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What is ESG investing? A beginner’s guide to choosing a sustainable fund




So-called ESG investing is a big deal. The acronym applies to investment strategies that take environmental, social and governance factors into account, and these days serves as a stand-in for all strategies marketed as sustainable investments.

By year-end 2022, following broad declines in the stock and bond markets, investor assets in sustainable investments amounted to $8.4 trillion, or about 12.6% of all U.S. assets under management, according to the Forum for Sustainable and Responsible Investment (US SIF).

In other words, 1 in every 8 U.S. investor dollars is in a sustainable fund.


The growing prominence of and demand for ESG investments has attracted the attention of politicians and regulators. Last month, President Joe Biden used his first veto to preserve a Department of Labor rule allowing employers to select ESG options for their 401(k) plans.

Meanwhile, politicians in Texas and other states have put measures in place to ban fund companies they see as “boycotting” energy companies from doing business with the state. Critics have even decried ESG strategies as needlessly “woke.”

All of which raises a couple of important questions: What are ESG investments exactly? And what role could they play in your portfolio?

What is an ESG fund?

ESG has become a catch-all acronym for what asset management industry pros would call sustainable investing — strategies that seek to deliver a financial return while providing for societal good.

If that sounds like a broad definition, it’s because it is. Under the sustainable umbrella you’ll find strategies that remove a few “bad actor” companies from otherwise broad indexes, as well as funds that invest in companies they see as furthering a particular environmental goal, such as providing clean water.

“Hopefully, we’ll start to see asset managers become more intentional with branding to improve public understanding and, in turn, help the investor,” says Alyssa Stankiewicz, associate director of sustainability research at Morningstar.

To that end, the SEC proposed regulations last year which would force stricter rules surrounding sustainability fund names, theoretically making it easier to understand what a particular fund holds.

In the meantime, you’ll have to do a little homework. For starters, sustainable funds generally fall into three major buckets:

1. Socially responsible funds

Socially responsible investing (SRI) strategies have been around since the 1950s and tend to be more about what a fund doesn’t own than what it does.

Such funds may own a broadly diversified portfolio, but will eschew investing in firms with significant revenues from controversial industries. Early on, these were often alcohol, gambling and tobacco. More recently, funds have begun excluding industries such as firearms and fossil fuel production.

2. ESG funds

This is where conflating ESG funds and “boycotting” the energy industry gets a little spurious.

Funds with an ESG framework typically seek to invest in companies that score highly on environmental, social and governance criteria. That typically means they’re working to reduce their environmental impact, treat employees and customers well, value corporate diversity and align their policies with the interest of shareholders.

Failure to account for these factors, ESG proponents argue, represents a threat to the viability of a company’s business.

“Climate change, racial justice, diversity, equity and inclusion — these are all financial metrics because your workforce is part of whether your business can succeed or not,” says Andrew Behar, CEO of sustainable investing research firm As You Sow.

3. Impact funds

In general, “ESG is about risks to a company’s valuation, not about what it does for the community. It’s not about providing solutions for climate transition,” says Stankiewicz.

Those types of funds are impact funds, which seek to create tangible progress toward sustainable goals. Morningstar divides these funds into five buckets:

  1. Climate action
  2. Healthy ecosystem
  3. Resource scarcity
  4. Basic needs
  5. Human development

While an ESG fund might reward firms with low carbon footprints, for instance, a climate impact fund might invest in firms that manufacture solar panels or wind turbines.

How to decide on a sustainable fund

If you’re interested in adding a sustainable investment to your portfolio, ask yourself why before you buy.

If it’s about making money or protecting against risk while investing in line with your values, you may favor an ESG fund. If you can’t stomach the thought of contributing to a certain kind of firm, you may seek an SRI fund. If you’re looking to “do no harm” or make a difference with your investments, you may want an impact fund.

Even if you know what you have in mind, you may still want to do a little digging. Until the SEC’s rules kick in, a mutual fund’s name needs to align with only 80% of its holdings. That’s prompted some firms to say, “Oh, we can call it a fossil-free fund and we can be 19% coal,” says Behar.

Some free online tools can help you find a fund or look under the hood of one you may be interested in. Here are two to check out:

  • Morningstar’s ESG screener lets you sort funds by Morningstar’s overall ESG rating (from one to five globes), as well as its stated investment objectives and involvement in certain industries.
  • As You Sow’s Invest Your Values tool allows you to search any fund and read a report card on factors such as fossil fuel exposure, gender equality and investment in private prison operators.

But remember, before choosing any investment on its sustainability criteria, you still need to make sure it’s a good fund that fits your investment goals.

“ESG isn’t going to be a silver bullet to outperformance for a bad manager or an impediment to a strong manager,” says Stankiewicz. “It’s always important to look at the fundamentals of a fund you’re considering buying.”



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Al Gore-led fund leads $95-million investment in Toronto's BenchSci, which uses AI to hasten drug discovery – The Globe and Mail



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Liran Belanzon, CEO of AI company BenchSci, at the company’s new Toronto offices on July 27, 2021.Fred Lum/The Globe and Mail

Al Gore’s investment firm has led a $95-million financing of a Toronto company that uses artificial intelligence to help pharma giants cut time and costs from the drug discovery process.

Generation Investment Management, chaired by the former U.S. vice-president, led the growth equity financing of BenchSci Analytics Inc., with backing from past investors Inovia Capital and Golden Ventures of Canada, and U.S.-based TCV and F-Prime Capital Partners, affiliated with Fidelity’s founding Johnson family. It’s Generation’s third deal in Canada, after 2021 investments in AlayaCare Inc. and Benevity Inc.

Terms were not disclosed but Golden managing partner Matt Golden said it was a “clean deal” free of complex structured terms that financiers have increasingly demanded from startups to guarantee them a larger share of proceeds when they sell.


Multiple investors bid to lead the deal and BenchSci chief executive Liran Belenzon said it was “not a down round,” meaning the company at least maintained its valuation from when it raised US$50-million last year. The lack of structure or devaluation puts BenchSci in rare company amid a shakeout across the tech sector as companies run out of cash or face onerous funding offers from investors.

Mr. Belenzon said “we weren’t in a position where we needed to raise money, but that’s when I want to raise. We have lots of traction and I want to make sure we have a good war chest to continue meeting demands.” He added he expects venture capital investing levels “will only get worse” despite steep declines already in the past year.

Tom Czitron: How artificial intelligence will change the investing landscape

BenchSci deploys artificial intelligence to rapidly peruse millions of scientific publications. Tens of thousands of researchers use its online subscription software tool to quickly determine which antibodies (proteins the body develops to fight invasive substances) and reagents (substances that cause chemical reactions) would be best to use in early experiments on new medications.

BenchSci’s product is used by 16 of the world’s 20 largest pharmaceutical companies, which shave months and substantial costs off the search for new drugs. Novartis in its 2021 annual report said it saved US$14-million from 2018 to 2021, as scientists using BenchSci to select the best antibodies and reagents cut down on expensive and unproductive experiments and accelerated projects by months.

Anthony Woolf, growth equity partner with Generation, a social-impact sustainability-focused investor, said his firm heard “what I’d describe as wild customer love” for BenchSci during its due diligence research. “The largest biopharmaceutical companies are spending billions of dollars a year on their preclinical research and development teams, so any degree of efficiency is meaningful to them.”

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BenchSci is working towards more diversity, equity, and inclusion initiatives in the company.Fred Lum/The Globe and Mail

He added there are relatively few software tools available for early drug researchers, and that BenchSci is a welcome response to “a massive innovation crisis” in preclinical research and development that has seen the cost of drug discovery skyrocket.

BenchSci was founded in 2015 by Tom Leung, David Chen, Elvis Wianda and Mr. Belenzon after they met through the Creative Destruction Lab at University of Toronto. It has grown rapidly since the start of the pandemic, more than doubling revenue over the past 18 months and expanding its team to more than 400 people from 100 in 2020. Mr. Belenzon forecast his company would double revenue again this year but didn’t disclose absolute figures.

Asked if he was concerned generative AI companies such as OpenAI could threaten BenchSci, Mr. Belezon replied: “I think every technology can be a threat if you don’t do anything about it. We will remain agile, adopt new technologies to help us solve the problem faster and never stop as an organization.”

Mr. Woolf at Generation added: “Our conclusion is that large language models” used in generative AI “are going to benefit BenchSci over time as long as they can incorporate it.”

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Singapore's Temasek cuts compensation for those responsible for FTX investment – Yahoo Canada Finance



By Urvi Manoj Dugar and Yantoultra Ngui

(Reuters) -Singapore state investor Temasek Holdings said on Monday it had cut compensation for the team and senior management that recommended its investment in the now-bankrupt FTX cryptocurrency exchange.

“Although there was no misconduct by the investment team in reaching their investment recommendation, the investment team and senior management, who are ultimately responsible for investment decisions made, took collective accountability and had their compensation reduced,” Temasek Chairman Lim Boon Heng said in a statement posted on Temasek’s website on Monday.


It did not detail the amount of compensation cut.

The move comes around six months after Temasek initiated an internal review of its investment in FTX, which resulted in a writedown of $275 million.

Temasek had said its cost of investment in FTX was 0.09% of its net portfolio value of S$403 billion ($304 billion) as of March 31, 2022, and that it currently had no direct exposure in cryptocurrencies.

Temasek also said last year it had conducted “extensive due diligence” on FTX, with its audited financial statement then “showed it to be profitable”.

FTX’s other backers such as SoftBank Group Corp’s Vision Fund and Sequoia Capital had also marked down their investment to zero after FTX, founded by Sam Bankman Fried, filed for bankruptcy protection in the United States last year.

“With FTX, as alleged by prosecutors and as admitted by key executives at FTX and its affiliates, there was fraudulent conduct intentionally hidden from investors, including Temasek,” Lim said in the statement on Monday. “Nevertheless, we are disappointed with the outcome of our investment, and the negative impact on our reputation.”

($1 = 1.3245 Singapore dollars)

(Reporting by Urvi Dugar in Bengaluru and Yantoultra Ngui in Singapore; Editing by Himani Sarkar and Lincoln Feast.)

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Solar power due to overtake oil production investment for first time, IEA says



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Photovoltaic panels at a solar farm near Thaxted, eastern England, on May 16.DANIEL LEAL/AFP/Getty Images

Investment in clean energy will extend its lead over spending on fossil fuels in 2023, the International Energy Agency said on Thursday, with solar projects expected to outpace outlays on oil production for the first time.

Annual investment in renewable energy is up by nearly a quarter since 2021 compared to a 15-per-cent rise for fossil fuels, the Paris-based energy watchdog said in its World Energy Investment report.

Around 90 per cent of that clean energy spending comes from advanced economies and China, however, highlighting the global divide between rich and poor countries as fossil fuel investment is still double the levels needed to reach net-zero emissions by midcentury.

“Clean energy is moving fast – faster than many people realize,” said IEA Executive Director Fatih Birol.


“For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy. Five years ago, this ratio was one-to-one.”

Around US$2.8-trillion is set to be invested in energy worldwide in 2023, of which more than US$1.7-trillion is expected to go to renewables, nuclear power, electric vehicles and efficiency improvements.

The rest, or around US$1-trillion, will go to oil, gas and coal, demand for the last of which will reach and all-time high or six times the level needed in 2030 to reach net zero by 2050.

Current fossil-fuel spending is significantly higher than what it should be to reach the goal of net zero by midcentury, the agency said.

In 2023, solar-power spending is due to hit more than US$1-billion a day or around US$380-billion on a yearly basis.

“This crowns solar as a true energy superpower. It is emerging as the biggest tool we have for rapid decarbonization of the entire economy,” energy think tank Ember’s head of data insights, Dave Jones, said in a statement.

“The irony remains that some of the sunniest places in the world have the lowest levels of solar investment.”

Investment in new fossil fuel supply will rise by 6 per cent in 2023 to US$950-billion, the IEA added.

The agency did not expressly reiterate its blockbuster projection from 2021 that investors should not fund new oil, gas and coal supply projects if the world wants to reach net-zero emissions by midcentury.

Producer group OPEC has said calls by the IEA to stop investing in oil undermine global energy security and growth. Scientists and international climate activi


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