Purpose, Climate Risk, Voting Behavior, and Tech Analogies
Here are 5 ESG insights you might have missed this week:
Purpose for Asset Owners: Climbing a Taller Mountain-
McKinsey examines how in the wake of the pandemic, the world’s long-term investors are reexamining their purpose.
Many asset-owner executives may thus feel justifiably proud of their progress on organizational purpose. Yet increasingly, partly impelled by the global health crisis and partly by other societal forces, several asset owners are mulling an even taller mountain: using their capital, capabilities, and influence to contribute to the economic and social recovery of the communities in which they operate, so that they can deliver positive social impact beyond what they currently achieve.
Like many industries with a noble purpose, asset owners have a long history of harnessing some of the advantages that come from a strong shared sense of purpose—in talent (recruitment, retention, motivation, productivity), external engagement (policy and regulatory freedom), and risk management (in their own organizations and portfolios). Yet there are three reasons why asset owners are increasingly seeking to do more.
Sustainable Voting Behavior of Asset Managers: Do They Walk the Walk?-
Asset managers predominantly vote against social and environmental proposals. Especially, large and passive asset managers.
The authors investigate asset manager characteristics that influence ESG voting patterns using a decade of voting data with more than 20 million observations. Asset managers predominantly vote against social and environmental proposals. Especially, large and passive asset managers vote the least in favor of these proposals and despite the increased attention to sustainability integration, they hardly vote more in favor of these proposals than a decade ago. Moreover, signatories of the PRI do not vote more often in favor of environmental and social issues. Our results have important implications for investors striving for direct impact on the sustainability agenda of corporates.
Prices in the World’s Biggest Carbon Market are Soaring-
Carbon prices are soaring in Europe, home to the world’s largest emissions-trading system.
Prices have surged by 60% since November; on February 12th they hit a record high of nearly €40 ($49) per tonne of carbon-dioxide equivalent.
Last year the value of global carbon markets hit a record €229bn, a five-fold increase from 2017. The EU’s emissions-trading system (ETS) accounts for nearly nine-tenths of both that value and that growth. In 2020 around €1bn-worth of emissions allowances changed hands a day, as well as lots of options and futures contracts. There are now clear signs that the market is joining the financial mainstream, with hundreds of investment firms trading in it.
Source (Registration required): https://www.economist.com/finance-and-economics/2021/02/24/prices-in-the-worlds-biggest-carbon-market-are-soaring
Weathering Climate Change: Opportunities and Risks in an Altered Investment Landscape-
Prudential believes mispriced climate risk presents an opportunity for active alpha generation.
In PGIM's latest Megatrends paper, Weathering Climate Change, they propose an actionable climate change agenda for institutional investors, encompassing both hidden portfolio vulnerabilities and potential opportunities in the transition to a lower-carbon world.
The real question for investors is not if repricing of climate risks will occur, but when and how. In other words, whether it will be an orderly transition ushered in by government measures and gradual market adjustments or an abrupt, sharp decline in sentiment triggered by a series of local climate “Minsky moments.” The report outlines five catalysts that may drive a more significant repricing of climate change risk across asset classes, sectors, companies and individual securities.
World’s Biggest Wealth Fund Draws Dot-Com Parallel With ESG-
The analogy suggests that stocks and bonds touting environmental, social and governance credentials might be in for a correction in the short term, but have significant potential in the longer term.
Nicolai Tangen, who’s been chief executive of Norway’s $1.3 trillion wealth fund since September, says worrying about bubbles comes with the job. But he also suggests that today’s frothy prices for climate friendly assets might reflect their longer-term potential, as was ultimately the case with tech stocks.
“What is interesting is, if you compare the situation now with, for example, the situation before the year 2000, then the stock market was right that technology companies were going to do well in the future,” Tangen said in an interview on Thursday. “But the valuation went a little high, so it came down again, but the technological development continued.”
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Find the list here- https://www.impactassets.org/publications_insights/impact50
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