November 2021 Newsletter
News & Commentaries by Ron Robins
Latest Podcast: Great Stock and Fund Picks Post COP26 “Includes Tesla, NIO, Li Auto, TPI Composites, Schneider National, Knight-Swift Transportation, FREYR, Fisker, Alstom, NARI Technology, SINOPEC Engineering Group, Covestro, Rexel, …rsted, Siemens Energy, FirstEnergy, Sunrun, PAVE infrastructure ETF, Parker-Hannifin, Xylem, Jacobs Engineering, Martin Marietta, Cleveland-Cliffs, Xcel Energy, United Rentals, VOTE ETF, Plug Power Inc., Brookfield Renewable Partners.”
— By Ron Robins
Is your ‘green’ fund really any different to one without the trendy label? Top experts warn they can be almost identical – and demand a crackdown. “Leading investment experts are calling for the country’s [UK] financial regulator to act swiftly to stop the mis-labelling of green investment funds by some of the world’s biggest asset managers.”
[COMMENTARY]This is probably the same situation in most western countries. With the enormous growth in green funds, it’s, frankly, expected that many funds would jump on the bandwagon that aren’t really green or sustainable.
Is your ‘green’ fund really any different to one without the trendy label? Top experts warn they can be almost identical – and demand a crackdown, by Jeff Prestridge, November 27, 2021, Financial Mail on Sunday, UK.
Oil Nations Are Selling Billions In Green Bonds. “Saudi Arabia, the world’s biggest oil producer, has announcedplans to boostoil production further, from the current 12 million barrels a day to 13 million barrels a day by 2027. The UAE has an even more aggressive growth plan, with state-controlled oil company ADNOCsaying it will increaseoil output by 25% to produce 5 billion barrels a day by 2030. Meanwhile, Qatar continues toinvest heavilyin African oilfields and is building theworld’s largestliquified natural gas (LNG) terminal.”
[COMMENTARY]One major concern is that these states become huge green bond issuers while also greatly expanding their fossil-fuel production–which becomes increasingly difficult to finance! Hence, is the green bond issuance ‘subsidizing’ fossil-fuel investment?
Oil Nations Are Selling Billions In Green Bonds, by Alex Kimani, November 27, 2021, Oilprice.com, UK.
Institutional investors wary of companies’ ESG promises. “92% of investors are concerned that companies aren’t effectively executing on their net zero promises.”
[COMMENTARY]It’s easy for companies to make promises that are many, many, years into the future! Particularly when it promotes your stock price. However, presenting detailed plans for achieving those promises is still rare. And that’s what creates investor skepticism of such ‘promises.’
Institutional investors wary of companies’ ESG promises, by Lynn Pollack, November 25, 20221, Benefits Pro, USA.
Company valuations and climate strategies are poles apart. “Analyses of companies globally by management consultancy Kearney in November seen exclusively by Reuters, as well as data by Credit Suisse Group AG published in April, found that companies that lowered their emissions in sectors where doing so was expensive and government regulation was limited were valued less, on average, than more emitting peers.”
[COMMENTARY]There’s a vicious or virtuous circle that’s happening — depending on your viewpoint — as regard to fossil-fuel prices. High prices please many investors! Hence, companies fully engaged in fossil fuel production are reaping big profits. Environmentalists love it too as it dampens fossil-fuel demand. However, consumers are mad about it.
For many investors and fund managers, it’s a bit like why not invest in tobacco companies? They usually make huge profits, often have great ESG ratings, and are included in many ESG indices and ESG funds? You see my point!
Also, its increasingly difficult to find funding for fossil-fuel developments thus limiting potential future supply. So, many investors see investing in ‘purer’ fossil-fuel plays as a win-win-win! Similarly, in many industry sectors.
Company valuations and climate strategies are poles apart, by Elizabeth Howcroft and Simon Jessop, November 24, 2021, Yahoo! Finance, USA.
Green Bond Impact Ratings: Turning Brown into Green. “This special report examines how ESG factors are changing the landscape in fixed income investing, and how institutional investors and security issuers are navigating the new terrain.”
[COMMENTARY]A great article on this timely subject.
Green Bond Impact Ratings: Turning Brown into Green, from the Nov 2021 PGIM Fixed Income ESG Special Report, November 23, 2021, Institutional Investor, USA.
Bob Eccles and Jean Rogers on ISSB and the future of ESG reporting. “So what does the formation of the ISSB mean for the evolution and efficacy of ESG reporting? To answer that, I checked in with those who I thought would know better than most: Jean Rogers, founder of the Sustainability Accounting Standards Board (SASB) and, as of this month, global head of ESG at Blackstone; and Robert Eccles, founding chairman of SASB, professor of management practice at Oxford and a founder of the International Integrated Reporting Council (IIRC).”
[COMMENTARY]This is a good insightful discussion of the newly formed International Sustainability Standards Board (ISSB) and what it might mean for all ethical and sustainable investors.
Bob Eccles and Jean Rogers on ISSB and the future of ESG reporting, by Grant Harrison, November 17, 2021, GreenBiz, USA.
Advisers must be careful not to create ‘inherent bias’ towards ESG – P1. “Advisers could soon have to ask clients about their sustainability preferences in a similar way to attitude to risk, as ESG becomes ingrained in the investment process, according to Quinitin Rayer, head of research and ethical investing at P1 Investment Services.”
[COMMENTARY]I’ve been waiting over forty years for investment advisory professionals to realize what has been obvious since the beginnings of their profession! To properly serve a client the ‘Know-thy-client’ rule should also mean ‘know-their-values’. Otherwise, how can you properly advise a client financially!
However, this article seems to also warn that advisors need to caution their clients about overly favoring ESG. To me, that arises from a mindset that doesn’t properly understand ESG.
Advisers must be careful not to create ‘inherent bias’ towards ESG – P1, by Julia Bahr, November 17, 2021, Professional Advisor, USA.
Majority of investors see gap between ESG preferences and current portfolio. “The study set out to examine the client side of ESG investing and establish investors’ attitudes in the UK, the US and Singapore towards ESG investing, their true ESG preferences, the strengths and weaknesses of their existing financial adviser on the subject and what would constitute for them the ideal ESG investment experience. Investors’ ESG preferences were shown to vary widely and be distributed right across the spectrum of available forms of sustainable investment.”
[COMMENTARY]This study suggests that the ‘know-thy-client’ rule is not properly applied by advisors and that investors aren’t doing enough research themselves. It’s laziness by both groups. Blaming each other is at least a start in hopefully correcting the situation!
Majority of investors see gap between ESG preferences and current portfolio, press release, November 15, 2021, Capital Preferences, USA.
Bonds are an ESG blind spot in investing. “BBVA Global Markets Research has estimated that in late 2020 the stock of green, social and sustainable bonds had yet to reach $1tn out of a market total of $128tn. While this green exposure is rising fast from a low base, it is indisputably minuscule.”
[COMMENTARY]The writer seems to believe that ESG is partly a ‘marketing ploy’ among equity asset managers. He’s probably right to some extent. But he gives the impression that the bond markets are more sophisticated. Hence, the reason for green bonds being such a small proportion of total bond issuance.
Bonds are an ESG blind spot in investing, by John Plender, November 10, 2021, Financial Times, UK.
ESG investing has a blind spot that puts the $35 trillion industry’s sustainability promises in doubt: Supply chains. “Investors’ trust in ESG funds may be misplaced. As scholars in the field ofsupply chain managementandsustainable operations, we see a major flaw in how rating agencies, such as Bloomberg, MSCI and Sustainalytics, are measuring companies’ ESG risk: the performance of their supply chains.”
[COMMENTARY]The issue of supply chains is coming to the fore! The reason why ESG rating companies have largely ignored it is because it’s complex, difficult — and costly to evaluate. My guess is until a way is found to cover such increased costs, fully including supply chain issues into ESG scores will be mixed at best.
ESG investing has a blind spot that puts the $35 trillion industry’s sustainability promises in doubt: Supply chains, by Tinglong Dai and Christopher S. Tang, November 9, 2021, The Conversation, Canada.
Why Investor Engagement with ‘Dirty’ Companies Is Better Than Divestment. “Investors who espouse environmental, social and governance (ESG) principles will achieve little by selling their shares in ESG-unfriendly companies, according to a new research paper titled ‘The Impact of Impact Investing‘ by finance professorsJonathan B. Berkat Stanford University andJules H. van Binsbergenat Wharton.
Instead, investors could have more success if they buy those so-called ‘dirty’ stocks and then engage with those companies’ managements to adopt ESG-friendly policies, the paper contended.”
[COMMENTARY]This theme of engagement rather than divestment for poorly performing companies concerning fossil fuels and ESG performance, has become commonplace among academics and some ethical investors too. Yet, student groups continue to press for divestment in university endowments.
Why Investor Engagement with ‘Dirty’ Companies Is Better Than Divestment, by Knowledge@Wharton, November 8, 2021, USA.
A Sign of the Times: The ESG Buyback. “In an ESG buyback, the company commits part of the buyback profits to finance a socially responsible or green initiative. Early adopters include BIC, Campari and Enel.”
[COMMENTARY]I’m not sure how to view this. It is a good way to use ‘excess profits.’ However, when companies can’t see a way to utilize profits to enhance their own business I think they need new management!
A Sign of the Times: The ESG Buyback, by Theo Vermaelen, November 8, 2021, INSEAD Knowledge, France.
IFRS announces global sustainability standards board. “Efforts to establish a global consensus for climate and sustainability disclosures took a major step as the International Financial Reporting Standards Foundation (IFRS) announced a series of ‘significant developments’ including its new International Sustainability Standards Board (ISSB).”
[COMMENTARY]This development is great news and timely. I and many others associated with ethical and sustainable investing have decades called for this development.
UPDATE: Canadians are happy too, that one of the three main offices of the new Board will be in Montreal.
IFRS announces global sustainability standards board, by Sam Alberti, November 3, 2021, Accountancy Age, USA.
Most Automotive Leaders Back Hydrogen over BEV, Study Claims. “The study run by automotive technology management consultants, Expleo, is based on the views of 225 senior executives from the automotive industry, split equally between the UK, France and Germany. It 71% of respondents believe hydrogen has significant ecological advantages of battery powertrains but there remains uncertainty around infrastructure and green hydrogen which is holding investment back.”
[COMMENTARY]This survey covered European car maker directors. Would American directors also favor hydrogen- fueled vehicles over BEV’s? It’s interesting that governments continually push BEV’s and the general public aren’t aware that the directors of most European automakers prefer hydrogen-fueled vehicles!
Anyway, I recall reading that the latest research on ‘green hydrogen’ suggests that it’s not so clean after all!
Most Automotive Leaders Back Hydrogen over BEV, Study Claims, by Paul Myles, October 28, 2021, TU Automotive, UK.
US holds back on support for global sustainability standards. “Objections to new international outfit aiming to bring clarity to ESG investment hinge on its broad approach.”
[COMMENTARY]Such standards should have existed for many years already. As usual, regulators are behind the curve and by the time they get basic standards together, markets will be ahead on phases 2 and 3 of standards.
US holds back on support for global sustainability standards, by Alan Livsey, October 31, 2021, Financial Times, UK.
ESG metrics trip up factor investors. “Adding an ethical tilt to a portfolio may not necessarily lead to better returns.”
[COMMENTARY]This article provides a good discussion of implementing ESG into factor-based investing.
ESG metrics trip up factor investors, by Emma Boyde, October 31, 2021, Financial Times, UK.
New Research: Ethical and unethical investments under extreme market conditions. “This study examines the time-varying volatility and risk measures of ethical and unethical investments.
We compute the value-at-risk and expected shortfall using the MS-GARCH model based on the Bayesian estimation framework.
Ethical investments are less affected than unethical investments during global financial crises.
Investors consider ethical investments as a hedging asset for their portfolios in the downside risk.”
[COMMENTARY]This research confirms the findings of previous studies that show ethical investments outperform during market downtowns.
Ethical and unethical investments under extreme market conditions, by Petter Olofssona, Anna R…holm, and Gazi Salah Uddin at Link…ping University, Sweden; Victor Troster, Universitat de les Illes Balears, Palma, Spain; and Sang Hoon Kang, Pusan National University, Republic of Korea. October 2021, International Review of Financial Analysis.
Making Money Moral: How a New Wave of Visionaries Is Linking Purpose and Profit, by Judith Rodin and Saadia Madsbjerg, Wharton School Press 2021.
“Anyone who wants to understand the link between capital markets and progress towards a more sustainable, peaceful, and prosperous world should put this book at the top of their reading list. Through real-life examples and in-depth conversations with experts, Making Money Moral demonstrates the power of bringing together the world of finance and the world of impact.”–Jeff Skoll, Founder and Chairman, Skoll Foundation, Co-Founder, The Rise Fund.