Connect with us

Investment

Blackrock Investment Guru Busts The ESG Investing Myth – OilPrice.com

Published

 on



Blackrock Investment Guru Busts The ESG Investing Myth | OilPrice.com


Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

More Info

Trending Discussions

Premium Content

Wall St

Over the past few months, one of the most influential investors on Wall Street has been throwing its full weight behind ESG and the clean energy transition. Back in January, BlackRock Inc. (NYSE:BLK), the world’s largest asset manager with $9 trillion in assets under management (AUM), disclosed plans to pressure companies to do a lot more to lower their carbon emissions by leveraging its mammoth asset base.

A couple of months ago, BlackRock CEO Larry Fink called for corporate climate disclosures while proclaiming that companies must have a purpose beyond profit.

In fact, BlackRock says it plans to stop investing in the worst offenders of greenhouse gas emissions.

But now a former BlackRock head honcho is claiming just the opposite: Green investing does little to stop climate change.

Tariq Fancy, a former chief investment officer for sustainable investing at BlackRock, says greenhouse investing is headed for massive failure because the entire energy investment system is merely designed for profits.

Primed for profits

Fancy argues that in many cases, it’s actually cheaper and easier for a company to market itself as green as opposed to actually doing the long-tail work of actual sustainability. Not only is that expensive, but it also incurs zero penalties from the government in the form of a carbon tax.

Related: Is Russia About To Invade Ukraine?
Fancy, who currently runs the digital learning non-profit Rumie in Toronto, says BlackRock’s move is fundamentally flawed because the climate crisis cannot be solved via free markets ‘‘because the system is built to extract profits.’

Fancy argues that investors have a fiduciary duty to maximize returns to their clients, which essentially means that they will continue to invest in activities that contribute to global warming (read: oil and gas) as long as returns there are more favorable.

Even oil and gas divestments are doomed to fail.

According to Fancy:

“If you sell your stock in a company that has a high emissions footprint, it doesn’t matter. The company still exists, the only difference is that you don’t own them. The company is going to keep on going the way they were and there are 20 hedge funds who will buy that stock overnight. The market is the market.’’

Fancy is hardly alone in that view.

No energy restrictions

Back in February, analysts at Bloomberg Intelligence (BI) published a research note about the banking industry aptly titled “What Energy Restrictions?” The research notes that JPMorgan has provided nearly $250 billion of loans and bonds to fossil-fuel companies since the ratification of the Paris Agreement in December 2015, nearly 30% higher than its closest rival Wells Fargo (NYSE:WFC), which provided $193B over the timeframe.

Collectively, Wall Street’s biggest six banks provided nearly $900B in loans and bonds to the oil and gas industry over the past five years alone.

Fossil fuel apologists contend that JPM’s sheer size and the fact that it has its fingers in so many pies make it nearly impossible to avoid involvement with climate-unfriendly businesses. 

In its defense, JPM has lately become more proactive at fighting climate change than ever before.

JPM [belatedly] made its debut in the green bonds market in September 2020, selling $1 billion in green bonds maturing in four years. Green bonds are fixed-income instruments that are specifically earmarked to finance environmentally friendly projects.

However, that represented a mere sliver of the more than $300B in green bonds sold last year.

After a lull in the first half of the year due to the pandemic, green bond issuance spiked to $62 billion in September and maintained strong volume through the tail-end of the year. Last year saw a total of $305.3 billion in green bonds issued, 13% higher than 2019 levels, thus bringing cumulative levels since 2007 to $1 trillion.

JPM’s climate commitments also pale in comparison to what its peers are doing.

In 2019, Goldman Sachs (NYSE:GS) became the first big U.S. bank to rule out financing new oil exploration or drilling in the Arctic, as well as new thermal coal mines anywhere in the world before the rest of the horde joined the bandwagon. In its environmental policy, GS declared climate change as one of the “most significant environmental challenges of the 21st century” and pledged to help its clients manage climate impacts more effectively, including through the sale of weather-related catastrophe bonds. The giant bank also committed to investing $750 billion over the next decade into areas that focus on climate transition.  Related: The Future Of U.S. LNG Hangs In The Balance

In October, Morgan reiterated its commitment to achieving operational carbon neutrality by aligning with Paris Agreement goals. The bank announced that it will establish intermediate emission goals for 2030 for its financing portfolio with a heavy focus on the oil and gas, electric power and automotive, and manufacturing sectors and set and continue to support “market-based policy solutions” such as putting a price on carbon.

Not my money

But as Fancy has observed, giant Wall Street investment companies such as BlackRock, JPM, and money managers have a hard time divesting themselves of oil and gas.

Critics have in the past pointed out that BlackRock has not been moving fast enough to fulfill climate pledges and pointed at the firm’s $85 billion of assets tied to coal, not to mention big holdings in major oil and gas producers such as Royal Dutch Shell (NYSE:RDS.A) BP Plc. (NYSE:BP), and ExxonMobil (NYSE:XOM).

“BlackRock remains waist-deep in fossil fuel investments and the world’s top backer of companies that destroy the Amazon rainforest and ignore the rights of indigenous people,” environmental group Extinction Rebellion has carped.

BlackRock’s defense has been: ‘‘It’s not my money.’’

Turns out that much of BlackRock’s fossil fuel companies are held in passive index funds, meaning it cannot directly divest.

BlackRock, though, says it’s working behind the scenes with coal companies, urging them to adopt cleaner technologies. CEO Fink acknowledges that financial markets have been slow to reflect the threat posed by climate change but has promised that:

“In the near future–and sooner than most anticipate–there will be a significant reallocation of capital.”

But BlackRock appears to have its priorities right.

Some money managers have been defending their decision to continue buying oil and gas stocks by claiming that divestitures don’t get these companies to change.

According to Mark Regier, vice president of stewardship at Praxis Mutual Funds:

“There’s a fundamental mythology in the divestment movement that when you divest, you’re somehow fundamentally hurting that company, and that’s just not how the markets work. When we sell, someone else buys.’’

Chris Meyer, manager of stewardship investing research and advocacy at Praxis, says that by selling oil and gas stocks, investors are missing the opportunity to advocate for change and also fail to support companies powering a transition to green energy.

Praxis owns shares or green bonds from companies such as The Southern Company (NYSE:SO), ConocoPhillips (NYSE:COP) and NiSource Inc. (NYSE:NI).

Praxis cites its decision to stick with NiSource Inc. (NYSE:NI), an energy holding company that operates as a regulated natural gas and electric utility, as a textbook example of what can happen when [large] investors advocate for change. Praxis says that it started engaging with NiSource back in 2017 and managed to convince the utility to commit to a complete coal phaseout by 2028 to be fully replaced with wind and solar power generation. If successful, that scale of renewable investments will cut Indiana’s overall greenhouse gas emissions by 90%, according to Meyer.

Climate advocacy can certainly work, but claiming that it’s the best way to solve the climate crisis is questionable wisdom at best and downright disingenuous at worst.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today


Back to homepage

<!–

Trending Discussions

–>



Related posts

Let’s block ads! (Why?)



Source link

Continue Reading

Investment

Have a large amount of cash to invest? Here's how deploying it all at once compares with doing so over time – CNBC

Published

 on


Valeriy_G | iStock | Getty Images

If you have a big wad of cash to invest, you may wonder whether you should put all of it to work immediately or spread out over time.

Regardless of what the markets are doing, you’re more likely to end up with a higher balance down the road by making a lump-sum investment instead of deploying the money at set intervals (known as dollar-cost averaging), a study from Northwestern Mutual Wealth Management shows.

That outperformance holds true regardless of the mix of stocks and bonds you invest in.

More from Personal Finance:
Before quitting your job, do these four things
Here are tips for reining in impulse spending
How to avoid buying a flood-damaged car

“If you look at the probability that you’ll end up with a higher cumulative value, the study shows it’s overwhelmingly when you use a lump-sum investment [approach] versus dollar-cost averaging,” said Matt Stucky, senior portfolio manager of equities at Northwestern Mutual Wealth Management.

The study looked at rolling 10-year returns on $1 million starting in 1950, comparing results between an immediate lump-sum investment and dollar-cost averaging (which, in the study, assumes that $1 million is invested evenly over 12 months and then held for the remaining nine years).

Assuming a 100% stock portfolio, the return on lump-sum investing outperformed dollar-cost averaging 75% of the time, the study shows. For a portfolio composed of 60% stocks and 40% bonds, the outperformance rate was 80%. And a 100% fixed income portfolio outperformed dollar-cost averaging 90% of the time.

The average outperformance of lump-sum investing for the all-equity portfolio was 15.23%. For a 60-40 allocation, it was 10.68%, and for 100% fixed income, 4.3%.

Even when markets are hitting new highs, the data suggests that a better outcome down the road still means putting your money to work all at once, Stucky said. And, compared with investing the lump sum, choosing dollar-cost averaging instead can resemble market timing no matter how the markets are performing.

“There are a lot of other periods in history when the market has felt high,” Stucky said. “But market-timing is a very challenging strategy to implement successfully, whether by retail investors or professional investors.”

However, he said, dollar-cost averaging is not a bad strategy — generally speaking, 401(k) plan account holders are doing just that through their paycheck contributions throughout the year.

Additionally, before putting all your money in, say, stocks, all at once, you may want to be familiar with your risk tolerance. That’s basically a combination of how well you can sleep at night during periods of market volatility and how long until you need the money. Your portfolio construction — i.e., its mix of stocks and bonds — should reflect that risk tolerance, regardless of when you put your money to work.

“From our perspective, we’re looking at 10-year time horizons in the study … and market volatility during that time is going to be a constant, especially with a 100% equity portfolio,” Stucky said. “It’s better if we have expectations going into a strategy than afterwards discover our risk tolerance is very different.”

Adblock test (Why?)



Source link

Continue Reading

Investment

New rules for investing in China: Lessons from Beijing’s education crackdown – CNBC

Published

 on


Chinese ride-hailing company Didi offers cars for guests of the Annual Meeting of the New Champions 2017 (World Economic Forum’s Summer Davos session) on June 27, 2017, in Dalian, Liaoning Province of China.
VCG | Visual China Group | Getty Images

BEIJING — As overseas investors reel from Beijing’s regulatory crackdown, the rapid fallout in an industry like after-school tutoring can be a guide to what went wrong, and where future opportunities lie in China.

Before China cracked down on tutoring schools this summer, major investment firms like SoftBank were pouring billions of dollars into Chinese education companies, many of which were publicly traded in the U.S. or on their way to listing there.

The strategy was one of burning cash to fund exponential user growth, with hopes of profit in the future. For the strategy to work, investors aimed for a “winner takes all” approach that they’d used with other Chinese start-ups such as coffee chain Luckin Coffee and ride-hailing company Didi.

Didi essentially paid Chinese consumers to take cheap rides through its app, beating out Uber to dominate about 90% of the mainland market, and went on to raise more than $4 billion in a New York IPO on June 30.

But it soon became clear that investment strategy might no longer work. Just days after Didi’s IPO, Chinese authorities ordered app stores to remove Didi’s app and began investigations into data security — effectively shutting down the business’s growth prospects in the near term.

It came months after Beijing’s efforts to tackle alleged monopolistic practices by the country’s internet technology giants like Alibaba and Tencent.

By late July, the education sector was clearly Beijing’s next target.

Crackdown on after-school tutoring

In harsher-than-expected measures, regulators ordered tutoring companies in kindergarten to 12th grade academic subjects to restructure as non-profits, cut operating hours and remove foreign investment. Shares of industry leaders such as Tal EducationNew Oriental Education & Technology Group and Gaotu Techedu plunged on that news. They have lost more than 75% each over the last three months.

Chinese tutoring start-ups that investment funds had placed their bets on months before suddenly lost their path to a public listing.

In October 2020, online tutoring start-up Yuanfudao said it raised a total of $2.2 billion from Tencent, Hillhouse Capital, Temasek and many other investors — for a valuation of $15.5 billion.

Two months later, competitor Zuoyebang raised $1.6 billion from investors including SoftBank’s Vision Fund 1, Sequoia China, Tiger Global and Alibaba.

“They were hoping to create another oligopoly like Didi” with market pricing power, said an investor and co-founder of one of the largest U.S.-listed Chinese education companies, according to a CNBC translation of his Mandarin-language interview. He requested anonymity because of the sensitivity of the matter.

However, the education industry already had several major market players, he pointed out, and “it turned out that no business could really beat the other before the crackdown.”

Building a dominant market leader in after-school tutoring was a lucrative prospect. The opportunity was enormous given China’s population of 1.4 billion people and a culture in which parents prize their children’s education.

Early industry players like New Oriental got their start with physically leased locations and in-person classrooms. But the coronavirus pandemic in 2020 accelerated the tutoring industry’s shift online, and the cash-burning fights of China’s internet world was in full play.

Advertising wars

Chinese after-school tutoring companies began to spend heavily last year on advertising to attract new students.

U.S.-listed Gaotu spent more than 50 million yuan ($7.75 million) in one week this past winter for ads on short-video platform Kuaishou, a person familiar with the matter told CNBC.

“In China, Kuaishou is a smaller platform than [ByteDance’s] Douyin/TikTok, so the total spend on traffic by all of K to 12 education companies would be much more than that,” the source said in Mandarin, according to a CNBC translation.

Gaotu did not respond to a request for comment. In its earnings report for the first three months of the year, the company said its selling and marketing expenses of 2.29 billion yuan were three times more than a year ago.

Tal Education disclosed that its spending in the same category surged by 172% from a year ago to 660.5 million yuan for the three months that ended Feb. 28.

Both companies reported a net loss in the quarter, as did another industry player, OneSmart International Education Group, which disclosed a 47% year-on-year surge in selling and marketing expenses to 288.8 million yuan.

OneSmart listed in the U.S. in 2018 in an IPO underwritten by Morgan Stanley, Deutsche Bank and UBS. Later that year, the education company acquired Juren, one of the oldest businesses in China’s tutoring industry.

But the new after-school regulations struck a fatal blow to the 27-year-old company. About a month after the new rules were released, Juren collapsed, just one day before public schools opened on Sept. 1.

OneSmart could be delisted from the New York Stock Exchange since its shares have remained below $1 since July.

Other U.S.-listed Chinese stocks are also struggling. New Oriental did not report a net loss for the quarter ended Feb. 28, but disclosed it spent $156.1 million on selling and marketing in that time, 32% more than a year ago.

The surge in advertising spend to grow student enrollment came as investors piled into the industry, and increased competition sent customer acquisition costs soaring.

The landscape has significantly changed.
Ming Liao
founding partner, Prospect Avenue Capital

With new capital, start-ups Zuoyebang and Yuanfudao, along with Tal Education, reportedly went on to sponsor state broadcaster CCTV’s annual Spring Festival Gala in February. That’s the market equivalent in China of buying a U.S. Super Bowl ad, which costs of about $5.5 million for a 30 second spot.

But regulators were watching. In the months before the harsh crackdown, Chinese authorities fined 15 education companies a total of 36.5 million yuan, primarily for false advertising.

Then in July, harsher regulations on after-school tutoring essentially banned advertising, prohibited public offerings of shares, and investment from foreign capital.

‘Common prosperity’ in China

The new policy marks Beijing’s latest effort to restrict the education industry’s sprawling growth and its burden on parents — a concern for authorities trying to boost births in the face of a rapidly aging population and shrinking workforce.

Investors need to recognize that tackling the population problem, slowing economic growth and tensions with the U.S., have become top concerns for the Chinese government, said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, which manages $500 million in assets.

“The landscape has significantly changed,” he said, noting that investors now need to consider national policies far more than just industry developments.

In addition to the crackdown on internet companies and after-school tutoring centers, authorities have  ordered online video game companies to restrict children to playing three hours a week.

Speeches by President Xi Jinping have emphasized the goal is “common prosperity,” or moderate wealth for all, rather than some.

Education is just one of the so-called three mountains that Chinese authorities are tackling. The other two are real estate and health care, all areas in which hundreds of millions of people in the country have complained of excessively high costs.

In the last 20 years, corporate profits have largely gone to property developers and companies based on internet platforms, Liao said.

In light of new policy priorities, he said, it’s important for investors to distinguish between internet-based businesses and those developing more tangible kinds of technology like hardware — even if both kinds of companies are loosely referred to as “tech” businesses in English.

With the U.S. now under President Joe Biden and bent on competing with China, Beijing is increasing investing in an ambitious multi-year plan to build up its domestic technology ranging from semiconductors to quantum computing.

The “China market can still offer attractive investment returns for global investors, and the challenge lies in identifying the potential future winners amid China’s rebalancing,” Bank of America Securities analysts wrote in a Sept. 10 report.

They pointed to a shift over the last two decades in the largest Chinese companies by market capitalization — from telecommunications, to banks, to internet stocks. Going forward, they expect greater regulation on internet and property industries, “while advanced manufacturing, technology, and green energy related sectors will be promoted.”

The bank listed a few contenders for “future winners.”

  • Sportswear: Anta
  • Health care: Wuxi Bio
  • Electric vehicles and and EV battery: BYD
  • Lithium in new materials: Ganfeng
  • Renewable energy: Long Yuan
  • Tech hardware: Flat Glass

“Certain industrials sectors that we currently do not cover could also have promising opportunities,” the analysts said.

Future of investing in China

For Chinese after-school tutoring companies that once attracted billions of dollars, they’re now trying to survive by building up courses in non-academic areas like art or adult education. Those in the industry say it’s an uncertain path that has a market only a fraction of what the companies used to operate in.

SoftBank is waiting for clarity on the regulatory front before resuming “active investment in China,” its Chief Executive Masayoshi Son said in an earnings call on Aug. 10.

“We don’t have any doubt about future potential of China … In one year or two years under the new rules and under the new orders, I think things will be much clearer,” Son said, according to a FactSet transcript.

When contacted by CNBC last week about its investment plans for China, Softbank pointed to how it led investment rounds in the last few weeks in Agile Robots, a Chinese-German industrial robotics company, and Ekuaibao, a Beijing-based enterprise reimbursement software company.

“Our commitment to China is unchanged. We continue to invest in this dynamic market and help entrepreneurs drive a wave of innovation,” SoftBank said in a statement.

But when it comes to bets on the education industry, some investors have decided to look elsewhere in Asia.

In June, Bangalore-based online education company Byju became the most valuable start-up in India after raising $350 million from UBS, Zoom founder Eric Yuan, Blackstone and others. Byju is valued at $16.5 billion, according to CB Insights.

Adblock test (Why?)



Source link

Continue Reading

Economy

Canadian dollar notches biggest gain in a month as stocks rally

Published

 on

The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Thursday as investor sentiment picked up and domestic data showed that retail sales fell less than expected in July.

World stock markets rallied and the safe-haven U.S. dollar retreated from one-month highs as worries about contagion from property developer China Evergrande eased and investors digested the Federal Reserve’s plans for reining in the stimulus.

Canada is a major exporter of commodities, including oil, so the loonie tends to be particularly sensitive to investor appetite for risk.

“The assumption here is that (Fed interest) rate hikes are still a long way out and so equities markets can still perform with accommodative financial conditions,” said Mazen Issa, senior FX strategist at TD Securities in New York.

“Consequently, currencies that have a higher beta to the equity market, like the CAD, can do alright.”

U.S. crude oil futures settled 1.5% higher at $73.30 a barrel, while the Canadian dollar was trading up 0.9% at 1.2653 to the greenback, or 79.03 U.S. cents.

It was the currency’s biggest advance since Aug. 23. It touched its strongest level since last Thursday at 1.2628.

Canadian retail sales dipped 0.6% in July, compared with expectations for a decline of 1.2%, while a preliminary estimate showed sales rebounding 2.1% in August.

Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries.

The 10-year touched its highest level since July 14 at 1.335% before dipping to 1.330%, up 11.6 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney)

Continue Reading

Trending