Welcome to the first Moral Money newsletter! It used to be said that money makes the world go round. But these days, that is only half true. A growing number of financiers, investors and business executives want to do more with their money than just chase returns, so they are embracing environmental, social and governance (ESG) goals (or at least they are keen to be seen as doing so).
Here at Moral Money, we will be breaking news, curating content and providing analysis on this bubbling revolution in our weekly notes to you. Your feedback is critical to our success. 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.
Let’s get started . . .
What’s $28tn among friends?
(Almost) everyone knows that ESG is big these days. But how big? That is a matter of heated debate. This week the Global Impact Investing Network released its latest survey of its 266 members who manage $239bn dedicated to “impact”. These investors report compound annual growth of about 17 per cent and the GIIN reckons that if you include investors outside its network the sector is now worth $500bn — or more.
However, the Global Sustainable Investment Alliance says impact investing is just one tiny subset of ESG — and says the entire sector now totals $31tn, an $8tn increase since 2016. That sounds eye-poppingly large. However, JPMorgan complains that “ESG surveys in general overstate the ‘true’ ESG investment universe”, which it suggests is “only” $3tn.
A $28tn measurement gap is hefty — even between friends. But irrespective of this, three things are clear. First, the sector is growing rapidly, not just in Europe, but America and Asia.
Second, business and finance is reaching an interesting tipping point: investors and executives now fear that it is more costly and risky to ignore ESG than embrace (at least some of) these ideas.
Third, there is a yawning information gap. That is where Moral Money comes in. We will not be preaching about ESG; as journalists our mantra is “illuminate, not advocate”. But we want to highlight what works (and what does not) and spotlight key people and ideas by collating the best existing coverage from the FT, its sister publications and elsewhere in this weekly newsletter and hub page — and supplementing it.
So, if you have read this far . . . thank you! Please keep reading! Better still, tip us off with stories, ideas, complaints or anything else at [email protected]. Let’s create a new compass in this $31tn (or $3tn?) landscape!
Shipping: The next wave in the fight against climate change
Which sectors get the worst black marks over carbon emissions? If you were to ask that question to most politicians — or voters — they would probably say cars, coal mines and planes.
Think again. Last year scientists calculated that the shipping industry emits as much carbon as the entire nation of Germany.
And though shipping has not been at the forefront of the green finance movement, that is about to change. Almost a dozen global banks, led by Citi, Société Générale and Danske, met in New York this week to sign the so-called “Poseidon Principles”, which effectively ban lending to shipping groups that do not sign up to the International Maritime Organization’s plan to cut carbon emissions in half by 2050.
When this target was created, cynics doubted it would have teeth. But the dozen banks signing the Poseidon Principles account for a fifth of the $450bn ship lending market (which, in turn, represents 90 per cent of shipping finance).
Thus far the venture has been driven by US and European groups. But the Poseidon Principles organisers are confident that Chinese banks will soon sign up too. If so, the Japanese and Koreans will almost certainly follow.
The bottom line? Investors urgently need to wake up to the IMO rules, and the role of green finance. If shipping hits those IMO targets it could have a striking impact on global carbon emissions — and create a new world of winners and losers in green shipping.
Oil chiefs commit to carbon pricing after ‘Come to Jesus’ meeting with Pope Francis
For the second year in a row, Pope Francis called together the heads of some of the world’s largest oil and finance companies to urge them to take meaningful action to combat climate change. And this time he got results — at least on paper.
After a closed-door meeting at the Vatican last week, nearly 20 chief executives, including the bosses of Royal Dutch Shell, Chevron, ExxonMobil and BP, signed an agreement to support carbon pricing as a means of keeping global warming below the 2C goal set out in the Paris agreement.
The group also agreed to report material information in line with the standards set out by the Task Force on Climate-Related Financial Disclosures (TCFD). The leaders of BlackRock, State Street and other big financial groups also attended and signed the agreement.
“Undeniably, the Earth is a single system and humanity is a single whole. This requires a new level of cooperative leadership, trust-building, and commitment. We embrace this challenge,” reads the letter signed by the chief executives.
The Pope himself had even stronger words about the severity of the situation. Climate change “threatens the very future of the human family”, he said, calling for the world to “avoid perpetrating a brutal act of injustice towards the poor and future generations”. As of now, most of the world’s top 500 companies are on pace to miss the targets outlined in the Paris agreement.
It was not all doom and gloom from the pontiff, though. The transition to clean energy could be good for business and be a strong source of new jobs, he said: “There is still hope”. (Vatican News)
Chart of the week
Peace sells . . . but who is buying? The answer appears to be “no one”, according to the FT’s newest Investing for Global Impact Report. Clean energy and green tech were far and away the top priority for impact investors this year while world peace-focused investments found few backers.
Taming the wild west nature of ESG reporting
Since regulators have been slow to lay out exactly how companies should report on ESG factors, investors have no choice but to hack their way through a thicket of disparate metrics. The European Commission put out new guidelines on sustainable investing this week, but there are still no hard reporting requirements. Groups such as the CDP, formerly known as the Carbon Disclosure Project, have made it their mission to standardise ESG reporting, but they can only do so much when companies refuse to play ball.
The CDP does not easily take no for an answer, however. This week it enlisted a group of investors with a combined $10tn under management to name and shame companies that will not submit data in accordance with its framework. Holdouts such as Amazon and Chevron insist they are reporting enough on their own, but the CDP says that misses the point. Moral Money’s Billy Nauman has the full story.
Inequality boils over in Switzerland
Switzerland’s gender pay gap is among the worst in the developed world, according to the International Labour Organization. Women working in finance face an even higher gap than the national average, but UBS and Credit Suisse are not making it easy for them to air their grievances. Both banks told the FT that employees would need to take leave if they wanted to join the nationwide women’s strike that took place last week. (FT)
Grit in the oyster
Many companies and investors say they try to “do well by doing good”. As a reminder that many continue to fall short, here’s a little grit in the ESG oyster.
Largest US pension fund rethinks responsible investing policy
Calpers was one of the first big investors to drop its shares of companies that did not align with its social values. Now, however, after missing out on billions by eschewing tobacco stocks, the fund is second-guessing its divestment policies. (WSJ)
S&P kicks Facebook off ESG index
Facebook’s lack of transparency and disregard for user privacy have become so bad that the company has been booted from one of the broadest ESG indices on the market. The company did well on environmental metrics, but thanks to the Cambridge Analytica scandal and other incidents in which users’ data were exposed or shared improperly, S&P gave the company a score of just 6 out of 100 on governance. (S&P)
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on any stories you may have missed from the eastern hemisphere.
When Japan’s powerful Ministry of Economy, Trade and Industry speaks, Japanese companies jump to attention; such has been the agency’s power over the economy in recent years.
So everybody inside and outside Japan should pay attention to a startling report that emerged from Meti a couple of weeks ago (albeit hitherto without much acclaim outside Japan).
This document, “SDG Management Guide”, warns companies that they need to embrace the UN’s Sustainable Development Goals as fast as they can, or risk facing a backlash from millennials. The reason is that Japan’s millennials are “SDG natives”, says Meti, and millennials will soon be the majority of consumers, shareholders and employees globally. Thus being SDG compliant is not a cost for companies but a necessity, and ignoring these goals is a major “risk” for companies.
Meti also has a positive message: if Japanese companies embrace the goals, they will have a new language to communicate with clients on the world stage and a tool to attract more investment. They can also ride the wave of enthusiasm being created around the 2020 Olympics. And Meti thinks Japanese companies may be better placed to embrace the SDGs than companies in other markets because Japanese businesses have had a longstanding tradition of focusing on stakeholders, not just shareholders: since the 17th century, a popular phrase in Osaka has been “three way satisfactions (san pou yoshi)” — meaning companies need to keep buyers, sellers and society happy.
The UN is threatening to kick 50 companies off the list of signatories to its Principles for Responsible Investing if they do not clean up their act. (FTfm)
Theresa May’s legacy zero-emissions target is a call to arms for a country crushed by Brexit. (FT Opinion)
If Britain is to reach its zero-emissions goal, it will require a profound economic shift in the country that was once the largest coal consumer in the world. (FT)
Hydrogen has been called the “fuel of the future” for so long it feels like a blast from the past to see it making headlines again, but the International Energy Agency says the element’s time in the limelight is finally coming. (Bloomberg)
The New York state pension’s ambitious plan to attack climate change has inspired other large US institutional investors to follow its lead. (FundFire)
Norway’s trillion-dollar sovereign wealth fund got the green light from the government to offload $13bn in fossil fuel stocks. (Guardian)
By treating sustainability and finance as two sides of the same coin, businesses can rebuild people’s trust in capitalism, say two professors at London Business School. (FT Special Reports)
US companies are changing their environmental practices, as pressure to cut costs and avoid PR nightmares is on the rise. (Washington Post)
The banking industry is waking up to the importance of meeting — and being seen to meet — environmental standards. (The Banker)
A Japanese company is beginning to use recycled CO2 to make household gas. (Nikkei Asian Review)
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