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.
ESG bankers dodge layoffs
2022 was a year of brutal job cuts, specifically in finance, with Morgan Stanley laying off 1,600 employees and Goldman cutting more than 3,000 roles. Nevertheless, one group of bankers has managed to avoid this altogether – the ESG specialists.
A recent study by Barclays Plc using natural language processing and analyzing over 200 million job listings concluded that ESG talent is increasingly sought after by large asset managers and banks.
The study highlighted BlackRock’s interest in hiring ESG experts, which is unsurprising given the asset manager’s uncompromising belief in ESG values (despite the backlash from Republicans). The research found Goldman Sachs’ interest in ESG hiring to be moderate.
Interestingly, the study also revealed that the Republican bans against ESG investing haven’t killed the finance industry’s appetite for ESG – as financial institutions anticipate there to be increasing future demand for ESG skills.
OUR TAKE: We think that bank stocks with strong ESG credentials will beat the market over the next ten years
Adani’s ESG Crisis
The scandal that brought down Asia’s formerly richest man has proven that fraud and greenwashing are still issues in ESG investing.
On January 24, notorious short selling fund Hindenburg Research released a blistering report accusing Adani Group of fraud and market manipulation, causing Adani Group companies to lose over $90 billion in market value.
This is exactly the type of crisis that ESG investors are hoping to avoid, and yet they were caught up right in the middle of it. That’s because Adani Group stocks are included in more than 500 Article 8 funds. These funds are supposed to promote ESG characteristics, but in this case, they did little to protect investors from suspect governance practices. Adani allegedly funneled money to his own family, didn’t bother hiring decent accountants, and used shell companies and a “multiplicity of subsidiaries” to funnel money from clean energy projects into coal mining concerns.
This illustrates a bigger problem for ESG investors, namely that there isn’t a universal and rigorous categorization of Article 8 funds. For example, Morningstar found that more than 1,200 funds ($1.4 trillion total AUM) - most of which were self-declared Article 8 funds - failed to meet its sustainable investing requirements.
OUR TAKE: We’re steering clear of pre-packaged ESG funds until they can actually manage to avoid the risks they’re supposed to be reducing
Climate friendly jobs on the rise
The Inflation Reduction Act has provided 100,000 new clean energy jobs in the U.S. These jobs are following the boom in the wind, solar, batteries and electric vehicle industries, particularly in Georgia (16,000 jobs), Tennessee (11,700), Texas (2,500).
The legislation, passed in August 2022, included $370B in incentives including tax credits for curbing emissions and clean energy production.
Since the act was passed, over 90 new clean energy projects worth a total of $89.5B have been launched, mostly concentrated in small towns and bigger cities. This provided jobs for highly skilled workers such as electricians, mechanics, construction workers and technicians.
Given that the US unemployment rate is now 3.4%, the lowest since 1969, these new opportunities could cause further tightening of the labor market which could allow the Fed to slow down interest rate hikes.
OUR TAKE: Banks aren’t the only companies that need ESG specialists. Keep an eye out for investment opportunities in the green industrial revolution
Social Bonds are growing up fast
As the youngest member of the sustainable bonds family, social bonds (debt instruments used to finance or refinance social projects which help those most vulnerable) are rising in popularity. According to a recent HSBC report, social and sustainable bonds have reached $15.6B in issuance in the past 4 years.
This week, the World Bank’s International Finance Corporation (IFC) has extended its Social Bonds Program (which was launched in 2017) to develop a ‘thematic bond’ deal in Latin America and the Caribbean for supporting immigrants.
Given that 1,500 signatories with AUM totaling over $63 trillion have pledged to the United Nations Principles for Responsible Investment, social bonds may become mainstream in investing.
OUR TAKE: If you can get good at valuing social bonds now, you’ll have an edge when they go mainstream
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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