Hello from New York, where I think it’s safe to say we are all getting a little tired of living through one historical event after another. It will admittedly be hard to take our eyes off Washington until Joe Biden takes office on January 20. But once he does, it should be a new dawn for ESG in the US and we are anxious to see what changes may be coming.
That of course does not mean the news has stopped elsewhere (or even here!) and we have a full slate today, including the top story on who’s up and who’s down in the world of sustainable finance.
The pandemic year turned out to be a gold rush for the world’s biggest banks. With the 2020 books closed, Refinitiv on Thursday unveiled its league tables for sustainable financing. JPMorgan climbed to the top of the bond rankings by dollar amount of deals for 2020, Refinitiv said.
JPMorgan edged out HSBC, which led in mid-2020 but dropped to fifth by the end of the year. BNP Paribas, Crédit Agricole and Citi rounded out the top five.
Green debt continued to set records in 2020 as the social bond market roared to life. Social bond issuance accounted for 30 per cent of the sustainable finance bond market in 2020, up from just 5 per cent in 2019, Refinitiv said.
Japan stood out in this arena, becoming the 14th-largest sustainable bond issuer for the year — up from 25th in 2019 — with $4.6bn of debt. Mitsubishi UFJ Financial jumped to second place among banks in underwriting sustainable loans, up from 13th in 2019.
The deals came with innovative financing. In October 2020, Enel issued £500m of sustainability-linked bonds, which tied the company’s increases in renewable energy output to the interest rate. The deal also included an interest-rate swap between Enel and JPMorgan that is tied to the companies’ environmental targets. And the bonds’ interest cost can rise if JPMorgan fails to fulfil its pledge to facilitate $200bn for the climate and UN sustainable development goals.
Another example: Rival HSBC did an interest rate swap with Siemens Gamesa that will require HSBC to donate cash to non-profits if Siemens Gamesa’s ESG rating improves during the life of the derivative. If Siemens Gamesa’s rating drops, it will be required to make donations.
Moral Money would love to hear more about innovations such as these. Remember, you can contact us at Hopefully, as we find a way out of the pandemic, we don’t discover that the key to bankers’ creativity was working at home in their pyjamas. (Patrick Temple-West)
In late 2019, we told you about a new initiative between AllianceBernstein and Columbia University’s Earth Institute, where the $686bn asset manager would send its investment staff back to school to learn about how climate risks should be factored into their investment decisions.
At that time, the initiative was just getting off the ground with a pilot group of 35 portfolio managers and analysts attending sessions on climate. Now, more than 250 AllianceBernstein employees have gone through the programme, including its chief executive and board of directors.
“We think this is critically important for everyone to understand because climate is something that affects us not just as a society, but it is going to have an increasing effect on investment, cash flows and valuations,” said Michelle Dunstan, the firm’s global head of responsible investing.
But the programme is not just about getting investors up to speed on climate change. AB’s investors are also teaching Columbia scientists about finance — and collaborating on projects that will use their research in ways that have a real-world impact.
“We’re really trying to move from, ‘let’s bring everyone at AB up to a baseline, where they understand, appreciate and can start to integrate climate change’, to ‘let’s work together to actually get research, reorient capital flows and truly understand the implications of what’s going on’,” said Ms Dunstan.
At the end of the day, AB and Columbia are striving for different goals. AB has a fiduciary duty to make money for its clients and the Earth Institute’s stated mission is to “guide the world on to a path toward sustainability”. But working together makes it much easier for the scientists to see their academic work implemented in the real world, said Arthur Lerner-Lam, deputy director of Columbia’s Lamont-Doherty Earth Observatory. And investing sustainably has proven profitable.
“This is changing the model with which the university needs to interact on these big, global-scale problems — climate and Covid being two examples of that,” he said. “This relationship has taught us so much about how the university can structure these sorts of things. And I see it acting not just as a prototype, [but also as] an educational model that is scalable. Frankly [we hope it] will be picked up by our peers.” (Billy Nauman)
At the start of the year, private equity firm Carlyle announced a $374m investment in Amp Solar, a Canadian renewable energy company.
The deal underscored the intense investor interest in renewable energy going into 2021 from private equity to retail investors. But it also came with a warning that the market may be overheating.
“The space is getting crowded,” Pooja Goyal, head of Carlyle’s renewable and sustainable energy team, told Moral Money. Private equity funds that specialise in energy investments have turned to renewable businesses, and “that is creating a lot of noise in the system”, she said, adding that Carlyle still sees growth opportunities in the sector.
Also this month, South Korea’s SK Group said it would invest $1.5bn into US hydrogen fuel cell maker Plug Power. The New York-based company’s share price was already up 738 per cent in the days just before the deal was announced. Plug Power’s shares closed at $66 on Thursday, up 1,000 per cent from a year ago.
But other investors think there is still room to run into. Raj Agrawal, global head of infrastructure at KKR, said that renewables were likely to see structural, multi-decade secular growth. “The renewables space is getting hot, but for good reason.”
“Renewables will remain a large and growing sector of investment for us and we are growing our capabilities and ramping up our activity level accordingly,” Mr Agrawal said. (Patrick Temple-West)
One announcement from the UK this week that caught our eye was investment manager Aegon pledging that it would make all of its “auto-enrolment default pension funds” net-zero carbon by 2050. This may sound boring, but bear with us . . . we assure you it’s important!
First things first, all the normal caveats around far-off net-zero commitments apply here: it’s easy to say you’ll do something when it’s 30 years away. And we have not vetted Aegon’s plan for achieving the goal.
But putting that aside, the reason this commitment is noteworthy is that it highlights an important area of the investment market where asset managers that are serious about cutting carbon can have a big impact.
To understand how, it’s important to understand what an “auto-enrolment default pension fund” is. The name is pretty self-explanatory. When an employer automatically signs its employees up for a defined contribution retirement plan, the “auto enrolment default pension fund” is where their money goes if they don’t log in and pick something different for themselves.
Since most people never bother to change out of the default option, this is an easy way to nudge investors to invest in a climate-friendly way. If they want to invest differently, they can always pick a different fund on the menu. But since a survey of Aegon customers found 77 per cent believe climate risk is important, it seems unlikely that this move will spur an exodus out of the defaults.
In the UK, private sector defined contribution schemes held £146bn in assets, according to the Office for National Statistics. So it will be a big deal if it becomes the norm.
What would really move the needle is if this happened in the US, where the DC market tops $6.5tn in assets — but a rule passed in the final months of the Trump administration makes that unlikely. With Joe Biden taking office soon, it will be worth watching how the new labour department reacts. We suspect it may quickly seek to reverse course. (Billy Nauman)
We told you last September that Veeva Systems, the cloud computing group, was sounding investors out on the idea of becoming the first publicly traded US company to convert to a public benefit corporation.
Chief executive Peter Gassner favoured the move and controls a majority of the votes, so there wasn’t too much dramatic tension about the outcome. But the proposal passed this week with striking support from shareholders you might have expected to raise questions about a legal mandate that will require Veeva to weigh their interests against those of customers, employees and other stakeholders.
In all, 99 per cent of voting shareholders backed Veeva’s adoption of a new certificate of incorporation, which mandates it to “help to make the industries it serves more productive and create high-quality employment opportunities”.
In a press release pointedly sprinkled with quotes from Veeva stakeholders, Tim Youmans of Federated Hermes hailed the conversion as a prime example of how public companies could put talk about purpose into action in the interest of long-term value and societal benefit. Moral Money will be watching how it plays out for Veeva’s shareholders and other stakeholders. (Andrew Edgecliffe-Johnson)
Consumers may say they want fashion-forward retailers to also be ESG-forward, but their actions do not seem to line up with their demands.
Last July, Boohoo faced allegations of poor working conditions at its Leicester factories that caused many to question the vetting process investors had deployed.
But consumers — for now at least — don’t seem to mind terribly. Boohoo, despite its image problem, revised its revenue projections upward to predict growth between 36 and 38 per cent, with online sales surging. (Kristen Talman)