Welcome to the Sustainable Money Mail! We think investing should be about trying to beat the market while providing capital to companies that make the world a better place. From AI startups to timber production, here are five stories that caught our eye this week.
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Google vs OpenAI
Google has invested $300 million into Anthropic - the main competitor to ChatGPT - the latest spending spree in the “generative AI” craze. The new funding will value the San Francisco-based company at around $5 billion.
This echoes Microsoft’s $1Bn investment in OpenAI, the creator of ChatGPT. Anthropic markets itself as an AI safety and research company that's “working to build reliable, interpretable, and steerable AI systems”. Founded by former OpenAI researchers, Anthropic is also actively seeking to make key developments in generative AI, which are computer programs that can write scripts and create art in seconds.
Generative AI has been labelled one of the fastest growing markets in the tech industry, and ChatGPT is the fastest growing consumer app ever. Google’s investment in Anthropic is a clear move to catch up to Microsoft’s lead in this market.
OUR TAKE: Even though consumer-grade AI software hasn’t been shown to have a clear business model, it’s clearly the future of computing. The race for AI supremacy is only just starting, and there’s going to be a lot more money to follow.
Uber and Lyft forced into zero emissions
NYC Mayor Eric Adams recently announced his 2023 “State of the City Address,” declaring that the city will work with Uber and Lyft to transition the more than 100,000 vehicle fleet to net zero by 2030, without adding financial burdens to drivers.
The two companies have each made their own commitments in recent years to shift their fleets to electric and zero emissions vehicles. In 2020, Uber launched a goal to become a zero emissions mobility platform by 2040, with a target to have 100% of rides in electric vehicles in US, Canadian, and European cities by 2030. Lyft has also pledged to shift its entire fleet to electric vehicles by 2030, and recently launched a series of initiatives to help drivers switch to EVs, including fast charging discounts and discounted rates on home charging equipment.
OUR TAKE: After years of governance and employment scandals, this could be Uber’s chance to restore its brand image
ESG Ratings Downgrades accelerates
The final quarter of 2022 saw the biggest downgrading of ESG funds since the new EU Sustainable Finance Disclosure Regulation (SFDR) rules were first introduced in 2021.
The SFDR had split funds into "article" categories, with Article 6, 8, or 9 based on sustainability objectives. Article 8 funds "promote environmental or social characteristics" whereas more stringent rules for Article 9 funds have a "sustainable investment objective".
According to Morningstar data, in Q4 2022, 40% of funds were downgraded from Article 9 to Article 8 in Q4 2022, totaling 307 funds with a combined asset under management (AUM) value of €170.1 billion. In January 2023, we saw this continue with €99 billion of ESG funds downgraded to Article 8 within this month alone.
This classification tightening was implemented in response to rising concerns of ‘greenwashing’ and as a step towards more standardized ESG rating systems. Although this is important in reducing uncertainties faced in defining sustainable investment criteria, this may cause short-term volatility to the ESG market as asset managers navigate these changes.
OUR TAKE: As ratings and regulations become more stringent, this reflects ongoing challenges for fund managers, encouraging caution, even as flows into sustainable funds continue to rise in Europe.
J.P. Morgan invests $500m in timber in carbon capture commitment
This week, J.P. Morgan Asset Management’s forest management and timberland investing business (Campbell Global) has announced its acquisition of $500m+ worth of commercial timberland in the US.
The purchase includes 250,000 acres across three properties in the Southeastern US. The assets include 18m metric tons of stored CO2 equivalents, over 120 million trees and over 250,000 acres of diverse wildlife habitat for recreational pursuits. It will be mainly used for timber harvesting and carbon capture.
This acquisition is a major part of the bank’s strategy to “gain access to a real assets strategy that provides diversified exposure to core timberland assets around the word, while targeting a negative carbon footprint (SFDR Article 9)”.
OUR TAKE: When you think of JPM, forest management isn’t the first thing that comes to mind, but the the expertise of Campbell Global allows America’s largest bank to offer their clients the unique ESG benefits associated with timberland assets.
Major pension funds in the US and Europe demand climate action from banks
Three New York City pension schemes managing a combined USD$177.5bn recently filed shareholder proposals at Bank of America, Goldman Sachs, JP Morgan, and RBC, calling for the banks to set and disclose science-based absolute emissions targets for 2030. The targets should cover the banks’ lending and underwriting to the oil, gas, and power generation sectors.
All four banks are members of the Net-Zero Banking Alliance, a coalition of lenders committed to decarbonizing their own portfolios. Although the banks have already set their own targets, these aim to reduce the carbon intensity of certain portfolios — rather than the absolute emissions they finance. For example, RBC’s oil and gas target, introduced in October 2022, focuses on reducing the amount of emissions released per megajoule of extracted fuel.
OUR TAKE: This target is not strict enough to decrease oil and gas emissions in line with the reductions necessary to achieve a 1.5°C future.
Note:
All opinions are the author’s own. This is not investment advice. Please consult your financial advisor before making investment decisions.
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