Political spat over climate risks in investments gets hotter

Investment

Political spat over climate risks in investments gets hotter

Published

1 year ago

November 2, 2022

The “E” for environment component of ESG often gets the most attention because of the debate over whether to invest in fossil-fuel companies. In the wide-ranging social, or S, bucket, investors look at how companies treat their workforces, reckoning a happier group with less turnover can be more productive. For the G, or governance aspect, investors make sure companies’ boards keep executives accountable and pay CEOs in a way that incentivizes the best performance for all stakeholders.

The ESG industry has scorekeepers that give companies ratings on their environmental, social and governance performance. Poor scores can steer investors away from companies or governments seen as bigger risks, which can in turn raise their borrowing costs and hurt them financially.

Florida has become one of the hottest battlegrounds for ESG. Gov. Ron DeSantis in August prohibited state fund managers from using ESG considerations as they decide how to invest state pension plan money. And even as his state cleans up from the environmental destruction caused by Hurricane Ian, DeSantis plans to ask the Florida Legislature in 2023 to go even further by prohibiting “discriminatory practices by large financial institutions based on ESG social credit score metrics.”

Pension funds are often caught in the middle of the battles. Questions are flowing into the Florida Education Association from teachers about what DeSantis’ moves will mean for their retirements.

“I usually tell them it’s still unclear what this exactly means,” said Andrew Spar, president of the union, which represents 150,000 teachers and educators across the state. Much is still to be determined, including exactly which funds the pension investments will steer toward.

In contrast, the Minnesota State Board of Investment is considering a proposal to adopt a goal of making its $130 billion in pension and other funds carbon-neutral. The board already uses shareholder votes to advance climate issues. It seeks out climate-friendly investment opportunities and eschews investments in thermal coal. While the new proposal goes farther, it does not call for total divestment from fossil fuel companies, as many climate change activists advocate.

The ESG debate has spilled into the race for Minnesota’s state auditor. Democratic incumbent Julie Blaha — who has singled out DeSantis as one of the leaders she believes are politicizing the discussion about ESG — has cited the investment board’s high returns in recent years as evidence the approach works.

“To be a good fiduciary, you have to consider all the risks, and the evidence is clear that climate risk is investment risk,” Blaha said.

But Blaha’s Republican challenger, Ryan Wilson, says investment returns must come first, and that all risks must be considered. He says the board shouldn’t “disproportionately dictate” that climate risk should matter more than other risks.

Proponents say considering a company’s performance on ESG issues can boost returns and limit losses over the long term while being socially responsible at the same time. By using such a lens, they say investors can avoid companies that are riskier than they appear on the surface, with stock prices that are too high. An ESG approach could also unearth opportunities that may be underappreciated by Wall Street, the thinking goes.

As for returns, there is no consensus on whether an ESG approach means lower or higher returns.

Morningstar, a company that tracks mutual funds and ETFs, says slightly more than half of all sustainable funds ranked in the top half of their category for returns last year. Over five years, the showing is better with nearly three-quarters ranking in the top half of performers in the category.

Rejecting ESG can be costly in ways besides investment performance.

A Texas law that took effect in September 2021 banned municipalities from doing business with financial institutions that have ESG polices against investments in fossil fuel and firearms companies, industries that are important to the Texas economy. It turned out to be an expensive decision.

Barred from underwriting local jurisdictions’ municipal bonds, five big underwriters — JPMorgan Chase, Goldman Sachs, Citigroup, Bank of America and Fidelity — exited those markets. A Wharton School study estimated that the loss of those big players would cost Texas communities an extra $303 million to $532 million in higher interest payments on their bonds. Fidelity says it has since restored its good standing with Texas by certifying to the state that it does not boycott energy companies or discriminate against the firearms industry.

Several big Wall Street banks and investment management companies have become favorite targets of the anti-ESG politicians because they’ve been outspoken in their embrace of ESG. Republican state treasurers have pulled or plan to pull over $1.5 billion this year out of BlackRock, the world’s largest investment company, which has a goal of net zero greenhouse gas emissions by 2050 or sooner. Missouri last month became the latest. Treasurer Scott Fitzpatrick accused BlackRock of putting the advancement of “a woke political agenda above the financial interests of their customers.”

Coal-producing West Virginia passed a law in June that allows for the disqualification of banks and other financial institutions from doing business with the state if they “boycott” energy companies. Treasurer Riley Moore soon banned BlackRock, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, blaming them for contributing to high energy prices by driving capital away from the industry.

“We’re not going to pay for our own destruction,” Moore said.

State officials have also been critical of ESG scores from ratings agencies and other outfits. For instance, S&P Global offended North Dakota State Treasurer Thomas Beadle because it rated the state as “neutral” for social and governance metrics but “moderately negative” for environmental factors because its economy and budget rely heavily on the energy sector.

His state’s lawmakers last year prohibited their investment board from considering “socially responsible criteria” for anything but maximizing returns. Beadle told senators considering potential next steps that ESG has created “significant headwinds” for energy companies trying to raise capital, and that it could affect his state’s tax revenues.

Besides state capitols, other big battlegrounds are federal agencies, where leaders of the backlash include the State Financial Officers Foundation, a group of Republican state treasurers, auditors and other officials. They’re trying to block rules being drafted at the Securities and Exchange Commission and Department of Labor to require standardized climate disclosures by companies and to make it easier for pension plan fiduciaries to consider climate change and other ESG factors.

The industry has heard the pushback and has even been surprised by how quickly it’s accelerated. But it’s pledging to plow ahead.

US SIF is an industry group advocating sustainable investing whose members control $5 trillion in assets under management or advisement. Its CEO, Lisa Woll, believes that most of the national and state politicians railing against ESG investing probably don’t understand it.

“If they did, it’s very difficult to make these kinds of allegations,” Woll said.”`It feels more like a talking point than an informed critique.”

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Canada Pension Plan investment board to host public meeting in Calgary – CTV News Calgary

Published

3 hours ago

April 16, 2024

The Canada Pension Plan (CPP) investment board will be hosting a public meeting from 6 to 8 p.m. on April 16 at the BMO Centre.

Registration for the public is closed, but organizers say there is room for some walk-ins.

The board hosts public meetings across Canada every two years to update people on the fund’s performance, governance and investment approach.

The pension plan has been a hot topic in Alberta over the last year, after the provincial government released a commissioned report exploring the possibility of an Alberta Pension Plan (APP).

According to the report, if Alberta gave the required three-year notice to quit the CPP, it would be entitled to $334 billion, or about 53 per cent of the fund by 2027.

However, critics say that is an overestimation.

Premier Danielle Smith has said she will not call a referendum on the topic until the Office of the Chief Actuary releases an updated number.

More information on the public meetings can be found on the CPP Investments’ website.

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A Once-in-a-Generation Investment Opportunity: 1 Sizzling Artificial Intelligence (AI) Stock to Buy Hand Over Fist in April – Yahoo Finance

Published

4 hours ago

April 16, 2024

The artificial intelligence (AI) space is red-hot right now. Companies across every industry are looking to capitalize on the technology, and are investing heavily to gain an edge over the competition. That’s true in the social media space, where advertisers are keen to get in front of the right audience for them.

While the social media landscape is jam-packed with competition, one company is separating itself from the pack. Meta Platforms (NASDAQ: META) is making strides across various aspects of the AI realm, and its performance over the competition shows.

Let’s dig in to why now is a lucrative opportunity to invest in Meta as the long-term AI narrative plays out.

The profit machine is up and running

One of the most appealing aspects of Meta is how efficiently management runs the business. In 2023, Meta grew revenue 16% year over year to $135 billion. However, the company increased income from operations by a whopping 62% year over year to $46.7 billion.

By expanding its operating margin, Meta recognized significant growth on the bottom line as well. Last year, the company generated $43 billion in free cash flow. With such a robust financial profile, Meta is well-positioned to invest profits back into the business as well as reward shareholders.

An AI semiconductor chip on a circuit board. — Image source: Getty Images.

Investing for the future

During Meta’s fourth-quarter earnings call in February, investors learned how the company is deploying its cash heap. For starters, it has increased its share repurchase program by $50 billion. This is encouraging to see as it could imply that management views Meta stock as a good value.

But perhaps more exciting was the announcement of a quarterly dividend. Many high-growth tech companies are not in a financial position to pay a dividend — or instead choose to reinvest profits into research and development or marketing strategies. Meta’s new dividend certainly sets the company apart from many of its peers, and is a nice sweetener for long-term shareholders.

Another way Meta is using its cash flow is in the realm of artificial intelligence. Like many enterprises, Meta relies heavily on sophisticated graphics processing units (GPUs) from Nvidia. However, Meta has been hinting for a while that the company is investing in its own hardware. Earlier this month, Meta announced that an updated version of its training and inference chips, called MTIA, is now available.

This is important for a couple of reasons. Namely, in-house chips will allow Meta to “control the whole stack” and scale back its reliance on semiconductors from third parties. Additionally, given the company’s knowledge base of data that it collects from social media platforms Facebook, Instagram, and WhatsApp, these new chips put Meta in a position to improve its targeted recommendation models and ad campaigns through the power of generative AI.

A compelling valuation

Meta competes with a number of players in the social media landscape. Alphabet is one of the company’s top competitors given that it operates the world’s top-two most visited websites: YouTube and Google. However, in 2023 Alphabet only grew its core advertising business by 6% year over year. By contrast, Meta’s advertising segment increased 16%.

While Meta’s price-to-sales (P/S) ratio of 10 is higher than many of its social media peers, the company’s growth in the highly competitive and cyclical advertising landscape may warrant the premium.

Additionally, considering Meta’s price-to-free-cash-flow ratio of about 31 is actually trading relatively in line with its 10-year average of 32, the stock might not be as expensive as it appears.

Overall, I am optimistic about Meta’s aggressive ambitions in artificial intelligence — an investment that is yet to play out. The AI narrative is going to be a long-term story. But I see Meta as extremely well-equipped to take advantage of secular themes fueling AI, and benefiting across its entire business.

The combination of a dividend, share buybacks, consistent cash flow, and a compelling AI play make Meta stick out in a highly contested AI landscape. I think now is a great opportunity to scoop up shares in Meta and prepare to hold for the long term.

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A Once-in-a-Generation Investment Opportunity: 1 Sizzling Artificial Intelligence (AI) Stock to Buy Hand Over Fist in April was originally published by The Motley Fool

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Goldman Sachs Backs AI in Hospitals With $47.5 Million Kontakt.io Investment – BNN Bloomberg

Published

5 hours ago

April 16, 2024

(Bloomberg) — The growth equity unit of Goldman Sachs Group Inc. has invested $47.5 million in Kontakt.io, a startup that helps hospital managers make decisions about patients, beds and equipment.

It’s the 39th investment in health care from the bank’s growth equity division and the deal is “a good example of what is coming down the pipe” for its portfolio, according to Christian Resch, the UK-based the Goldman partner who led the financing and will sit on Kontakt.io’s board.

Kontakt.io, formed in Poland in 2014, makes small bluetooth-connected devices that stick on hospital equipment and software for managing the data collected by the sensors. The idea is to track practically everything inside a hospital — from patient beds to ultrasound machines — to help managers make decisions about capacity and replacement. The startup wants to build out an AI system that can offer suggestions to managers. It bills for the entire tracking system, rather than solo sensors.

Philipp von Gilsa, Kontakt.io’s chief executive officer, said his business helps health-care operators curb inefficiencies and manage pressures like crippling nursing shortages. “Hospitals are extremely, extremely wasteful in how they treat their resources,” he said. “We help them address that and, at the end of the day, save money.”

Health-care and life sciences IT spend is expected to continue rising, growing 8.3% in 2023 to $245.8 billion, according to Gartner estimates. But that money hasn’t always found its way to startups, which have struggled to compete with entrenched medical suppliers and navigate byzantine health-care networks. While many startups offer tools for managing health records or apps for patient use, Kontakt.io is focused on operations. The company pointed to a 2019 study that found roughly a quarter of US health spending was wasted due to issues like fraud and administrative hassles.

Kontakt.io has largely grown without major outside capital. It first marketed to a range of sectors interested in tracking indoor data, but has since homed in on health care, which now provides 80% of its sales, according to von Gilsa.

The startup has “roughly 500” enterprise customers, he said, including HCA Healthcare Inc. and the UK’s National Health Service. Von Gilsa declined to share revenue but said 2022 sales exceeded the $7.5 million his company raised before Goldman’s funding, and revenues tripled in the last twelve months. Kontakt.io, he said, has been profitable for the last four years.

With the financing, which came solely from Goldman, von Gilsa plans to hire more engineers to build an automated system for hospital staff using artificial intelligence. Machines will offer recommendations for daily decisions like how to stock certain machines or when to move patients into surgery.

Some 4 million devices in circulation give the startup an edge in building this AI, according to von Gilsa, who said the large quantities of data gathered by Kontakt.io sensors can help train its models.

Larger rivals, like GE HealthCare Technologies Inc., have also touted recent AI features designed to streamline hospital operations. Goldman’s Resch said Kontakt.io’s integration of sensors and software gave the bank confidence in its prospects.

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