building your investment portfolio, open a Clean Energy Credit Union money market account today or purchase CDs that will help you earn money and live your values. Learn how you can join the movement.

 

Article provided by Clean Energy Credit Union

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Calvert Impact Releases its 2022 Impact Report: The Need for Transformative Change

Above – Calvert Impact portfolio partner Clearinghouse CDFI is a full-service, direct lender addressing unmet needs throughout the US. Their loans help organizations like Paul Quinn College (PQC). PQC is one of 102 historically black colleges and universities (HBCUs) in the US. Originally founded in 1872 to educate former slaves and their children, today PQC proudly educates students of all races and socioeconomic classes. PQC offers paid jobs for every student, as well as reduced student tuition and fees, allowing students to graduate with less than $10,000 in student loan debt.

Annual report details impact of Calvert Impact’s investments over the past year

Calvert Impact 2022 Impact ReportCalvert Impact recently announced the publication of its 2022 Impact Report: Responding to the Need for Transformative Change. The report showcases Calvert Impact’s portfolio partners’ work in communities around the globe and the impact of its investors’ capital. It also highlights key internal trends, with particularly noteworthy increases in Calvert Impact’s climate and small business portfolios.

“This report is a celebration of our investors and portfolio partners’ remarkable work and demonstration of what’s possible,” said Calvert Impact President and CEO Jennifer Pryce. “It’s inspiring to see the breadth and depth of impact that our investors help make possible.”

In the last year, Calvert Impact’s capital served more than 144 million individuals and 4.1 million small businesses across the US and in over 100 countries. They made $268 million in loans and investments into organizations that disbursed nearly $7 billion into communities over 2021.

The report demonstrates Calvert Impact’s commitment to fighting climate change, noting that their climate-focused investments have grown over 380% over the last five years and accounted for 42% of total disbursed capital. The number of small and medium enterprises financed also increased substantially, with 414% growth from last year, reflecting Calvert Impact’s dedication to supporting small businesses around the world. The jobs created and/or retained by their portfolio partners grew by 30%.

The report also shares the organization’s focus — in both its portfolio and staff — on gender and racial equity as part of its efforts to address structural inequities and covers Calvert Impact’s recent corporate expansion.

Pryce noted that the organization is dedicated to constant iteration and improvement is “core to the character of Calvert Impact,” stating in her CEO letter, “We remain committed to showing a different world is possible.”

Additional information about the Impact Report can be found here.

 

About Calvert Impact Capital
Calvert Impact is a global nonprofit investment firm that helps investors and financial professionals invest in solutions that people and the planet need. During its 25+ year history, Calvert Impact has mobilized over $4 billion to grow local community and green finance organizations through its flagship Community Investment Note™ and structuring services. Calvert Impact uses its unique position to bring the capital markets and communities closer together. More at calvertimpact.org.

Calvert Impact Capital, Inc., a 501(c)(3) nonprofit and a subsidiary of Calvert Impact, Inc., offers the Community Investment Note®, which is subject to certain risks, is not a mutual fund, is not FDIC or SIPC insured, and should not be confused with any Calvert Research and Management-sponsored investment product. Any decision to invest in these securities through this site should only be made after reading the 
prospectus or by calling 800.248.0337.

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Vert Celebrates the 5th Anniversary of its Global Sustainable Real Estate Fund

Vert Asset Management, a dedicated ESG investment manager, recently announces the 5th anniversary of Vert Global Sustainable Real Estate Fund (Ticker: VGSRX), an open-end mutual fund which seeks to achieve long-term capital appreciation. The Fund invests across the globe in publicly listed real estate investment trusts (REITs) using evidence-based environmental, social and governance (ESG) criteria.

“Five years ago, we created first sustainable real estate mutual fund in the U.S. Financial advisors were looking for more choices in ESG funds to complete their asset allocations. They asked us for a pure real estate fund that meets their clients’ preference for sustainability,” said Sam Adams, Vert Chief Executive Officer and Co-founder.

The Fund ended the most recent quarter with $154.6 million assets under management (September 30, 2022). VGRSX is available on most independent platforms including Schwab, TDAmeritrade, Fidelity, Pershing, and UBS among several others. Over 100 financial advisors use the Fund for their real estate allocation in their sustainable portfolios. “We are delighted to be able to offer the Vert Global Sustainable Real Estate Fund in our ESG portfolios as we have seen new interest for sustainable investments from 401(k) plans and their participants”, said Tom Pohlen, Retirement Plan Consultants.

The Fund’s proprietary ESG research methodology integrates academic research, industry best practice, and third-party datasets to evaluate companies for sustainability. The portfolio buys REITs that are leaders in sustainability. Professor Gary Pivo, a member of Vert’s Investment Research Group, said, “We have witnessed a profound increase in the quantity and quality of ESG data that is available to investors over the past five years. More companies are disclosing their performance and more companies are making commitments to sustainability.”

Vert is an active shareholder and engages regularly with portfolio companies on important sustainability issues. Sarah Adams, Vert Chief Sustainability Officer and Co-founder, added, “Every year we write to the REITs we hold to encourage them to take the next step to more sustainability. We’ve become known as an advocate for companies to incorporate climate strategy into their business strategy. We also collaborate with other asset owners and industry bodies to speak to REITs about climate risks and asset-level sustainability plans.”

For additional information, please inquire at: info@vertasset.com

 

About Vert Asset Management
Vert Asset Management is a dedicated ESG fund manager. Founded in 2016 in San Francisco, California, Vert’s mission is to mainstream sustainable investing. The firm works in close consultation with academic experts and experienced portfolio managers to create investment products that promote sustainability and deliver competitive financial returns. As a business, Vert practices the triple bottom line approach by focusing on people, planet and profit.

About Dimensional Fund Advisors
Dimensional Fund Advisors is a global investment firm that has been translating academic research into practical investment solutions since 1981. With clients around the world, Dimensional has 14 offices in ten countries and global assets under management of US$540 billion as of September 30, 2022.

Mutual fund investing involves risk. Principal loss is possible. Investors should be aware of the risks involved with investing in a fund concentrating in REITs and real estate securities, such as declines in the value of real estate and increased susceptibility to adverse economic or regulatory developments. Investments in foreign securities involve political, economic and currency risks, greater volatility and differences in accounting methods. The Fund’s focus on sustainability may limit the number of investment opportunities available to the fund and at time the fund may underperform funds that are not subject to similar investment considerations. Diversification does not guarantee a profit or protect from loss in a declining market.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges, and expenses. This and other information is in the summary or statutory prospectus, a copy of which may be obtained by calling 1-844-740-VERT or visiting the Fund’s website, www.vertfunds.com . Please read the prospectus carefully before you invest.

The Vert Global Sustainable Real Estate fund is distributed by Quasar Distributors, LLC.

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Green Bonds are Big Business for Climate Investors

By John Howell, Climate & Capital Media

Can financial instruments such as green bonds and other sustainability-related products deliver enough financing for a multi-trillion-dollar energy transition?

Climate and Capital Media Featured NewsThe cost of transitioning from fossil fuels to clean energy seems fantastically astronomical. Current estimates of the capital needed to decarbonize the global economy and achieve net zero emissions by 2050 offer some eye-watering figures. They range from a high of $9.2 trillion yearly (McKinsey report) to a low of about $1 trillion annually (according to the think tank Carbon Tracker).

So, based on those annual projections, a final price tag from now until 2050 could be anywhere between $30 trillion and $275 trillion. Consider that a BCG report fixes the cost between $100 trillion and $150 trillion. Japan estimates that Asia alone will need $40 trillion to reach net zero by 2050. And Climate Bonds Initiative predicts annual green bond issuance of $5 trillion by 2025 is required to get things moving in the right direction.

New research from Bloomberg New Energy Finance has resulted in yet another number to ponder: $114 trillion in investment in the global energy system by 2050.

This analysis aimed to determine the investment needed to reach net zero and limit global temperature increases to no more than 1.5 degrees Celsius. It was commissioned by the Glasgow Financial Alliance for Net Zero, a coalition of banks, asset managers and insurers overseeing a combined $135 trillion of assets which, obviously, has a deeply vested interest in the findings.

The research crunched numbers from credible sources — seven scenarios from the International Energy Agency, the Intergovernmental Panel on Climate Change (IPCC) and the Network for Greening the Financial System. The report concludes, with a nod to the daunting scope of the financial task: “Numbers show that the decarbonization of the global economy is an undertaking with few parallels in modern history.”

New numbers come from a just-released International Energy Agency report, which sees investments in clean energy rising by 50% by the end of this decade to $2 trillion a year, more than double the amount invested annually in fossil fuels today. The IEA also notes that green investments should grow to $4 trillion annually by 2030 to meet net zero targets.

Whatever hypothetical price you buy into, it’s bound to be a significant number — one that seems even more daunting at a time of high inflation, rising interest rates and a looming recession.

How are such vast amounts of capital to be raised? One answer is through green bonds, a variation of the fixed-income debt instrument historically used by governments and corporations to borrow large amounts of capital. Bonds are the default choice to raise money which dwarfs the ability of banks to lend. Plus, public debt markets spread the risk, as many individual investors engage as lenders rather than one or more institutions. A green bond is a fixed-income instrument specifically earmarked to raise money for climate and environmental projects.

Currently, there’s a gold rush of inflows to green bonds of various types. The first green bond was issued in 2008, a AAA-rated issuance by the European Investment Bank and World Bank. Between 2014 and 2016, the global market began to grow exponentially; it has reached record highs each year since.

To date, the global green bonds market cumulative issuance has reached almost $2 trillion; so far, in 2022, the total is $313 billion. One forward-looking projection based on inflows data comes from Moody’s, which has estimated a $1 trillion market in global sustainable debt issuance for this year. Those figures begin to approach the low end of estimated amounts that have been called for to support the transition, and they are still increasing, despite the tight economic conditions forecast for the 12 months.

What’s more, the Inflation Reduction Act looks to turbocharge the green bond market in the U.S. The $369 billion act provides tax credits, incentives and other financial support that are sure to stimulate funding. Stephen Liberatore, head of ESG/impact for global fixed income at global investment manager Nuveen, said, speaking at the Environmental Finance ESG in Fixed Incomes Americas 2022 conference, “Hopefully, this act creates a catalytic effect in a variety of ways.”

Aniuli Pandit, head of sustainable bonds, EMEA and Americas, HSBC, agreed. “This is going to stimulate a great amount of spending towards clean energy and transport. It’s a catalyst for revolutionizing the way in which capital is going to have to flow and support a mass greening of the economy. A lot will come from large companies expanding the projects they are doing, so they will do large bonds to help finance these projects, which they will link to green labels and green financing.”

There are, however, three issues that cloud this encouragingly bright picture of investing as a means of addressing climate change:

1)  Definitions: How to accurately describe the various newly minted products? The basic green bond designation has expanded to include climate bonds and sustainability bonds, terms often used interchangeably but which denote instruments that are not identical in their details — although they may overlap. While all green bonds are a form of debt financing for an environmental project, the specifics of each differ based on its issuer and what the proceeds are used for. Sustainability bonds are used to finance a combination of green and social projects and to allocate their proceeds accordingly. They align with the four core components of the International Capital Market Association, Green Bonds Principles and Social Bonds principles.

Another recent is sustainability-linked bonds, which have raised the ante by promising higher returns if the issuer does not meet certain climate goals. The question of definition, then, boils down to actual targets, stated purpose and distribution of proceeds for any given bond.

In one recent example, investors bought $589 million of sustainability-linked bonds issued by Chanel. But it turned out that the company, which set its own objectives to reduce Scope 3 (indirect) emissions by 10 percent by 2030, had already dropped its score by 21 percent below the baseline set forth in the new bond. Chanel later said that it was still “finalizing 2019 data” when the bond was sold; “in other words,” reports Bloomberg, “they didn’t know that the target was already achieved.”

The other reason for this discrepancy between an aspirational goal and actual metrics was market pressure. Demand for such apparently quantifiable, targeted bonds exceeds the amount on offer by two to five times. The perceived value of “green” in the market is so high that investors are chasing the reputational “halo” from mission-specific bonds based on the most basic information when more transparency about more challenging goals seems necessary.

2)  Metrics and measurements: Who’s setting targets for the variations of green and sustainability bonds, and how are they measured? The answer today is the issuer. Not surprisingly, the self-described targets are not always the most robust.

This question is particularly acute for the new, sustainability-linked bonds, as both penalties and rewards are pegged directly to performance. A Bloomberg News analysis of more than 100 sustainability-linked bonds sold by global companies to investors in Europe found that “the majority are tied to climate targets that are weak, irrelevant, or even already achieved.” In the end, the issuing companies acquired cheaper financing and a green reputational “halo” without accomplishing much.

For now, issuers of green bonds are confirming their validity by aligning with the Green Bond Principles, endorsed by the International Capital Market Association, to bring a transparent framework to the market as a solution. Voluntary, yes, but a promising effort to hold issuers accountable. Climate Bonds Initiative also offers a standardized framework and certification for various bond types.

3)  Greenwashing: Do green bonds actually achieve the beneficial outcomes they promise? So far, the answer is a mixed one. “The changes are often less than meets the eye,” concludes one takedown, criticizing a lack of transparency and goals that are too vague and too lax.

As green instruments have proliferated in the market to meet the demands of investors, so have questions about efficacy. Debates are raging about points one (definitions and taxonomies) and two (metrics and measurements) with the intent of calling out greenwashing and certifying best practices. Should frameworks be voluntary or mandatory? Can standard goals be set and adhered to? The answers are a work in progress.

These are still early days for green bonds, in general, and for newer products, such as sustainability-linked bonds, in particular. Of the latter, Lupin Rahman, ESG integration specialist for Pacific Investment Management Co., one of the world’s largest bond investors, said, “This is a very, very young market. Two and a half years is nothing in terms of the history of investing, so this market is still finding itself.”

As the green bond market matures, the promise that it can deliver the financing for an historic global economic shift beckons as an achievable goal. That would be good news for investors and for the climate-change-stressed planet.

 

Article written for Climate and Capital Media by John Howell, a writer, editor, and broadcaster who oversees the Climate Finance Weekly newsletter and advises on communications and media strategy. He was co-founder, editorial director, and chief of thought leadership for 3BL Media, for which he managed all original editorial content, wrote, and edited newsletters, and created the Brands Taking Stands initiative. He has worked as an editor and contributor for Elle, Artforum, and High Times magazines, developed new media for Hearst Magazines, and created communications for Calvin Klein, Polo/Ralph Lauren, and The Body Shop. He lives and works in New Hampshire and Maine.

Additional Articles, Energy & Climate, Impact Investing, Sustainable Business

Despite a Tough Year, Women are Still the Future of Sustainable Investing

By Leah Cantor, Longview Asset Management

Above image – ©metamorworks, istockphoto

Leah Cantor Longview Asset MgmtAs a woman who is passionate about gender equity and fighting climate change, the last year has been a roller coaster. Russia’s invasion of Ukraine and the resulting energy crisis in Europe has led to a renewed global emphasis on oil and gas production, and despite the billions of dollars allocated to renewable energy infrastructure in the Inflation Reduction Act passed by congress in August, the transition to a carbon neutral economy seems further out of reach than it did just a year ago. In my opinion, the reversal of Roe v. Wade set women in the United States back decades, and around the world, progress towards equal rights for women has slowed.

As an investor who cares about the social and environmental impacts of my financial decisions and as an employee at LongView Asset Management – an advisory firm that helps clients align their investments with their values – I’ve felt the anxiety of watching the market slide into its worst year since the financial crisis of 2008. ESG investments underperformed the broader market due to many sustainable funds’ heavy reliance on technology stocks and exclusion of fossil fuel stocks, which have soared in value as the world scrambles to secure near-term energy resources.

Over the last year, sustainable investing also weathered attacks from all sides of the ideological spectrum, with environmentalists calling out the financial industry for greenwashing, while right-wing politicians in a growing number of states denounce ESG investing as “woke capitalism” and pursue legislation aimed at boycotting financial institutions accused of undermining the fossil fuel industry.

Despite all the chaos, I feel strongly that now is a critical moment for women to take control of their finances and the direction of ESG investing.

I entered the field after working as an environmental journalist, where I saw how much of a difference it makes to local communities and ecosystems when a company cleans up its act. I decided to pursue a career where I can help make this the norm. LongView is a certified B Corp, which means we’ve made a legally binding commitment to consider people and the planet in addition to profit, and we’ve gone through an exhaustive assessment to prove that our policies and practices are in line with our mission as a sustainable investment firm. The majority of our clients are women, and I know first-hand that women are eager to use their money to drive positive change.

Women are at the forefront of the movement towards a new kind of capitalism – one where companies don’t simply focus on maximizing profits for shareholders, but consider their impacts on all stakeholders, including the environment, their workers, and the communities in which they operate.

This interest is reflected in the workplace and in the way we invest.

Companies where women hold top leadership roles tend to meet higher environmental, social, and governance standards than their industry peers.

When it comes to investing, women have helped fuel the explosion of ESG into the mainstream. In one recent report, 79 percent of women said they want their investments to reflect their values. Another survey found that women are almost twice as likely as men to say it is extremely important that the companies they invest in incorporate environmental, social and governance factors into decisions and policies.

Women have historically been underinvested compared to men, however interest in investing among women has risen by 50 percent since the start of the pandemic.

With women expected to gain control over much of the $30 trillion in baby-boomer wealth over the next decade, the growth potential for the ESG industry is huge.

Given these trends, it’s unlikely that sustainable investing will be a passing fad. Still, the industry is facing some serious growing pains.

While federal and foreign regulators try to pass new rules to raise reporting standards, right-wing lawmakers have thrown sustainable investing into the fray of America’s culture wars.

In the last year, Republican state treasurers collectively pulled more than $1 billion from Blackrock – the world’s largest investment company – and blacklisted other major financial institutions including JP Morgan, Chase and Goldman Sachs due to company policies that allegedly harm the fossil fuel industry.

In 2021, Texas became the first state to pass laws that stop local agencies from doing business with banks that offer ESG funds or policies – a move that caused the five biggest lenders in the US to pull out of the state, ultimately costing local agencies an estimated $303-$532 million in additional interest. Since Texas’ decision, twelve other states have followed suit with legislation that attempts to outlaw aspects of sustainable investing.

On a brighter note, the US Securities and Exchange Commission, European Financial Reporting Advisory Group, and the International Financial Reporting Standards Foundation all proposed new rules in 2022 to standardize reporting on greenhouse gas emissions by companies and reduce confusion and mislabeling in the investment industry through detailed disclosure on ESG strategies and ranking systems used in funds.

The three regulatory bodies expect to finalize their proposals within the next 12 months.

Going forward into 2023, there are still many hurdles for ESG investors to overcome. The potential for continued underperformance of sustainable investments, a general economic slowdown, and new attacks from the right could all dampen the appetite for ESG investing in the short term.

For women, I see the debate around ESG as an opportunity for us to reflect on the outcomes we want to achieve and the investment strategies that would best align with our goals.

In the past, divestment has largely dominated the ESG conversation. This exclusionary approach screens out bad actors while investing more heavily in companies and industries that meet high social and environmental standards. More recently investors have also focused on ESG metrics to manage risk and boost performance.

As we head into 2023, a new generation of investors are pursuing positive change by filing and voting on shareholder resolutions and engaging directly with company management around specific issues. In 2022, shareholders filed a record number of proposals related to social and environmental concerns.

ESG issues are women’s issues – we not only want to protect the environment, but we also want to invest in companies that treat their workers with dignity, that protect women in the workplace at every step in the supply chain, and that adopt policies that increase diversity in leadership. By leveraging our power as shareholders, we can push companies to adopt policies that bring us closer to gender equity and carbon neutrality.

At a time when progress on issues that women care about seems to be backsliding, shareholder engagement is one way forward-and it’s gaining momentum. Despite the trials we are likely to face in 2023, this is a silver lining.

 

Article by Leah Cantor, Sustainability Associate at Longview Asset Management LLC, a registered investment advisor in Santa Fe, New Mexico, that focuses on socially and environmentally responsible investing for individuals and organizations. Leah led the firm in becoming a certified B Corporation in 2018 and is responsible for helping the firm continually improve on its sustainability commitments. Prior to pursuing a sustainable business career, Leah worked as an environmental journalist. She is a passionate believer in money as a tool for positive change.

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