ESG funds face inflation; plus, Brazil's tipping point with Igarape's Robert Muggah

By David Callaway, Callaway Climate Insights

Morningstar reports this week that more money flowed into stock exchange-traded funds in the first four months of this year than in all of 2020. Some $236 billion through April vs. $232 billion in all of last year’s pandemic rally.

In that context, the market’s lurch downward this week looks a lot less imposing. For ETFs in environmental, social and governance (ESG), early fund flows have also been impressive, though not so much in performance.

About $21.5 billion flowed into sustainable funds in the first quarter, up from $20.5 in the fourth quarter, Morningstar said. But only one of the most popular five passive indexes showed any meaningful gains year-to-date, and some were down. The iShares ESG Aware MSCI USA ETF (ESGU) is up almost 11% through Wednesday.

Inflation never fails to scare, and post-Covid prices are certainly running hot. But it’s hard to put those type of inflows into a top-of-the-market, dumb-money perspective. Summer may be the time to sell in May and go away. But the economic re-awakening story still seems too good to risk missing.

Certain sectors, yes. Is ESG one of them? Don’t think so. As the focus on COP26 combines with summer wildfires and storms, it’s going to be hard to ignore the spending that needs to take place in this vital year of the battle against global warming. Especially to build out renewables such as wind and solar.

Inflation won’t wait forever. But neither will the climate emergency. Investors are betting 2021 markets still have a way to go.

More insights below. . . .

ZEUS: Tracking crime in the Amazon with Igarape’s Robert Muggah

. . . . This week saw a disturbing report from scientists that the Amazon basin in South America has released 20% more carbon than it stored in the past decade. The tipping point from carbon sink to carbon emitter would be a global catastrophe, writes David Callaway. As the world pressures Brazil’s Jair Bolsonaro to act, Robert Muggah of the Igarape Institute, a think tank in Brazil, has released a new tool that shows in dramatic fashion how competing criminal cartels are ripping apart the Amazon’s forests in a mad scramble for gold, timber, even slaves. Check out the new tool here and read more about it, as well as a new gold mine mapping tool, in ZEUS. . . .

Read the full ZEUS column

EU notebook: Banks urged to raise capital to avoid climate ‘doom loop’

. . . . European banks were urged this week to triple their capital reserves to avoid an inevitable ‘doom loop’ caused by climate change risk, writes Vish Gain from Dublin. While authorities are unlikely to prescribe such a move in the wake of the Covid pandemic, it highlights the need for banks to focus on climate credit risk and market risk at a time when many have only begun to do so.

Plus, the new head of climate at the European Central Bank, and why Europe thinks it can top the U.S. in exchange-traded funds tied to the environment. . . .

Read the full EU notebook

Thursday’s subscriber insights: A sample of our best offerings

. . . . Facing the fact that hitting ambitious net-zero targets while continuing to close nuclear power plants won’t work, the U.S. is considering joining Europe in reluctantly keeping nuclear energy in its renewable mix. Read more here. . . .

. . . . The race to build a renewable energy complex is running into a severe shortage of metals, glass, chips and other vital materials — Here’s why production companies may be the next ESG darlings. Read more here. . . .

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