Signatories, Financial Crisis, SFDR, Human Rights, and Fossil Fuel
Here are 5 ESG insights you might have missed this week:
1. U.K. Regulator Publishes Signatories To Stewardship Code-
Third of those that applied to be signatories failed to pass review process, says the Financial Reporting Council.
Several of the world’s biggest asset managers, including Schroders, State Street Global Advisors and JPMorgan Asset Management, are absent from a list of signatories to the UK’s influential stewardship code following a revamp that imposed tougher reporting requirements on investors.
The FRC said in a release that two-thirds of 189 applicants representing asset owners, managers and service providers made the 2020 signatories list, with those 125 representing a collective £20 trillion ($27.7 trillion) in assets.
Link to Source: https://www.ft.com/content/1094e923-9e52-4cc7-986e-538d045c9779
2. Could Climate Change Trigger A Financial Crisis?-
The clearer governments are about emissions reduction, the less likely financial turbulence becomes.
Perhaps the worst-case scenario for the financial system is where transition risks crystallise very suddenly and cause wider economic damage. In 2015 Mr Carney described a possible “Minsky moment”, named after Hyman Minsky, an economist, in which investors’ expectations about future climate policies adjust sharply, causing fire sales of assets and a widespread repricing of risk. That could spill over into higher borrowing costs.
The value of financial assets exposed to transition risk is potentially very large. According to Carbon Tracker, a climate think-tank, around $18trn of global equities, $8trn of bonds and perhaps $30trn of unlisted debt are linked to high-emitting sectors of the economy. That compares with the $1trn market for collateralised debt obligations (CDOs) in 2007, which were at the heart of the global financial crisis. The impact of losses, however, would depend on who owns the assets. Regulators might be especially concerned about the exposures of large, “systemically important” banks and insurers, for instance.
3. 6 Charts on SFDR Funds-
On a European cross-border basis, 109 funds are classified as Article 8 funds, while 28 funds fall into Article 9. But what are the differences in practical terms? These graphs look beyond the regulation.
It's been four months since SFDR's implementation and many fund companies are feeling the pressure to have as many funds as possible meeting at least Article 8 standards, and so far, over 34% have this classification or higher.
The average risk scores for Article 8 and 9 funds are very similar, but vary slightly on an investment style level. The biggest difference is seen in the value categories, where Article 8 have the highest scores. However, if we disregard the smaller categories, Article 9 are the funds that have the biggest risk appetite, scoring higher in both growth and blend styles.
4. PRI Case Studies: Human Rights and Private Markets-
PRI has published a number of case studies examining how leading private equity firms address human rights risks throughout the investment process.
Private equity investors with control or influential minority investments are well placed to ensure portfolio companies are managing and addressing human rights risks in line with the UN Guiding Principles on Business and Human Rights (UNGPs)
Case studies were provided by StepStone Group, PAI Partners, Coller Capital, FSN Capital Partners, Polaris Private Equity, and Abris Capital Partners.
5. Can We Afford Sustainable Business?-
Taking a creative approach to pricing can benefit society, the environment — and your company.
“How are we going to pay for this?”
In that question lies the conundrum faced by the growing ranks of corporate leaders who recognize that business must, at the very least, stop contributing to the most urgent problems facing humanity and ought to, at best, help solve them. In mission statements and strategic plans, many companies are making commitments to improving sustainability and reducing inequity — but when it comes to meeting those goals, they are tripped up by the financial implications.
Overlooked in the debate, however, is the price mechanism. We contend that it’s possible to find creative solutions that rally all market actors around responsible behaviors that mitigate the negative externalities of commerce before businesses tally them up and price them in. In one sense, we argue that organizations act more as caretakers of markets than as simple producers, using the incentives and information embedded in the price mechanism to allocate the responsibility for broader and fairer access, for conscientious and effective consumption, and for handling waste more efficiently.
One more thing: From VICE news, a 13-minute video on how fossil fuel companies knew about climate change decades ago. But instead of doing something about it, they spent millions to avoid accountability.
Find the video here: https://sloanreview.mit.edu/article/can-we-afford-sustainable-business/
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