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BEYOND LOCAL: What's the deal with socially responsible investing? – BarrieToday

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Socially responsible investing — also know as ethical, green or sustainable investing — is the new buzzword in the financial world.

A growing number of institutions and individual investors seem to want to invest according to ethical principles, and the financial industry has been happy to oblige.

Today, investors can choose from a smattering of investment options that carry some variation of the sustainable label.

By one tally, sustainable investing has now grown to an eye-popping $31 trillion globally, and it’s easy to see why.

The industry’s pitch is very persuasive: sustainable investing is as good for your wallet as it is for your conscience.

But are sustainable investment products as good a deal as the hype would suggest?

Does sustainable investing pay off?

Whether investing sustainably means sacrificing financial returns is the subject of debate among analysts and investment advisors.

Benjamin Felix, portfolio manager at Ottawa-based PWL Capital, for example, says both the data and the theory point to sustainable investments having lower expected returns.

As more and more investors buy up the stocks of companies deemed to be “good,” they push up the price of those shares, which necessarily reduces the returns investors can expect in the future, Felix said.

And because sustainable investors are guided by moral principles rather than mere financial metrics, they are less likely to ditch their underperforming sustainable stocks, which means their shares will stay overpriced.

Sustainable investors also necessarily have fewer investments to choose from, something that limits their ability to diversify their portfolios and diminish the risk tied to any one company or industry, Felix noted.

In addition, opting for sustainable investments often comes with higher fees, which eats further into returns, he added.

Tim Nash, an independent financial planner and founder of Good Investing, offers a different take. A preference for sustainable companies, he argues, steers investors away from corporations that may become the target of government sanctions or consumer boycotts.

Felix agrees that a company’s track record on issues like the environment and human rights can have an impact on the corporate bottom line. However, he believes the market is already quite good at pricing in those risks.

But Nash thinks sustainable investors are, in general, quicker to recognize that sustainability issues can have an impact on profits.

They are “ahead of the curve in recognizing these intangible values both on the upside, in terms of reputation, customer acquisition and employee attraction and retention … and also from the risk side.” 

And while sustainable investing does come with less diversification and often higher fees, there are still plenty of investment options to choose from, Nash says.

Are sustainable investments actually sustainable?

Felix’s biggest reservation about sustainable investing is the criteria the industry uses to quantify sustainability, otherwise knows as ESG metrics.

The “E” stands of “environmental,” reflecting corporate conduct on issues such as carbon emissions and water pollution. “S” is for “social,” which looks at factors such as how a company manages its workforce and the labour practices in its supply chain.

The “G,” finally, stands for “governance,” or how a company governs itself, which includes issues such as who sits on the board of directors and how executives are compensated.

With a number of data providers compiling their own ESG ratings and indices, there are a number of different definitions and methodologies out there, Felix says. This can lead to confusion for both companies and investors, he adds.

“If companies are not clear on what ‘socially responsible’ means and what’s going to be rewarded, then it’s going to really [be] for them to know what to do to get a better rating,” he said.

On the investor side, some may not realize that plenty of investment products sold as sustainable involve exposure to oil and gas companies, Felix notes.

“You better know that what you’re investing in is actually reflecting your views and values because there’s a good chance it’s not,” he said.

Nash believes that ESG investment products, as imperfect as they may be, still help move the needle in the right direction. But he agrees with Felix that investors shouldn’t buy into sustainable investments without looking under the hood.

“Don’t do it blindly,” he said. “You need to do your homework.”

– Global News

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What 'demand destruction' means and how it fits into our investment strategy – CNBC

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China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businesses in the near term. An employee works on the production line of the screens for 5G smartphones at a factory on May 13, 2022 in Ganzhou, Jiangxi Province of China.
Zhu Haipeng | Visual China Group | Getty Images

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ESG investing has its faults, but here's what we can do to improve it – Winnipeg Sun

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Standardizing ESG reporting, and making it mandatory, would be a start toward reliable ESG investing

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“Scam” or “dangerous placebo” are some of the terms used by critics to denounce Environmental, Social and Governance (ESG) investing. Yet others see it as one of our last chances to pivot our financial world to a more sustainable and environmentally-friendly model.

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ESG, a form of sustainable investing, is increasingly being used as a measure of how well a company is using its investment money. For investors looking to instigate change, ESG scores help them decide if a company is worth their money.

Not a perfect system

ESG scores aren’t standardized, nor do all companies disclose their ESG standing.

This is despite ESG dating back to 2006, when the U.N. launched the Principles for Responsible Investment at the New York Stock Exchange. The initiative was backed by leading institutions from 16 countries, representing more than $2 trillion in assets owned at the time.

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ESG critics and optimists have called on the government to use its power to fine tune ESG metrics and finally standardize it, in order to give it more credibility.

ESG not what it seems?

In 2021, ESG investment saw issuance exceeding US$1.6 trillion, bringing its total market to more than US$4 trillion. Not only that, but Bloomberg expects ESG assets to exceed US$53 trillion by 2025.

Fierce critics like Tariq Fancy — who worked as the chief investment officer for investment management firm BlackRock before leaving in late 2019 — made headlines with his disillusionment over ESG’s true impact.

“That $4 trillion isn’t really $4 trillion,” Fancy said, in reference to the widely-circulated figure.

For Fancy, the “vast majority” of what’s happening is that companies are “recategorizing existing funds and moving money and shares around from one basket to another…

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“They’ve figured out that socially conscious investors will gladly pay more in fees for something with a ‘green’ label,” he said, adding that ESG funds have 43 per cent higher fees on average.

“Also, they don’t fund carbon capture and new innovations, for the most part they publicly overweight tech companies (Microsoft) and underweight oil companies (Exxon),” he added.

Also, regular investors mainly have access to secondary shares that are sold and purchased on a daily basis, which have little impact, argued Fancy.

“The changes we need immediately to flatten the [greenhouse gas] curve are collective actions led by the government — experts have been telling us this for decades,” he said.

As ESG investing rises, so do emissions

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Like elsewhere, Canadian ESG investment is increasing, but, again like elsewhere, the nation hasn’t reduced its emissions in the past year.

A March, 2022 report from the International Energy Agency said that global energy-related carbon dioxide emissions rose by six per cent in 2021 to 36.3 billion tonnes — a new record — as the world bounced back from the pandemic.

ESG does make a difference

Art Lightstone, climate activist and host of the Green Neighbour Podcast, acknowledges ESG has its critics. But for him, this class of investing is still making a difference.

“The fact that ESG investing has not only helped to launch several green tech companies, but also encouraged less socially-minded companies to compete in ESG spaces is now pretty much undeniable,” Lightstone said. “Tesla is invariably the best case in point. The amount of investment directed toward Tesla and other EV startups has been mind boggling.”

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While money can be moved from one shareholder to another, “that’s not where the story ends.” He cited the example of Tesla when it was “able to raise large amounts of capital [at market prices] with rather little dilution to its stock.”

“Tesla did this three times in 2020, and with that money they were able to build more factories, scale up their production, lower their per-unit costs, increase their profit margins, and therefore increase the economic viability of their entire operation,” he explained.

This expansion created a domino effect for legacy automakers such as GM and Ford, who are investing more in their electric vehicle programs.

Investing intentionally and collectively

Tim Nash, founder of Good Investing, a company with a goal to help at least one million Canadians invest intentionally, argues that informed decision-making can make the impact needed.

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“People spend more time choosing an avocado in the grocery store than they spend when choosing a mutual fund for their RRSP,” Nash said.

Instead, he urged people to think more about their portfolios and ways to diversify, including carving out part of their portfolios for investment just “for doing more good.”

“This is where we can invest part of our money into things like community bonds and impact investments,” he explained.

Community bonds, a debt financing tool, are issued by non-profit, charity or co-operative organizations. They allow these groups to take loans from community backers. The backers will eventually get paid interest for investing in an impactful project, while the organization enjoys access to capital.

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During the interview, Nash noted that he was located at the Centre for Social Innovation, a non-profit that owns two buildings in downtown Toronto.

“How does a non-profit own two buildings in downtown Toronto?” he asked. “Community bonds. That’s how they were able to access capital.”

Then there is also shareholder activism, and this is where Nash highlighted how shares that are publicly traded on a secondary market can be used as a powerful tool if used collectively.

“If I sell my shares, someone else is going to buy them. However, if enough people sell their shares that will impact a company’s cost of capital,” he said. “This is a very important metric when it comes to how a company operates.”

One example Nash cited as proof of effective shareholder activism is the increased cost of capital for fossil fuel companies. At the same time, there has been an unprecedented shifting of investment capital into greener energy.

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Better knowledge needed

The financial industry needs to delve into the environmental sciences, sustainability, and systems thinking to have a more well-rounded view on how to make a full impact, Nash says.

“I do think that a lot of the criticisms come from the financial industry, people who don’t have a background (in these topics),” he said. “ESG is a very broad concept… We need everybody rowing together in the same direction.”

While the government is in a position to lead, it’s still caught up in a four-year election cycle, he added.

“It’s even shorter if it’s a minority government, which we’re in right now,” he noted.

Time to start mandating metrics on ESG

Nash put the onus on the Ontario Securities Commission, which regulates companies listed on the Toronto Stock Exchange, to start mandating disclosures of ESG issues, as other regulators have done.

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For example, the SEC in the U.S. is focused on the climate aspect of ESG. It mandates that all publicly traded corporations publish their environmental compliance costs, and proposed new rules in March to standardize climate-related disclosures to investors. The rules would require businesses to disclose information about their direct greenhouse gas emissions, as well as the indirect emissions from the energy the business consumes.

In Europe, the trend tends to lean more toward the corporate governance aspect of ESG. Under the 2018 Non-Financial Reporting Directive of the European Union, companies are expected to disclose information on environmental, social, and employee-related problems, such as anti-bribery, corruption, and human rights performance.

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In Nash’s view, Japan is ahead of the curve with its Financial Services Agency actually mandating climate risk disclosure.

“Investors, I think, to some degree are demanding more data and information and disclosure than what governments are requiring,” he said. “This is an area where investors are asking tough questions and pushing that forward. That said, investors can ask, and companies get to decide how they respond. Many of them are responding in different ways.”

ESG optimists and critics alike want to see those regular investors emboldened to make the difference the world is waiting for.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Real Madrid Gets $380 Million Investment From Sixth Street Partners – BNN

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(Bloomberg) — Real Madrid Football Club is set to receive about 360 million euros ($381 million) from Sixth Street Partners, providing much-needed funds as its stadium undergoes an 800 million-euro renovation. 

Sixth Street will get the right to profit from certain operations at Real Madrid’s Santiago Bernabeu stadium for twenty years, the investment firm said in a statement on Thursday. The U.S. investor will get a 30% stake in the stadium operations and will receive revenues from all its activities except for season-sale ticket sales, according to a New York Times report. 

Real Madrid, which won its 35th Spanish league title last month, can use the funds however it sees fit, including to sign players. Real is the most successful European team of all time, with 13 champions leagues, and it is set to play the final that may give it a record 14th later this month.

The deal announced Thursday includes the Legends, an American sports and live events management company that’s partly owned by Sixth Street, and which has overseen Real Madrid’s retail business since 2020.

Real Madrid has been raising money to help pay for the ongoing refurbishment of its stadium, including a removable pitch that will allow the club to shift the grass surface into storage to host other revenue-generating events such as concerts or tennis matches. 

©2022 Bloomberg L.P.

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