Economy

ESG funds are missing this key priority, UN says; plus, top wind power countries

By David Callaway, Callaway Climate Insights

One of the keys to success for environmental, social and governance (ESG) funds in the past five years has been their investment in technology companies, so much so that many ESG funds resemble tech funds, with top holdings such as Microsoft (MSFT), Amazon (AMZN) and Apple (AAPL).

But the United Nations said this week that these strategies are missing the true calling of ESG funds, which is environmental impact, and that many more of these funds need to direct investment into emerging markets, who need it most.

The report raises the classic ESG investor quandary of whether their purpose is to reduce risk and pursue profit or to help do good in the fight against global warming. And if both, in what order. The UN noted that sustainable funds have even less exposure to emerging markets than non-sustainable funds, which it says correlates to the rise in greenwashing accusations against funds who may just be using the ESG label to improve marketing. It notes that Morningstar earlier this year removed 1,200 funds from its sustainable list after reviewing their portfolios.

No doubt emerging market countries, among the riskiest for investors because they can get whipsawed by global economic trends and shaky politics, are going to need the majority of climate finance investment in coming years as they suffer the effects of climate change without developed infrastructure.

The UN said up to 70% of emerging market investment could ultimately come from the private sector. But it’s hard to see that ratio changing in the asset management world without decisive leadership — and funds — from wealthy governments first. Investors need signs that emerging markets are really emerging.

More insights below . . . .

Climate leadership at big banks will be tested with earnings this week

. . . . With many of the biggest U.S. banks reporting earnings later this week, it’s likely any climate messages will be drowned out by the impact of Putin’s war, higher interest rates, and the rush to produce more oil, gas and coal this year. But as banks such as Citigroup, Goldman Sachs and JPMorgan Chase report, David Callaway argues that now is the perfect time for real climate leadership from the banks. After all, proxy season is just around the corner. . . .

Read the full story

Tuesday’s subscriber insights: Ready for carbon neutral toys?

. . . . Renewables. Great for the environment, right? So, who is now protesting renewables? Environmentalists. In the past week, we’ve seen a huge fine levied against a wind company whose turbines killed dozens of eagles, and big protests in California against a huge solar project. As it turns out, just because it’s environmentally correct, doesn’t mean it checks everybody’s boxes. The politics of transition is just getting started. Read more here. . . .

. . . . You know we are entering a new era when Mattel introduces a line of carbon-neutral toys — including a Matchbox Tesla made from recycled materials. And guess what? The Tesla has already sold out. Now if they can just stay off the holiday dangerous toys lists. Read more here . . . .

. . . . Among all the bad news and conflict over Russian energy, it turns out there are now 20 nations that get more than 10% of their energy from wind. And that is no doubt a focus of the EU as it tries to speed up its transition to renewables in the face of the Ukraine crisis. European countries dominate the list, but one of the top wind users is also a South American soccer upstart. Click here to see the whole list. . . .

. . . . “Alexa, plant a tree.” Yes, that’s Amazon’s latest effort to bolster its green credentials. It’s a great way to get millions involved in making a difference. But, say critics, the initiative (and others like it can come with pitfalls). Can there really be too many trees? Read more here. . . .

Editor’s picks: Commodities climb; banks finance coal industry

Stocks and crypto prices may have had a rocky start to the year, but commodities have outperformed due to war and rising interest rates, Visual Capitalist notes in this special report. In this visualization, Niccolo Conte and Alejandra Dander report crude oil prices have reached eight-year highs, wheat prices are up more than 35%, and even gold is only 10% away from its all-time high. 

Financing the coal industry has changed little in recent years

A recent report shows that despite pledges to go green, major banks have invested more than $1.5 trillion in the coal industry. According to a report from Urgewald, Reclaim Finance and numerous other NGOs, the biggest lenders to the coal industry include Barclays (BCS), Citi (C), JPMorgan Chase (JPM) and Mizuho Financial Group (MFG). “In January 2021, 4,488 institutional investors held investments totaling $1.03 trillion in companies operating along the thermal coal value chain. Among the investors covered by the NGOs’ research are pension funds, mutual funds, asset managers, insurance companies, hedge funds, commercial banks, sovereign wealth funds and other types of institutional investors,” says the report. Highlights from the report include: U.S. investors hold 58% of institutional investments in the coal industry; Commercial banks providing more money to the coal industry than in 2016; and Japanese banks are top lenders, Chinese banks top underwriters.

You can sea the lights

In the not-too-distant future, will it be possible for your Alexa device to turn on the (bacteria) lights? Well, that might be a stretch, but the first step is already at hand: A startup in France is experimenting with public lighting projects that derive their glow from bioluminescence. Glowee says bioluminescence produced by bacteria could be an energy-efficient, sustainable way to light things up. The light is coming from a marine bacterium gathered off the coast of France called Aliivibrio fischeri. According to a report from the BBC, the bacteria are stored in saltwater-filled tubes. “Since the light is generated through internal biochemical processes that are part of the organism’s normal metabolism, running it requires almost no energy other than that needed to produce the food the bacteria consume,” the report says. “A mix of basic nutrients is added and air is pumped through the water to provide oxygen. To ‘turn off the lights’, the air is cut off, stopping the process by sending the bacteria into an anaerobic state where it does not produce bioluminescence.”

Data driven: All wound up

. . . The average thunderstorm releases around 10,000,000 kilowatt-hours of energy — the equivalent of a 20-kiloton nuclear warhead, according to research cited by Britannica. A typical thunderstorm cloud can accumulate an enormous amount of energy. If the conditions are right, this energy creates a huge updraft into the cloud, according to a report from the Natural History Museum of Utah at the University of Utah. The National Oceanic and Atmospheric Agency says that about 56 people are killed each year in the U.S. by tornadoes. The spring of 2011 stands out as one of the deadliest and costliest tornado seasons on record. NOAA says: “Between April and June 2011 tornadoes killed more than 580 people and caused over $21 billion dollars in economic damages. The high death toll was partly a result of the tornadoes traveling rapidly through heavily populated areas, a lack of adequate storm shelters and individuals who did not quickly seek shelter.”

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