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What Happens To Your ESG Investment When Money’s Tight For Others? – Forbes

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No matter your age, you invest for only one reason: to accumulate wealth. Anything else is charity.

Not that there’s anything wrong with charity (and faith and hope and all those other good things). Charity puts food on other families’ tables. Investing—good investing, smart investing, successful investing—puts food on your family’s table. And if you’re really good, smart and successful at investing, you can accumulate enough wealth to put plenty of food on both your family’s table and other families’ tables.

So-called “ESG”-based investing is treated seriously by many, including, judging from the many investment products touting their ESG affinity, many investment firms. Some even argue ESG-based investing produces more favorable investment returns than traditional financial-based investing. This may be true, if only for a very financial-based reason.

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Any product that hits its groove attracts investors. When Apple

AAPL
tore off its corporate suit and “changed everything” with the iPod (then the iPhone, then the iPad, and, pretty much, the i-anything), its stock took off. Hot products produce hot companies which leads to hot stocks.

All good, smart and successful investors pay attention to consumer demand. It doesn’t matter if those consumers are retail or business, a product that suddenly emerges into “must have” status means sales. For the company doing the selling, that means profits. For investors, profits mean favorable returns.

It’s as easy as that. Find a product boosted by surging demand, then ride that wave.

Right now, ESG-based investing is just such a product. As a result, it’s easy to confuse the story with the finances.

While environmental, social and governance (the “ESG” in ESG) may not appear to have a direct impact on revenues and profits, they very well may.

“Many investors have been raised in a society that has become increasingly aware of a variety of risks that affect the environment and social behavior & well-being and financial outcomes for companies,” says Robert ‘Bob’ Smith, CIO and President of Sage Advisory Services in Austin, Texas. “They have also come to understand the importance of good corporate governance, disruptive product innovation, and creative approaches to resource or time management. All of these elements are identified, evaluated, and beneficially highlighted through the effective ESG risk assessment application in the investment process.”

You can easily imagine how this zeal for ESG-based investing suggests companies might profit from selling ESG-based products. These products can range from organic foods to electric cars.

It’s not just actual products. To establish an ESG appeal to its entire product line, a company might take actions that align themselves with causes positioned to show support for ESG issues. Of course, investing in these “ESG-affiliates” does pose some risk.

“In some cases, we see statements from companies making products that when you make your purchase from them the company will donate funds to an ESG cause,” says Stephen Akin of Akin Investments, LLC in Biloxi, Mississippi. “In the event the company doesn’t follow through on those donations, then buyer’s remorse will set in and turn the young consumer away from the product they once loved.”

It’s not just failure to follow-through on philanthropic promises that can hurt companies. Changing definitions of acceptable behavior can resurface decades-old statements that cause one to cringe in today’s society. Endorsing the wrong political candidate or belonging to the wrong political party can lead activists to call for a boycott of an otherwise upstanding “good citizen” company.

“Any sort of scandal, however minor, can set off a firestorm of negative press for a company,” says Kathleen Owens, of Aurora Financial Planning & Investment Management LLC, in the San Francisco Bay Area. “Companies are boycotted for what a company executive Tweeted, board members are pressured to resign if they mis-speak. Groups of people have become very organized in coordinating a pushback on a company that they are displeased with.”

The greatest risk when it comes to ESG-based investing, however, lies in the greatest risk to ESG-based products. It’s one thing to be a good story stock, but that story has to be implementable.

“Younger consumers may desire to purchase products that align with their ESG goals, even if they are more expensive,” says Ryan Brown, partner at CR Myers & Associates in Southfield, Michigan. “If, however, those products are not as readily accessible to purchase, as easy (or easier) to use or will promote that goal in a truly scalable way, younger purchasers will likely shy away from them.”

Worse for higher cost ESG-based products is the awful reality of economics can come down hard, especially when the economy heads south.

“Younger generations are becoming increasingly skeptical and frugal after witnessing the 2008 financial crisis and recent coronavirus market drop,” says Brown. “If you’re asking them to spend more money on a product that they could otherwise purchase in a cheaper, generic version, that product best be able to accomplish those goals in a material fashion. You don’t see many Generation Z individuals driving a Tesla

TSLA
(yet).”

It’s not just the coronavirus market drop, it is the impact the pandemic has had on certain sectors in the marketplace. This is particularly acute for those just entering the job market in states that have had trouble re-opening. Can those people, (in many ways the target market for ESG-based products), afford to pay for the luxury of supporting their favorites causes? And, if they can’t, what kind of financial impact will that have on the companies that sell those products?

“COVID-19 may put a damper on younger people spending according to their beliefs,” says Derek Horstmeyer, an Assistant Professor of Finance at George Mason University’s School of Business in Washington, D.C. “For those that are newly unemployed or have faced pay cuts it is now more difficult to pay extra for a good that aligns with their belief.”

Finally, what happens if we discover the appearance of ESG altruism is just that—an appearance, not a reality?

“The answer to this question may lie in a research project that one of my students just did,” says Michael Edesess, Adjunct Associate Professor, Division of Environment and Sustainability at Hong Kong University of Science and Technology. “She surveyed a couple of hundred subjects (mostly young and college-age) about their feelings about the ‘greenness’ of five different fashion brands. She found, surprisingly, little or no correlation between their beliefs in their greenness and their proclivity to buy them. Upon direct questioning of a few of the participants in the survey, she found that their preferences about other features of the products overwhelmed their preferences about their greenness. They may say they prefer green products, but when it comes down to it, they just want them to be stylish.”

Fashion, perhaps, provides the key to successful ESG-based investing. Fashion brands occupy a long spectrum from “bargain-basement” to “luxury.” Good, smart, and successful companies sell brands along that entire spectrum. Those companies with sustainable marketing strategies understand that you cannot sell luxury items using the same techniques that sell bargain-basement products. The same holds true for production and distribution systems.

Business models differ for high-margin products and low-margin products. At this point, ESG-based products appear to be high-margin products. Successful ESG-based investments will therefore be in companies that show they can implement a high-margin product business model.

Otherwise, if they’re dependent on consumers’ willingness to continue to pay a premium for ESG, they may be in for a dreadful surprise the next time we hit a broad-based recession.

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Amazon completes $4B Anthropic investment to advance generative AI – About Amazon

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Amazon concludes $4 billion investment in Anthropic.

Customers of all sizes and industries are using Claude on Amazon Bedrock to reimagine user experiences, reinvent their businesses, and accelerate their generative AI journeys.

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The work Amazon and Anthropic are doing together to bring the most advanced generative artificial intelligence (generative AI) technologies to customers worldwide is only beginning. As part of a strategic collaborative agreement, we and Anthropic announced that Anthropic is using Amazon Web Services (AWS) as its primary cloud provider for mission critical workloads, including safety research and future foundation model development. Anthropic will use AWS Trainium and Inferentia chips to build, train, and deploy its future models and has made a long-term commitment to provide AWS customers around the world with access to future generations of its foundation models on Amazon Bedrock, AWS’s fully managed service that provides secure, easy access to the industry’s widest choice of high-performing, fully managed foundation models (FMs), along with the most compelling set of features (including best-in-class retrieval augmented generation, guardrails, model evaluation, and AI-powered agents) that help customers build highly-capable, cost-effective, low latency generative AI applications.

Earlier this month, we announced access to the most powerful Anthropic AI models on Amazon Bedrock. The Claude 3 family of models demonstrate advanced intelligence, near-human levels of responsiveness, improved steerability and accuracy, and new vision capabilities. Industry benchmarks show that Claude 3 Opus, the most intelligent of the model family, has set a new standard, outperforming other models available today—including OpenAI’s GPT-4—in the areas of reasoning, math, and coding.

“We have a notable history with Anthropic, together helping organizations of all sizes around the world to deploy advanced generative artificial intelligence applications across their organizations,” said Dr. Swami Sivasubramanian, vice president of Data and AI at AWS. “Anthropic’s visionary work with generative AI, most recently the introduction of its state-of-the art Claude 3 family of models, combined with Amazon’s best-in-class infrastructure like AWS Tranium and managed services like Amazon Bedrock further unlocks exciting opportunities for customers to quickly, securely, and responsibly innovate with generative AI. Generative AI is poised to be the most transformational technology of our time, and we believe our strategic collaboration with Anthropic will further improve our customers’ experiences, and look forward to what’s next.”

Global organizations of all sizes, across virtually every industry, are already using Amazon Bedrock to build their generative AI applications with Anthropic’s Claude AI. They include ADP, Amdocs, Bridgewater Associates, Broadridge, CelcomDigi, Clariant, Cloudera, Dana-Farber Cancer Institute, Degas Ltd., Delta Air Lines, Druva, Enverus, Genesys, Genomics England, GoDaddy, Happy Fox, Intuit, KT, LivTech, Lonely Planet, LexisNexis Legal & Professional, M1 Finance, Netsmart, Nexxiot, Parsyl, Perplexity AI, Pfizer, the PGA TOUR, Proto Hologram, Ricoh USA, Rocket Companies, and Siemens.

To further help speed the adoption of advanced generative AI technologies, AWS, Anthropic, and Accenture recently announced that they are coming together to help organizations—especially those in highly-regulated industries including healthcare, public sector, banking, and insurance—responsibly adopt and scale generative AI solutions. Through this collaboration, organizations will gain access to best-in-class models from Anthropic, a broad set of capabilities only available on Amazon Bedrock, and industry expertise from Accenture, Anthropic, and AWS to help them build and scale generative AI applications that are customized for their specific use cases.

Deepening our commitment to advancing generative AI, today we have an update on the announcement we made to invest up to $4 billion in Anthropic for a minority ownership position in the company. Last September, we made an initial investment of $1.25 billion. Today, we made our additional $2.75 billion investment, bringing our total investment in Anthropic to $4 billion. To learn more about the broader strategic collaboration between Amazon and Anthropic, of which this investment is one part, check out the stories below:

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Amazon doubles down on Anthropic, completing its planned $4B investment – TechCrunch

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Amazon invested a further $2.75 billion in growing AI power Anthropic on Wednesday, following through on the option it left open last September. The $1.25 billion it invested at the time must be producing results, or perhaps they’ve realized that there are no other horses available to back.

The September deal put $1.25 billion into the company in exchange for a minority stake, and certain tit-for-tat agreements like Anthropic continuing to use AWS for its extensive computation needs.

Amazon reportedly had until the end of the first quarter to decide whether to increase its investment to a maximum of $4 billion, and here we are just before the deadline, and the company has decided to throw in the maximum amount.

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Anthropic’s AI models are one of very few that compete at the highest levels of capability (however you define it) yet are available at scale for enterprises to deploy internally or in user-facing applications. OpenAI’s GPT series and Google’s Gemini are the others up there, but upstarts like Mistral may soon threaten that fragile triumvirate.

Lacking the capability to develop adequate models on their own for whatever reason, companies like Amazon and Microsoft have had to act vicariously through others, primarily OpenAI and Anthropic. The two have reaped immense benefits by allying with one or the other of these moneyed rivals, and as yet have not seen many downsides.

What we can take from Amazon’s decision to invest the maximum after (one must assume) getting a pretty close look at how they make the AI sausage over there is, really, pretty scant.

It makes too much strategic sense for these companies, which possess enormous war chests saved up for exactly this purpose (outspending rivals when they can’t out-innovate them), to pour cash into the AI sector. Right now the AI world is a bit like a roulette table, with OpenAI and Anthropic representing black and red. No one really knows where the ball will land, least of all the companies that couldn’t predict or create this technology themselves. But if your bitter enemy puts their chips down on red, it only makes sense for you to bet on black.

Especially if you can bet on black at a discount — which is what Amazon got here, since it could invest at Anthropic’s September valuation, which is most certainly lower than it is today.

That said, if things were looking sketchy over there — the way they must have looked at Inflection before Microsoft pounced on it — Amazon could have backed out or just invested less than the full supplemental $2.75 billion. But that might have sent a confusing signal no one wants getting out there, least of all existing multibillion-dollar investors.

We know Anthropic has a plan, and this year we’ll find out what Amazon, Apple, Microsoft and other multinational interests think they can do to monetize this supposedly revolutionary technology.

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Canada to tighten foreign investment rules for AI, other sectors

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Canada will require foreign companies to warn the government in advance before making investments or acquisitions in artificial intelligence, quantum computing and space technology, Bloomberg News reported on Tuesday, citing an interview with Innovation Minister Francois-Philippe Champagne.

The move will aid the government in conducting a national-security review before transactions get too far advanced and would-be investors may be restricted in their access to target companies’ user data or other property while the inquiry is taking place, the report said.


Click to play video: 'Canadians concerned about risk of AI generated fraud'
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Canadians concerned about risk of AI generated fraud

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The tougher rules will also apply to investments in critical minerals and potentially other sectors, Champagne said to Bloomberg.

Earlier this month, Champagne said Canada will crack down on foreign investment in the interactive digital media sector to stop state-sponsored actors from endangering national security.

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