Welcome to the second edition of Moral Money! This week’s big stories include an exclusive from our chat with Dallas Fed president Robert Kaplan and a dispatch from my visit to the Cannes Lions festival. Keep scrolling for new numbers on the importance investors attach to board diversity, news on Japan’s changing stance on plastic, developments on a contentious mining project, and more.
We’ve been blown away by the reception to our first newsletter. (If you missed it, you can check it out here). Thank you all for your enthusiasm. Please keep the emails coming!
If you are just tuning in for the first time, Moral Money is our new weekly newsletter covering sustainable business, finance and investing. We will be breaking news, curating content and providing analysis on this bubbling revolution. Your feedback is critical to our success, so please get in touch at [email protected], forward this newsletter to colleagues who you think would find it valuable, and sign up here if you haven’t already done so.
Dallas: winds of (American) change?
In Texas they do things big, including the weather. Last year Hurricane Harvey ripped through the state, blowing a hole in the region’s economic performance. Now the mighty Dallas Fed fears that worse may be yet to come. On Monday Robert Kaplan, president, released a paper that predicted more severe weather events. “It may surprise some people to know that severe weather, droughts, floods and other [climate-related] issues are affecting our assessment of economic conditions,” Kaplan told Moral Money’s Billy Nauman.
Ever careful not to delve into politics, Kaplan would not comment on whether or not markets were correctly pricing climate change risk. However, he did note that people needed to look closely at the National Climate Assessment, and what it is predicting about severe weather. “My job is to face reality and call it out . . . so other people can react,” he said.
Just a statement of the obvious? Partly. In Europe Mark Carney, governor of the Bank of England, has been shouting about climate risk for the past four years. But there are several reasons why investors should heed Kaplan’s comments.
First, this is the first time that a regional Fed governor has spoken so forcefully in this vein. (Although the San Francisco Fed touched on the issue earlier this year, it was more mealy mouthed.) This is striking, given the Trump administration’s very different stance on climate change and the Paris Accord, and the fact that the Fed itself, notably, did not join the global Network for Greening the Financial System accord this spring.
Secondly, Kaplan’s comments not only show how authorities outside Washington are taking a different position from the White House, they reflect a quiet rebellion in some business circles and parts of the Republican party. The Lone Star state has traditionally been ultra red and carbon-energy intensive. But after seeing what a hurricane like Harvey can do, even the energy companies in Texas are moving to boost clean energy production, Kaplan said.
Third, if the mood is changing — even in Texas — American financial companies need to ponder their portfolios. Carney has already told European asset managers to prepare for climate change. American regulators have taken a different path — until now. But for how much longer? Hurricanes can sometimes turn the world upside down. (Gillian Tett and Billy Nauman)
The FT and the International Finance Corporation have announced the winners of their 2019 Transformational Business Awards. Indian electric vehicle company Lithium took home the big prize. Read more here.
Can(nes) Mad Men get morals?
The annual Cannes Lions festival used to be a place where the Mad Men of Madison Avenue — aka the advertising industry and media — partied. No longer is that the case, or at least not entirely.
Last week, on a trip to the Lions festival, I still spied plenty of beach and boat parties, organised by companies such as Facebook, Google, Spotify, Snap, Omnicom and WPP. But there was a new(ish) addition: “purpose”. The beachfront was ablaze with billboards proclaiming these companies’ embrace of environmental, social and governance credentials and the UN’s Sustainable Development Goals. For the second year in a row, there was a special contest to judge which companies were adhering to those worthy goals — with 41 entrants on the shortlist alone (yes, really).
This prompted accusations that the festival was “woke washing”, as Alan Jope of Unilever observed. I understand that. But the SDG contest also contained some strikingly good initiatives. Check out one innovative Polish media group’s campaign against pornography or this campaign fronted by David Attenborough, organised by Mars Australia, which won the SDG contest.
And if you still feel cynical, ponder this: since the ad industry is paid to smell the zeitgeist — and sell it — investors would be foolish to ignore the reasons why Mad Men now feel so much pressure to “sell” the SDGs and ESG targets. Hannah Murphy has more on the Cannes festival in our Life & Arts section. (Gillian Tett)
Corporate boards feel the heat on ESG
Money talks, particularly with corporate pay. A survey by Agenda, an FT Specialist publication for US corporate directors, found that a fifth of these directors were considering tying bonuses to ESG metrics. A separate survey, from the consultancy Mercer, found an even higher uptake, with a third of respondents saying they already link incentives to ESG and another 20 per cent considering the idea. (Mercer’s survey included both US and Canadian companies and some non-profits, which may explain the discrepancy.)
It’s important to note that sustainability metrics rarely count for a significant portion of a company’s total bonus pot — typically 5 per cent or less. But Mercer argues that even small incentives can have profound effects. Companies that link ESG factors to pay usually capture all employees in the bonus pool, not just senior executives. It can, therefore, change how a workforce behaves.
Another telling point: dealing with ESG issues is becoming a much bigger part of board directors’ jobs, and shareholder engagement was up significantly from last year, Agenda found. Board diversity was one of the top ESG issues being discussed, which is largely attributable to its importance among proxy advisers and investment managers.
Indeed, another survey from Boston Common Asset Management found four in 10 investors would vote against a board that was made up of fewer than 30 per cent women. (Billy Nauman)
Chart of the week
The number of investors purging fossil fuel companies from their portfolios has grown nearly tenfold in recent years — and there’s more yet to come. Al Gore and David Blood’s Generation Investment Management put out an annual report this week highlighting this chart from Arabella Advisors. The figures in the study only include commitments made by the end of 2018, but Generation points out that more big investors such as Norway’s sovereign wealth fund and BNP Paribas, the French bank, have continued the trend this year by dropping large holdings in fossil fuel companies.
Great quarter, guys!
Everybody from Warren Buffett to Donald Trump has a view on whether quarterly reporting is to blame for corporate short-termism. New research from Beatriz Pessoa de Araujo of Baker McKenzie and Adam Robbins of the World Economic Forum suggests it’s not so simple. In countries that make companies open the books four times a year, it is seen as “an inconvenience, a necessary evil, or both,” they say, citing one investor who talks of an “addiction” to such regular doses of data rather than a need for them.
More important, they conclude, is the need to improve engagement between shareholders and management. Investors, they say, see themselves as company stewards, while directors frame each quarter as a step in their longer-term strategy and both sides develop consistent ways to measure progress. Among the authors’ suggested metrics to pay more attention to are company values and workforce morale. You can read more here. (Andrew Edgecliffe Johnson)
Controversial coal mine notches another victory in Australia
A contentious mining project in Australia cleared another big hurdle last week: finding an insurer. However, the identity of the insurer remains a mystery. Activists have been urging the insurance sector to steer clear of the Carmichael project in the northern state of Queensland since late last year. Numerous insurers have sworn off the coal industry altogether and 13 companies (including Liberty Mutual, AXA and Allianz) have confirmed they are not underwriting the project, which would open up one of the world’s largest untapped coal reserves. Check out Jamie Smyth and Siddarth Shrikanth’s story for more on the mine. (FT)
Grit in the oyster
Many companies and investors say they try to “do well by doing good.” As a reminder that many still fall short, here’s a little grit in the ESG oyster.
Universities need to look their gift horses in the mouth
Oxford university got a nice windfall last week with a £150m gift from Blackstone boss Steve Schwarzman, but the FT’s Brooke Masters warns of the dangers that can come when schools let plutocrats set their agendas.
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
Japan (in)famously loves plastic packaging. No wonder: the country puts emphasis on good hygiene and customer care. So much so that some brands of rice crackers come individually wrapped inside another sealed bag and when you check out at a store, the cashier places each item in a small plastic bag before putting all of them together in a larger plastic bag.
But now the country is getting the SDG bug — with some startling results. And after a deer was recently found dead with four kilogrammes of plastic bags and snack wrappers in her stomach in Nara Park (a popular tourist destination, known for letting people feed the deer), plastics are firmly in the country’s crosshairs.
The Japanese beverage behemoth Suntory has pledged to use zero virgin petroleum-based materials by 2030, by using a combination of recycled and plant-based materials. This could have big consequences for the drinks industry and the environment as the owner of Jim Beam and Orangina sells tea, water and other beverages in plastic bottles in about 50 countries, using an estimated 10bn bottles a year, Nikkei reports.
The Japanese government is also trying to cut back on the country’s plastic consumption. Japan plans to ban free plastic bags at retail stores before the Tokyo Olympic Games in 2020. Economy, trade and industry minister Hiroshige Seko wants to introduce a fee for single-use plastic bags as early as April 1 next year to reduce plastic waste in the world’s oceans. The country is a little late to the game here: according to a UN environment report, at least 127 nations have adopted some form of national regulation on plastic bags as of July 2018. But investors should take note, given just how widespread plastic use is in Japan — and how rapidly companies (and consumers) tend to follow directives from the mighty Ministry of Economy, Trade and Industry.
- Take our money! Ultra-rich Americans come out in favour of wealth tax (FT)
- Wildlife conservation is an afterthought in the green bond market (FT)
- Morgan Stanley has introduced a new set of investment products that let people put money directly towards the UN’s sustainable development goals (FundFire)
- Impact investing creates tension in the philanthropy community (FT Special Report)
- Hydrogen technology offers hope to clean energy advocates still waiting for a breakthrough in battery technology (FT)
- Amazon Prime has hooked the world on speedy delivery — and that’s bad news for emissions (Axios)
- Denmark’s Orsted continues the trend of European companies winning offshore wind farm contracts in the US (Reuters)
- Incoming college students are telling the Ivy League: ‘Divest from fossil fuels or we’ll go elsewhere’ (Teen Vogue)
- Divest or engage? Japan and Norway show the pros and cons of each approach (FT)
- Norway’s sovereign wealth fund has removed Walmart, Rio Tinto, General Dynamics and others from its banned list after determining the companies had changed their ways (FT)
- KKR wins race to buy German payments group for €600m 34 views | posted on August 4, 2019 | under Finance
- WeWork tests tolerance for its ‘gov-lite’ structure 14 views | posted on August 15, 2019 | under Finance
- Divi theme Complete eCommerce WordPress Website Build Tutorial 8 views | posted on July 25, 2019 | under Videos
- Venezuela sanctions order leaves Citgo’s future in doubt 8 views | posted on August 12, 2019 | under Finance
- BMO 1st Art! Competition Recognizes Fresh Perspectives from Emerging Canadian Artists 7 views | posted on August 12, 2019 | under Finance