Investment is crucial to achieving climate mitigation and adaptation goals. We need substantially more investment in zero-carbon sectors, such as renewable power generation (solar, wind, hydropower, and geothermal), batteries and other energy storage technologies, green hydrogen, electric transportation, and energy efficiency, while phasing out investment in fossil fuels and other high-emission economic activities. The 2022 Intergovernmental Panel on Climate Change (IPCC) report on Impacts, Adaptation and Vulnerability also stresses that investments in mitigation must be coupled with investment in adaptation and climate-resilient infrastructure to help billions in areas of growing climate risk.
International investment law should accelerate climate-friendly, sustainable investment and the phase-out of climate-unfriendly investment. Existing investment treaties and investor-state dispute settlements fail to do either. They were not designed to advance those goals, but to protect economic interests of foreign investors and their investments, regardless of their climate friendliness.
For international investment law to support climate goals, we need a wholly new regime for investment governance, not investment protection and arbitration.
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.
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.
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.
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…
“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
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.”
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.
“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.
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.
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.
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.
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.
(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.
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