The COVID crisis will accelerate the shift to sustainability as governments from around the world are pumping in money into “green investments”.
The EU has committed EUR 550m to green projects over the next 7 years (~1/3 of the entire recovery package); US: USD 2T to tackle climate change.
UN’s Net Zero Asset Owner Alliance (consisting of 33 institutional investors) is targeting net zero emissions by 2050 and align portfolios with the 1.5C scenario (supposedly holding warming to 1.5C above preindustrial levels could limit the most dangerous and irreversible effects of climate change).
MK: I’ve mentioned before that investment funds are in a delicate position of trying to juggle investor returns (i.e. being able to attract and retain a long-term investor pool) and the active investment (picking stocks based on certain principles and mandate, which in this case involves sustainability (the E in the ESG) as part of the firm’s demonstrated activities).
Renewable energy prices have fallen substantially: solar 2009-2019: -89%, onshore wind: -70%.
MK: at the same time, there’s serious debate whether the business case for the renewable energy can ever stack up (so far it doesn’t look so), and the lauded country policies (e.g., Germany’s) have fallen flat on their faces. To me it’s important to know the arguments from both sides of the debate, because each side is skilled at cherry-picking arguments and using non-market mechanisms to write sustainability policies.
The report goes on to demonstrate that the index comprised of the Global 100 sustainability companies (100 by definition) has delivered 263% between 2005 and 2020 vs the MSCI All Country World Index’s 220% (2900 securities, 49 countries).
MK: As with any dynamic strategy, the question is: is the list created ex ante (i.e. in anticipation of the performance news) or ex post (i.e. after the returns are already known)? In other words, does it have a predictive power or an explanation power? I tend to be quite suspicious of broad statements perfectly explaining major differences. But ok, let’s move on.
41% of the companies in the index earn their revenues from products and services aligned with the UN Sustainable Development Goals (vs 8% for MSCI ACWI). Cool stuff.
Gender representation in the Board is also quoted: 32% Directors are female in G100 vs 24% in MSCI ACWI. MK: just curious: are some industries more diverse with paths to promotion to everyone than others?
MK: Hm… Something’s must be wrong here. Let’s look at the #1 company sorted by the % Non-male on Board. Natura & Co Holding SA. 75% women on Board is fantastic, although not surprising the company dealing with cosmetics and personal care. Let’s scratch the surface a little bit. How about we open the last BoD resolution on share repurchase dated 4 Feb 2021? And let’s use our fingers to count men and women. 9 men and 3 women. Indeed, it’s 75%, but not of women, though. Feel free to show me where I’m wrong. The data sheet is here.
MK: Now let me rant for a second. ESG is a very sensible topic because ESG implementation goes against lots of very deeply held beliefs in many societies (these beliefs are different in each society). The appreciation of our responsibilities towards the planet and our children / grandchildren is not something natural for humans who have spent the past 200 000 years learning to survive. So, this self-sacrifice of current benefits for the sake of our descendants is something that makes us humans in the modern understanding of the word. And the way to approach it is kindness, patience and facts – honest facts, not something that promotes a narrative for the “greater good”.
Sorry, to know that the egg is rotten you don’t have to eat the whole of it. Stopping right here.
However, the list of criteria applied is very interesting and helpful, and I’ll go through it in one of the next posts. It’s the application of these criteria that is bothering me. And, needless to say, some of these criteria make excellent companies like X5 Retail Group ineligible for inclusion in the list despite their huge investments into sustainability. Why? Well, this may have something to do with the society, which is not sexist by design and not racially diverse – both for historic reasons.