Beyond ESG and Investing with Sustainable Impact - Issue#6.
I hope you find an interesting mix this quarter as I explore greenwashing; going too far with ESG and a piece on those that are making a difference and how you too can make some small changes to support sustainability.
When I set about thinking what content to include, firstly I reflect on past conversations, review any emails, think upon what the majority of my subscribers represent (planners and those seeking a positive ESG outcome from their investment dollar) and finally any market trends. Right now, the market trend is ESG investing the application of ESG principles into portfolio management and the net zero pledge.
The focus of this newsletter is always going to be ESG and Investing for Impact but also needs to acknowledge those that are making a difference at the coal face and the good people that really are just getting about and doing their bit for sustainability. Read on about two such people within the coffee industry, Steve Dyer and Bec Moore. Together they are simply doing their bit without legislative push …no greenwashing….just action.
Has ESG Investing Run its course?
Ultimately if the adoption of ESG is without merit and positive outcomes the movement will end and be replaced with a new fad. This is one of the outcomes from research by Nuveen, the NYSE-listed global fund’s management arm of big US-based TIAA (formerly TIAA-CREF), a profit-for-members financial services organisation. Nuveen has provided a new analysis with its annual survey of institutional investors, contacted late last year. The report, entitled ‘Think EQuilbrium’ says 42 per cent of all investors, are still skeptical about ESG.
Take the time to have a read
Cartoon J Leak
Is Climate Change a risk or an opportunity?
Global warming is one of the defining challenges of the 21st century. Unaddressed, modelling demonstrates it will have a potentially catastrophic impact on our planet and the lives of future generations. Many would argue the catastrophe is already unfolding. As the acceptance of climate change rolls from the scientific community through to Legislation, superannuation, and now the investment and financial planning community the risk and opportunities arise.
A simple innovation pathway to discuss with investors is a bucket theme.
1. Green energy
Renewable energy assets, renewable energy developers, renewable energy equipment, and green utilities
2. Green transportation
Electric transportation, electric vehicles and bikes, ride-sharing and efficiency
3. Sustainable products
Food solutions, telepresence, sustainable materials, efficient materials and processes, sustainable buildings, sustainable forestry
4. Water and water improvements
Pollution control, recycling and materials, waste management, water and waste efficiency
5. Other ‘enabling solutions’
Fuel cells, alternative fuels, battery supply chain, electric systems, energy efficiency, energy storage, green finance, semiconductor devices, electrical components.
APRA releases guidance on managing the financial risks of climate change
The Australian Prudential Regulation Authority (APRA) has released for consultation its draft guidance to banks, insurers and superannuation trustees on managing the financial risks of climate change.
The draft Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229) is designed to assist APRA-regulated entities in managing climate-related risks and opportunities as part of their existing risk management and governance frameworks.
APRA has developed CPG 229 in response to requests from the industry for greater clarity of regulatory expectations and examples of better industry practice.
The Australian Prudential Regulation Authority (APRA) has released for consultation its draft guidance to banks, insurers and superannuation trustees on managing the financial risks of climate change.
The draft CPG 229 and supporting resource links are available on the APRA website at: Consultation on draft Prudential Practice Guide on Climate Change Financial Risks
There is clear momentum in the corporate sector towards more concrete climate commitments, with the topic now a mainstream item on boardroom agendas. It seems like every industry is willing to commit to a net-zero pledge as long as it is far enough out with 2050 the favourite.
ESG and reducing carbon emissions are very poorly defined and now we are experiencing commitments without concrete steps in place to meet them. In fact, I would suggest the PM’s, boards and management committing will be out of the position by the time 2050 rolls around. The definition of net-zero is clear … a state in which an entity “removes from the atmosphere as much greenhouse gas emissions as it causes” (IPCC 2018). The means to complete or market this activity is well ..broad and perhaps defined in the marketing department. I have found Climate neutrality, Net-zero CO2 emissions, Carbon neutrality, Zero-carbon, Carbon-free, Net-negative emissions, Carbon negative, Climate positive, Deep decarbonisation, Emissions-free, Zero-emissions and 1.5°C pathway by way of example to explain the same process?
Approaches for implementing net-zero targets can be categorised according to whether they target direct reduction of emissions, claim neutralisation of emissions through offsetting, or support carbon dioxide removal. All of which are positive outcomes as long as there are concrete steps to achieve.
In this revealing report by NewClimate Institute and Data-Driven EnviroLab, entitled Navigating the nuances of net-zero targets, the emperor is stripped nude. use it to understand what net-zero is not.
Tarren’s Rant
I am cognisant not to include advice in this piece but would like to offer a warning that takes no account at all of your financial circumstances. It’s a simple warning. The price you pay for an asset is typically reflective of future earnings. Unless you understand that statement consider seeking financial guidance. I’m very concerned that people are purchasing assets that have no bearing on the principle of “… value is reflective of future cash flow”. By way of example, real estate should be reflective or rent you will achieve. My rent is peanuts compared to the value of the property and whilst in theory, paying off someone else’s asset could well be indicative that prices will moderate when realism settles back into the market. I’d suggest the current low-interest rates and housing stimulus is distorting property prices and perceptions of what returns you will attain in the future. Equity markets are massive beneficiaries of the stimulus and I hope the underlying businesses are too or a correction is imminent. With so many fits and starts to this virus scare thought must be applied to deploying your money. Step back and just ask – will this business, house, unit, artwork, classic car stamp collection etc pay me a suitable cash flow in the future. Everyone in finance has some sort of successful catchphrase. Buffet “when the tide goes out we will see who’s nude”, Anton Tagliaferro “buy good businesses at good prices” etc. If I could be remembered by one it is going to be “High expectations can ultimately lead to big Letdowns’’. Tarren.
Have a read yet take anything you read with a grain of salt from the domain. They have their own agenda.
Apart from property other assets classes are showing signs of apathy and weak governance. The US Hedge Funds and what is termed “Small Family Offices” (yep real term) are created headaches for the major banks the likes of Long Term Capitals collapse. Credit Swiss is down a cool 6 billion to date of securities lending to a small family office. Makes me wonder what was learnt during the GFC or what was forgotten. https://finance.yahoo.com/news/unacceptable-credit-suisse-reveals-further-073724385.html
Digital art and crypto currency are an asset class I’m only just learning about, as well as blank cheque IPOs. It is hard to fathom there is any value in some of these areas. A single pixal just sold for $1.7 million at Sotheby’s described as a “grey square” and a gif of a cat for $600,000.
Pixal Rubbish by Pak
We should be developing our own business or being paid to expand someone elses or investing to attain some future cash flow. Instead, the current investment market includes purchasing rights for bragging. This art is referred to as an NFT a “nonfungible tokens.” The buyers are usually not acquiring copyrights, trademarks or even the sole ownership of whatever it is they purchase. They’re buying bragging rights and the knowledge that their copy is the “authentic” one. When a work of art is acquired, the buyer signs a purchase contract transferring ownership, and receives a receipt and/or a certificate of authenticity. Copies and fakes may exist but the possession of the Certificate of Authenticity is proof of ownership of the original. That’s just nuts. Cut it out. Put some thought into where you are putting your money.
Green Washing – why does it occur and why can’t we control it?
Investor demand for investment products and financial services that incorporate environmental, social, and governance (“ESG”) factors has increased in recent years. In response to this demand, a range of investment advisers has offered several ESG investment options, including registered investment companies and pooled investment vehicles. The drive to attain this FUM has led to greenwashing.
Legislators in the US are onto Green Washing and examinations of Investment Advisers and Funds will evaluate whether they are accurately disclosing their ESG investing approaches and have adopted and implemented policies, procedures, and practices that accord with their ESG-related disclosures. The following will be under the radar
• Portfolio management. Examinations will include a review of the firm’s policies, procedures, and practices related to ESG.
• Performance advertising and marketing.
Read more at the source from the SEC. We are going to be hearing more on this no doubt as surely the UNPRI will also need to audit those that are signatories.
https://www.sec.gov/files/esg-risk-alert.pdf
The US is no alone either. Those directors that are marketing their green credentials and carbon commitments could well find themselves being sued. Companies that are making net-zero commitments will need to back up those claims with clear structures and planning in place to achieve them.
On a Positive Note - Tinker Northcote
Each week I like to call out someone that is making a difference at the coal face. Someone that just quietly goes about “doing their bit” for sustainability. One of my passions is coffee. Coffee is in the DNA with roots in Greek country cafes in regional NSW, family members are roasters, importers of coffee machines and in my eyes, baristas are the new butchers. I’ve never met a grumpy butcher or barista.
Hands down two of the best coffee houses are Cassius Café Sydney https://www.instagram.com/cassiusbyclaycups/ run and owned by the amazing positive Steve Dyer and Tinker Café Northcote https://www.instagram.com/tinkernorthcote/ run and owned by the beautiful Bec Moore. Not only are they producing great food and coffee they are making fantastic inroads within sustainability and really are just lovely people.
Whilst Starbucks feel it necessary to release overly hyped market sustainability releases others are quietly just getting it done.
Starbucks announced with great fanfare the launch of a trial of the Borrow A Cup program, a waste reduction initiative enabling customers to receive their beverage in a reusable and returnable cup. The program, an expansion of recent single-store tests, will run for two months in five Seattle stores, and forms part of Starbucks’ commitment to reducing single-use cup waste and its goal to reduce waste by 50% by 2030, one of the company’s key sustainability goals announced last year.
I’m calling this out as subtle greenwashing. In truth Starbucks should be doing more and why has it taken so long to kick this off? Why not aim for 2025? If Steve Dyer at Cassius can give each and every one of his customers a stunning clay cup for takeaways if you forget your own, surely the economies of scale of Star bucks can do more.
The Tinker Cafe is also a small player in the coffee game making strides into sustainability. I first met Bec whilst looking for a café consultant to help out on a potential site. Bec runs a tight ship at the Tinker and what impresses me more than the coffee and menu are that all the staff love working there creating a brilliant environment to enjoy a meal n coffee and chinwag. Tinkers a knowledge base for me being new to Melbourne and so far, covered off where to rent, where to go camping, and Melbourne's best beaches.
Tinker Northcote
I prefer to get the early coffee at The Tinker and one morning I was chatting with the team about Steves coffee cup exchange and how it could work in a covid environment. We covered the issues and not once did anyone mention the efforts, they complete reducing their own food and coffee extract waste. Months later I find out they have an extensive worm farm system to ensure the organic waste is recycled back into their herb and vege garden. This is exactly what we need – people that quietly just know what is right and get about and do it. No greenwashing from team Tinker, just action.
Tinker Northcote
So all in all Tinker Café is my Coal Face Substantiality champ this month. Ohh and whilst I have always had a worm farm, a recent move to Mlb required a trip to Bunnings. Dad and son project is now to set it up and ready for some caffeinated worms from Tinker. … “Bec, one Piccolo, one kids choc milk and a hand full of worms to go please”….
For those that want to quietly make a difference to substantiality and the health of the planet consider these easy ones, please
1. Buy a worm farm and explain to the kids what going to. Easy to explain a circular system with a worm farm,
Father-Son Project
Look under the hood when making investments – greenwashing is a pet hate of mine. Consider educating your self with this free course within ESG at the Candriam Academy. https://riachannel.com/candriam/
The Candriam Academy aims to raise the awareness, education and knowledge of financial intermediaries on the topic of ESG investing via an innovative online platform of inspiring and actionable content and materials. The Academy is free of charge and open to all (though has been conceived with the needs of intermediaries in mind).
There are now financial advisors that specialise within exploring your ethical views and recommending product and services. Seek help if you are unsure how and where to deploy your hard earned capital.
Snapshops
Sustainability Goals, Initiatives and Achievements
PRI Launches 3-year Strategic Plan, Prioritizing Climate Change Mitigation and Human Rights
Education
The Candriam Academy
The Candriam Academy aims to raise the awareness, education and knowledge of financial intermediaries on the topic of ESG investing via an innovative online platform of inspiring and actionable content and materials. The Academy is free of charge and open to all (though has been conceived with the needs of intermediaries in mind). https://riachannel.com/candriam/
Disclaimer notice
The information contained in this investment note is meant for informational purposes only and is subject to change without notice. The content is provided with the understanding that the authors and publishers are not herein engaged to render advice on legal, economic, or other professional issues and services.
Tarren has over 20 year’s experience working in equities markets and within boutique Fund Managers. Tarren began his career at Mercantile Mutual in Client Service's before moving to London and working in transition management for Merrill Lynch. Recent roles include working at PM Capital Ltd for over eight years as the Portfolio Analyst with responsibility for ESG analysis and investment analytics. Tarren worked at Investors Mutual where he was the Senior Analyst responsible for research data and communication. He joined Paradice Investment Management as the Head of Client Services He holds Bachelor of Science from the University of New England and a Diploma of Financial Planning. Tarren has completed the PRI Academy training in environmental, social and corporate governance (ESG) issues for the investment and finance community.
Memberships and Affiliations
RIAA (Responsible Investment Association Australia), AIA (Australian Investors Association), ASA (Australian Shareholders Association), Taronga Zoo Conservation Society, Zoos Victoria, Ocean Watch Australia, Australian Marine Conservation Society, Munda Biddi Trail Foundation, CastleCoveClassicCarClub, ToyotaLandCrusierClub, Pre-1940 Triumph Car Club, Standard and Triumph Car Club, NRMA Classic Car Club and Australian Motorlife Museum.