ESG IN THE NEWS
Hearing Through Noisy Data. ESG data providers rely largely on self-reported data from companies. MIT researchers recently conducted on a study on ratings divergence from ESG data providers. MIT was able to develop a common taxonomy to fit different rating agency approaches into a consistent framework. The analysis found that differences in scope, measurement (using different raw data), and weighting across factors drove the ratings divergence. Meanwhile, adjusting for these differences showed a positive link between ESG ratings and investment performance. MIT’s Aggregate Confusion project is now focused on engaging with industry partners and developing best practices for ESG ratings providers.
Where Will ESG Be In Five Years? ESG or sustainable investment assets continue to grow at a rapid pace. According to Morningstar, global sustainable fund assets doubled in the past six months to $3.9 trillion at the end of September. The number of funds also rose 51% to almost 7,500 funds. Meanwhile, new regulations will also increase disclosure requirements and discourage greenwashing. A recent ESG article in the Wall Street Journal featured predictions about the future growth of sustainable investing from academics, consultants, and other ESG practitioners. They covered: the future of definition standardization, investment manager transparency, divergencies of ESG data providers, and the rapid growth of ESG in separately managed accounts (SMAs).
VALUES IN ACTION
Earth: Fifth Third Bank Recognized for Environmental Progress. On December 8, Fifth Third Bank announced it received an A- score from CDP for climate action and disclosures. This is the third consecutive year the company has received an A- score. So, what is a bank doing to protect the environment? In November, Fifth Third became the first US financial institution with less that $250B in assets to issue a green bond. The company will use the $500 million of proceeds to fund green projects that align with its sustainability priorities, which include renewable energy, energy efficiency, green buildings, clean transportation, and affordable housing. Fifth Third set a sustainable finance goal of $8B by 2025. The bank also received praise for achieving carbon neutrality in its operations and business travel. At this time, Seeds has no direct exposure to Fifth Third (FITB).
People: Cosmetics Company Lush Deletes Social Media Platforms. Privately held Lush Cosmetics recently deactivated accounts on Facebook, Instagram, Snapchat, and TikTok due to concerns over its customers’ mental health. The company is especially concerned over social media impacts on teen girls. Deleting social media accounts is expected to have a negative $13M impact on the company’s sales. Lush relies heavily on its own direct marketing to reach consumers and maintains a social media presence on Twitter, YouTube, and Pinterest. Hence, the company is able to leave Facebook without taking a massive hit to revenue. It is too early to tell if other companies will follow Lush’s example, since many smaller companies are heavily reliant on Facebook. At this time, Seeds has no direct exposure to Lush (or any privately held companies).
Corporate Integrity: Bitcoin Miner Hut 8 Announces ESG Goals. Bitcoin mining has a negative image in the sustainability world because of the massive amounts of power needed in the process. Canada-based Hut 8 recently announced ESG goals that set a positive example for other companies in the bitcoin mining industry. Hut 8’s goals include achieving carbon neutrality by 2025 and increasing gender diversity among employees, its board, and the executive management team. The company plans to report its sustainability metrics using the SASB and GRI frameworks. Hut 8 also joined the Crypto Climate Accord, which includes bitcoin miners that have pledged to reduce energy use from fossil fuel sources. In general, the bitcoin mining industry may continue to gravitate toward renewable energy where possible. At this time, Seeds has no direct exposure to bitcoin mining-related companies.
As Activision Blizzard continues to face lawsuits and even an SEC investigation stemming from alleged employee gender discrimination and sexual harassment, many critics of environmental, social, and governance (ESG) investing have rightfully questioned the seemingly obvious disconnect between Activision’s public persona and its behind-closed-doors behavior—and how ESG managers missed it. Many ESG-focused managers, including Seeds, held Activision’s stock (ATVI)in funds and strategies, in part because of the way various ESG data providers have historically scored the company. As data-driven, active managers, we believe in having the ability to course-correct when the data (and our interpretation of it) gets it wrong, something that’s more difficult for passive ESG strategies that are beholden to a particular predefined index. The Activision story—and others that will inevitably arise in the future—should serve ESG-focused investment managers as an opportunity for learning and improvement. At this time, Seeds has no direct exposure to ATVI.
79% of investors agree that they would be much more loyal to a financial advisor who actively helps them invest in a way that also has positive impact on the world, according to Nuveen’s Sixth Annual Responsible Investing Survey. The findings suggest that interest in sustainable investing and values alignment is growing in interest and importance for investors. In fact, 81% of investors agree that it’s important for their advisor to talk to them about how their investments can reflect their personal values. This could be the key to advisors staying relevant and retaining clients in the future – as 63% of investors agree that advisors could be doing more to help them see the societal and environmental benefits of their investing.
· Seeds announces the launch of taxable ESG fixed income strategies, in partnership with investment manager Nuveen, and including funds managed by BlackRock
· The Carson Group’s Framework Podcast features Adrian Grenier and Zach Conway discussing The Intersection Between Revenue And Social Impact
· Forbes Features CEO Zach Conway’s Article: Want To Invest Your Values? Ask Your Advisor These 5 Questions
· FA Mag Features Seeds: Investment Platform For Advisors Adds Two Fixed Income Options For Clients
To learn more, contact the Seeds team at firstname.lastname@example.org or visit our website at www.seedsinvestor.com.
Seeds Investor LLC ("Seeds") is a Registered Investment Advisor ("RIA"), located in the State of New York. Seeds provides investment advisory and related services for clients nationally. Seeds will maintain all applicable registration and licenses as required by the various states in which Seeds conducts business, as applicable.
This document is for your private and confidential use only, and not intended for broad usage or dissemination. Past performance is no guarantee of future returns. Nothing contained in this publication shall be construed as to make are presentation or warranty, express or implied, regarding the advisability to invest in or include companies in investable universes and/or portfolios. Opinions shown in this publication are solely those of Seeds and may not be accurate or complete. Seeds does not get any compensation from linking to news articles and does not take any responsibility for the accuracy of such articles or information therein.
*Holding examples mentioned are for illustrative purposes and may or may not represent actual holdings in an individual’s personalized Seeds Portfolio. Investors are to refer to their financial advisor or custodian for a list of actual holdings.
Seeds began managing advisory client assets March 23, 2020. Although this material is based upon information the advisor considers reliable and endeavors to keep current, the advisor does not assure that this material is accurate, current or complete, and it should not be relied upon as such. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment .All investments include a risk of loss that clients should be prepared to bear. The principal risks of the advisor’s investment services are disclosed in the publicly available Form ADV Part 2A.