ESG developments this week

In Washington, D.C.

SEC announces all-agency approach to ESG

Last week, the Securities and Exchange Commission launched a new page on its website, a page dedicated to ESG and to tracking the Commission’s action on the subject. According to the site: “As investor demand for climate and other environmental, social and governance (ESG) information soars, the SEC is responding with an all-agency approach.”

The announcement—and the page launch—came roughly a week after the SEC announced that it was requesting public input on ESG matters from “investors, registrants, and other market participants on climate change disclosure,” and three weeks after the announcement of the launch of a new task force on ESG matters, to be located in the Commission’s Enforcement Division. 

Republican Senator presses SEC on ESG goals

On March 25, the office of Senator Pat Toomey (R-Pa.), the Ranking Member on the Senate Banking Committee, and opponent of what he sees as the SEC’s shift in mission away from financial regulation to a policy-oriented role, released the contents of a letter sent to acting-Chair Allison Herren Lee, asking her to brief him on her and the Commission’s climate-change-related plans. The Hill reported the story as follows:

“The top Republican on the Senate Banking Committee is pressing the Securities and Exchange Commission (SEC) for more information about the agency’s climate change agenda.

In a letter to the SEC released Thursday, Sen. Pat Toomey (R-Pa.) asked the agency’s acting chief for a briefing on its plans for a new task force and enforcement priorities regarding climate-related financial risks.

“These announcements appear to presage major changes in longstanding practices on disclosure and enforcement matters at the SEC. Such changes would be premature,” Toomey wrote in a letter dated March 24 to acting SEC Chairwoman Allison Herren Lee, a Democrat.

“In order to better understand the scope and intention of this new task force and the SEC’s ‘enhanced focus’ on climate and ESG-related priorities, I am requesting a staff briefing on this subject by no later than the week of April 5, 2021,” he continued.”

In the states   

ESG pushback in energy-producing states

Pew Trusts reported on an effort among legislators in several states to highlight what they see as ESG’s role in the increasing cost of business insurance in their states. The legislators— mostly Republicans—propose legislation that would cut ties with businesses that shift to ESG-heavy energy plans, asset managers that demand sustainability planning from the companies they hold, and banks that, in their view, punish energy companies with punitive rates or that are declining their business altogether. Pew Trusts reported as follows:

“In Alaska, North Dakota, Texas and other energy-producing states where fossil fuel taxes support state budgets, some lawmakers are introducing legislation that would force states to stop investing in companies that use sustainable strategies to make financial decisions and to cut ties with asset managers, banks and insurers that are doing the same.

The mostly GOP lawmakers argue that investment decisions should be made solely based on the likely financial returns, not so-called ESG—the environmental, social and governance criteria that socially conscious investors use. Instead of embracing ESG, several states want to double down on investments in oil, gas and coal. Otherwise, they say, the very industries they depend on face collapse.

It’s already difficult for fossil fuel projects to find insurance, financing and other backing if they don’t meet some of the sustainability standards, said state Sen. Jessica Bell, a Republican in North Dakota who has sponsored one of the bills that would keep her state from making ESG-driven investments.

“They’re denied access to capital. They are denied access to loans. They are refusing to do business with them. Our insurance rates have gone up,” Bell said. “I mean, you name it, ESG has already negatively affected us.”…

James Leiman, the new commissioner of the North Dakota Department of Commerce, said his department is neutral on the legislation. But he did tell North Dakota’s Senate Energy and Natural Resources Committee that the ESG movement represents “the greatest challenge to the North Dakota economy since the Great Depression.”

North Dakota’s energy and agricultural sectors can’t grow if they can’t borrow money or access insurance because they don’t meet ESG standards, Leiman said. Coal plants in North Dakota are closing because of market shifts as well as regulatory changes driven by other states that have established goals to reduce greenhouse gas emissions. North Dakota also faces a new federal regulatory environment, as the Biden administration is much less friendly to the fossil fuel industry than the Trump administration was.”

On Wall Street and in the private sector

Vanguard further ramps up ESG efforts

Vanguard, the largest passive asset manager in the world and the second-largest asset manager overall, has been slower than its passive-investment competitors—namely BlackRock and State Street—to embrace ESG and to make it a focus of its investment operations. But that appears to be changing.

Earlier this month, Barron’s reported that Vanguard has been increasing up its ESG-related hiring, in an attempt to catch up to its competitors:

“Kaitlyn Caughlin, who oversees the firm’s portfolio review, wouldn’t say whether or when to expect new products, but noted the firm is doing “a lot of additional research right now.”

The firm recently created an ESG product category team in the U.S. with two dedicated ESG product managers and three support staff. In Europe there is a head of ESG strategy who leads a group of product specialists who are largely, though not solely, dedicated to ESG. Those teams will collaborate with others in Vanguard, both related to ESG product and ESG integration in conventional products.”

Last week, ETF Strategies reported that Vanguard has now also launched its first ESG ETF in Europe:

“The Vanguard ESG Global All Cap UCITS ETF is designed to serve as a core building block for ESG-aware portfolios, providing broad diversification while screening out undesirable issuers based on FTSE Russell’s ‘Choice’ framework.

An ESG guide for Annual Meeting Season

Over the weekend, The Financial Times identified the ESG shareholder-proposals to watch during the upcoming Annual General Meeting season. The paper identified one activist shareholder group that is focusing its energy this year on a strategy targeting large asset management firms for past voting records and encouraging them to be more ESG-friendly:

“PepsiCo, Amazon and Citigroup have been named alongside a small group of global companies to watch during this year’s annual meeting season, as investors demand businesses step up on issues from climate change to employing diverse workforces.

ShareAction, the responsible-investment charity, said the “13 most important ESG resolutions” of 2021 included a proposal calling on General Motors to disclose its lobbying around climate change, a resolution calling on the board of Walt Disney to strengthen oversight of workforce equality issues including racial and gender pay equity, and a vote on biodiversity at Amazon.

The list comes at a time of intense scrutiny over how asset managers vote at annual meetings, with widespread concern that big investors often proclaim their ESG credentials but fail to back resolutions on issues such as climate change.

“Shareholder voting works. Resolutions can deliver everything from decarbonisation targets to healthy eating strategies,” said Guy Opperman, minister for pensions and financial inclusion in the UK.

[T]the group argued the resolutions on its list for 2021 were “high quality, high-impact proposals” and called on asset owners and asset managers to back the proposals. The list also includes resolutions on climate change at Barclays, the UK bank, healthy eating at supermarket group Tesco and on human rights at Wendy’s International, the fast-food chain.

Citi said it was “acutely focused on addressing racial inequity, especially in terms of the wealth gap it creates”….

General Motors said it “believes climate change is real and we are advocates for climate action”.”

In the spotlight

ESG and Bitcoin on a collision course?

Over the weekend, HedgeWeek reported on comments made recently by Robert Furdak, the chief investment officer for ESG at Man Group about what he sees as the inevitable conflict between Bitcoin and ESG. The two, Furdak argues, are not merely the two hottest investment trends but also, in his view, all but guaranteed to crash into one another at some point in the not-too-distant future:

“The two major investment trends looming large over the hedge fund and asset management world – bitcoin’s stratospheric surge and investors’ rush towards responsible investing across all mandates – are now set for a “head-on clash”, Furdak said.

Hedge funds are continuing to profit from the ongoing surge in the cryptocurrency sector, as more managers pour money into digital assets’ record rise this year. At the same time, though, an increasingly large number of investors are calling for hedge funds to take a sustainability-based stance and implement ESG-compliant factors in their portfolios.

In an in-depth market commentary this week, Furdak – ESG CIO at London-listed global hedge fund and alternative investments giant Man – explored how bitcoin is already bumping against the range of environmental, social and governance factors that investors increasingly look for in their allocations.

On the environmental theme, Furdak noted how bitcoin mining will continue to require substantial energy consumption for as long as the digital currency’s price remains high, both in absolute and relative terms. He added that the majority of bitcoin mining takes place in south-east Asia, where coal-fired power stations remain dominant.

“Currently, one bitcoin transaction requires the same energy as processing 500,000 Visa transactions,” Furdak observed, highlighting a study by the University of Cambridge’s Centre for Alternative Finance which estimated that bitcoin mining energy now exceeds the annual consumption of countries such as the Netherlands and the United Arab Emirates, and is approaching that of Norway and Pakistan.”