March 2023 Newsletter
News & Commentaries by Ron Robins
Latest Podcast: The World’s Most Ethical Companies. Includes these articles: “The 2023 World’s Most Ethical Companies®,” by Ethisphere; “Top 10: Brands for Diverse Corporate Social Responsibility,” by Tom Swallow; and “12 Best Renewable Energy Stocks to Buy Now,” by Fahad Saleem. Find a full transcript, links to content, including stock symbols and bonus material here. Plus…
— By Ron Robins
Hundreds of funds to be stripped of ESG rating. “Unpublished BlackRock research also reveals thousands more will be downgraded in wide-ranging MSCI shake-up.”
[COMMENTARY] It’s likely that other index providers — as well as ESG raters — will change their sustainable, ESG, and green ratings of funds. Hence, there could be a massive re-rating of funds ahead!
Hundreds of funds to be stripped of ESG rating, by Steve Johnson, March 24, 2023, Financial Times, UK.
Stronger climate regulations for banks might not actually cut emissions. “Implementing their suggestions could force Canadian financial institutions to divest their fossil fuel company loans or refuse to insure oil and gas companies. But this would not likely create major financing difficulties for these companies (at least in the short term) since they could turn to foreign banks and insurance companies unaffected by the Canadian rules.
Such a result would not rein in the fossil fuel industry or result in lower emissions.”
[COMMENTARY] Mr. Ellmen makes two main points. 1) That starving the Canadian fossil-fuel companies of funds is only going to make them turn to other sources of funding, or (my understanding), outright sale to other entities with less of an interest in climate issues. And, 2) that it comes down to regulation to control emissions.
Stronger climate regulations for banks might not actually cut emissions, by Eugene Ellmen, March 14, 2023, Corporate Knights, Canada.
Quantifying the Returns of ESG Investing: An Empirical Analysis with Six ESG Metrics. “We document statistically significant excess returns in ESG portfolios from 2014 to 2020 in the U.S. and Japan. We propose several statistical and voting-based methods to aggregate individual ESG ratings, the latter based on the theory of social choice. We find that aggregating individual ESG ratings improves portfolio performance.”
[COMMENTARY] This paper is worthwhile reading for anyone engaged in ESG investing.
Quantifying the Returns of ESG Investing: An Empirical Analysis with Six ESG Metrics, by Florian Berg (MIT), Andrew W. Lo (MIT), Roberto Rigobon (MIT), Manish Singh (MIT), and Ruixun Zhang (Peking University), March 3, 2023, SSRN paper.
For a relatively easy read of this paper go to Here’s Proof That ESG Can Improve Returns — If It’s Done Right, by Hannah Zhang, March 14, 2023, Institutional Investor, USA.
ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S. “As regulatory oversight of ESG tightens in the EU and U.K., with additional disclosure and more substantive requirements in this area coming online, the U.S. landscape is becoming increasingly fractured.”
[COMMENTARY] This is a great overview of what is happening among US States.
ESG Battlegrounds: How the States Are Shaping the Regulatory Landscape in the U.S. By Leah Malone, Emily Holland, and Carolyn Houston, March 11, 2023, Harvard Law School Forum on Corporate Governance, USA.
In pursuit of positive impact: Growing scrutiny around ESG highlights impact investing as a force for change. “As Bob Eccles, sustainability researcher and founder and president of investment company Advisory Capital Partners puts it: ‘ESG is about the material environmental, social and governance risk factors that matter to enterprise value-creation. Impact is about the positive and negative externalities created by a company’s products and services.'”
[COMMENTARY] Bob Eccles makes a brilliant distinction between ESG and impact investing. I’ve long been concerned that most ESG analysis doesn’t include the impact on the broader environment, society, etc., of the products and services that companies provide. This is how tobacco and fossil fuel producers can end up with high ESG scores!
In pursuit of positive impact: Growing scrutiny around ESG highlights impact investing as a force for change, by Polly Bindman, March 6, 2023, Energy Monitor, UK.
The case for a Scope 3 carbon tax for financial institutions. “In this guest commentary, Alejandra Padin-Dujon proposes a new kind of carbon tax, building upon recent EU legislation, that would penalise financial institutions’ ‘dirty’ investments.”
[COMMENTARY] In Canada, advocates of such a tax are already proposing it for Canadian banks.
The case for a Scope 3 carbon tax for financial institutions, by Alejandra Padin-Dujon, February 27, 2023, London School of Economics, UK.
Deconstructing ESG Scores: How to Invest with your own Criteria? “We explore the feasibility and performance of more targeted investment strategies based on specific ESG categories, by deconstructing ESG scores into their granular components.”
[COMMENTARY] This is a fascinating academic approach.
Deconstructing ESG Scores: How to Invest with your own Criteria? By Torsten Ehlers (IMF), Ulrike Elsenhuber (BIS), Anandakumar Jegarasasingam (BIS), and Eric Jondeau (University of Lausanne), March 10, 2023, IMF Working Paper.
EU agrees world’s first bond issuance rules to combat greenwashing. “The European Union said on Wednesday it had reached a deal on the world’s first set of comprehensive rules for issuing green bonds to meet the bloc’s net zero goals, although compliance will be on a voluntary basis.”
[COMMENTARY] This is great news. These green bond requirements may well become a global standard. It’ll be fascinating to see whether the bonds meeting this standard trade at a premium relative to other bonds. Such bonds might be less costly to issuers, too.
EU agrees world’s first bond issuance rules to combat greenwashing, by Huw Jones, March 1, 2023, Reuters, UK.
Contradicting Skeptics, New Research Links ESG Performance to the Bottom Line. “The importance of environmental, social and governance performance in business has become the subject of growing skepticism and pushback. But recent research has come out squarely in favor of ESG as a decisive factor for both sustainability and profitability.”
[COMMENTARY] This article outlines some recent findings about high ESG-performing companies.
Contradicting Skeptics, New Research Links ESG Performance to the Bottom Line, by Amy Brown, February 27, 2023, Triple Pundit, USA.
Survey: Financial Advisers Not Optimistic About Future of ESG Investing. “Financial advisers are not optimistic about the future of including environmental, social and governance attributes to investing, in part due to growing political tension around the subject, according to a Cogent Syndicated report from Escalent.”
[COMMENTARY] The results of this US survey are unsurprising. Most people who use financial advisors in the US tend to be better-off, older — and conservative — investors. Advisors are pandering to their client base and likely not giving serious thought to financial returns 10, 20, or more years out.
Also, note this from the article — which is telling about the advisors themselves, quote, “According to Escalent, 38% of investors expressed interest in socially responsible initiatives, but in reality, only 3% used ESG investments.”
The biggest problem in investors being able to invest according to their personal values has always been the disinterest of most investment advisors!
Survey: Financial Advisers Not Optimistic About Future of ESG Investing, by Natalie Lin, February 26, 2023, PlanAdvisor, USA.
Investing for Good: Increasing your personal well-being while changing the world, by Mark Mobius, Carlos von Hardenberg, and Greg Konieczny. Bloomsbury Business 2019.
“But how do individuals–rather than institutional investors–invest using ESG criteria? And just how complex are the procedures? This new book, written by investment guru Mark Mobius and his expert team, is full of entertaining and informative anecdotes from the authors’ day-to-day experiences in the world of sustainable investment.”