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Walmart busts green bond record

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To COP — or not to COP? That is the question hanging over climate ministers and sustainability activists as November’s global climate talks in Glasgow (COP26) draw near. Here in New York, in-person meetings are taking place, on a limited scale, and there will be a host of “real” gatherings linked to the UN General Assembly later this month.

However, the problem with COP26, as Leslie Hook points out, is that the UK is stipulating that participants must be fully vaccinated — and while this is no issue for western delegates, vaccination rates in the emerging markets lag shamefully far behind the west (as I note in my own column this week). Thus, civil groups are calling for the in-person meeting to be postponed to avoid leaving poor countries out of the talks.

Moral Money doubts whether the UK government will do that; or not until the last minute. But as the uncertainty lingers, companies are still accelerating their climate pledges ahead of COP26. Check out our stories about Walmart and Verizon, say — and the ESG data wars. (Gillian Tett)

Green bond pushback continues despite record offering

Walmart announced a $2bn green bond offering on Wednesday, marking the largest individual green bond issuance on the US market to date. The retail giant has said proceeds will go towards achieving the company’s sustainable goals including renewable energy, zero waste and circular economy initiatives in the eligible green investments portfolio.

While sustainable bonds — which include green and social bonds — are set to exceed $1tn later this year, according to a recent study from S&P Global, green bonds alone are projected to hit $1tn in 2023, according to the Climate Bonds Initiative.

“Green bonds were the big shift in the [green finance] transition,” Citi Bank’s chief sustainability officer Valerie Smith said at Monday’s Climate Bonds Initiative conference.

Also this week, Verizon, the first telecom provider to issue a green bond, released its third $1bn green bond offering. The net proceeds of its second issuance committed $1m to reforestation efforts, $19m to green building certifications and $636.9m towards renewable energy projects in the US. The newest offering targeted underwriters with a focus on sustainability and diversity, according to Verizon.

Despite all the new issuances, green bonds also face a backlash. After a flurry of offerings in 2019 and 2020, there has been limited follow-up on how their proceeds have been spent.

More than 20 different labels have been used for sustainability debt instruments, according to the Journal of Environmental Investing, deepening confusion over green bond offerings.

A core argument against green bonds is that only a small number of economic activities are low carbon, as the Climate Bonds Initiative has reported. A majority of organisations have not “aligned their activities with a net-zero economy”, it says, and are not on target to meet the Paris climate agreement by 2050 with the current sustainable debt offerings. (Kristen Talman)

AQR’s Cliff Asness: Short selling ‘a vital tool for ESG investing’

© Bloomberg

You may remember that Hiro Mizuno, the former head of the world’s biggest pension fund, Japan’s Government Pension Investment Fund (GPIF), halted stock lending in 2019. “I never met a short seller who has a long-term perspective,” he said at the time. Mizuno’s move forced asset managers to reckon with whether the fees they generated from securities lending subverted their environmental, social and governance (ESG) efforts.

But this week a different perspective on ESG and short selling came from Cliff Asness, co-founder of AQR, one of the world’s largest quantitative hedge fund firms. 

“Using short selling to reduce carbon exposure, to get to net zero or to achieve other ESG goals, is a vital tool for ESG investing,” Asness said.

Many investors believed climate change may be a material risk and shorting was sometimes an essential tool to hedge risk, he said. Also, short selling has an impact for those ESG investors who simply do not want to screen for risks. “Shorting has [an] impact by dissuading companies from pursuing whatever is objectionable to the short community in aggregate; in this case, carbon emissions,” Asness said.

Short selling to combat emissions has a precedent. Bob Litterman, a former head of risk management at Goldman Sachs, developed a “stranded assets total return swap” for the World Wildlife Fund in 2014. The swap, which shorts coal and tar sands companies, has produced positive returns for WWF since its inception.

As the ESG sector evolves, asset managers will need to take a stand on short selling — either as a tool to punish carbon emitters or shunned as an inappropriate investment strategy. (Patrick Temple-West)

ESG data providers split between going niche or staying broad

Gathering reliable analysis of ESG data has become vital for investors as they sift through the “green” and “greenwashed”. Yet, a single go-to rating provider has yet to be established, and smaller players continue to crop up. Firms launched in the past five years make up 39 per cent of the ESG data market, according to a report released today from data provider Substantive Research.

While the most “established” ESG raters, such as Sustainalytics and MSCI, still make up 37 per cent of the market, the report found that start-ups were capitalising on niche offerings.

Bar chart of Per cent showing Start-ups lead the ESG data industry

So what does that mean for the large data providers?

FactSet, a data provider, has taken a different approach; having a suite full of ESG products. In an interview with Moral Money, FactSet’s chief executive Philip Snow says the integration of its products has led them to stand out among its peers.

Here are Snow’s thoughts on why it’s a “little too early” for ESG regulation and where the biggest opportunities lie in the sector today.

Moral Money: Last year, FactSet acquired ESG data provider Truvalue Labs. How are you thinking about ESG for FactSet?

Philip Snow: Our ESG strategy is three-pronged. We’re very excited about Truvalue Labs because it has that outside-in view of ESG. It’s not really relying on what the company is reporting. It’s taking data from text documents on structured data, pulling together a view and it’s doing it in real time, high frequency. That’s what attracted us to the business.

But beyond that, [there are] two other pillars that we’re anxious to fill out. As companies start reporting on themselves, we’ll be able to pull out that standardised data, which we’re very good at just based on what we know already. Then we’re looking at the [physical] location as a third pillar. So, what does the location of various companies mean for them from an ESG standpoint? And then, [working to] build out the coverage as we’ve done with other data sets that we’ve acquired.

There are three pieces of what we do and what differentiates us that are important. The first is we have a choice. [Our platform] offers not just our own data, but also the best in the marketplace. We have Sustainalytics and MSCI data. We also have another 15 providers of ESG, in one way, shape or form.

I don’t think ESG is an alternative anymore. The second thing we did was we had some of our “special sauce”, which is important. It is just a fancy word for how we integrate the data together. [For example], we have supply chain data, which is important to understanding the ecosystem around a company and [how it] affects ESG.

We also have [geographic revenue exposure], which shows you what the revenues for a company have generated, not necessarily in what a company reports, but we do some semantic data to figure that out. We have a very good Entity Data map. You can see what the parent companies, subsidiaries of an entity are doing and how that relates. So components, choice and portfolio analytics, those three things that we think are going to help us drive revenue and provide extra value.

MM: How are you thinking about increasing government regulations for disclosure in this space?

PS: For us, it’s additional fundamental data. It’s going to be another region that we can add to what we do with Truvalue Labs. I’m not sure regulations are a great thing, honestly, and maybe it’s a little bit early for regulation on the ESG side, and that is why it is taking so long. It’s not going to hurt us, it’s just going to be another input for our clients. It’s not going to cost us anything more. And, in some ways, that’s some of the data that our competitors are relying on for their information. That will help us to close the gap.

MM: Do you see more opportunities for M&A for FactSet in the future?

PS: We always look at interesting companies that have unique content or unique technology. We’re always looking at our options from a client-built standpoint, and we’re very good at integrating, tucking in acquisitions, and getting integrated throughout our entire platform. ESG is one of the areas where we would continue to look at as potential interesting content.

MM: Are there other data sets out there that you think would be valuable for your clients? Or that they’re asking for?

PS: We’ve been focused on private markets for the past two years and building up our competency there. We’ve always serviced in public markets exceptionally well. We do integrate, in a large number of private companies data sets on the back side, and extending ESG to the private markets is going to be important. I’m not sure anyone’s doing that really well today.

Smart reads

  • The European Commission said this week it would tap debt markets for a green bonds sale in October, raising funds for environmentally friendly reforms and investment in EU member states as part of the union’s pandemic recovery effort. 

  • Fuel refiners are adding “renewable diesel” to their product mix in response to government incentives for cleaner fuels. But the push to use cleaner materials such as vegetable oil is squeezing the US food industry, which is already coping with record prices for many edible oils this year.

  • If you missed Leslie Hook and Camilla Hodgson’s Instagram live on how global warming will affect the economy, technology and society you can catch up here.

Recommended reads

  • Why airline schemes for easing guilt over flying are dodgy (FT)

  • World’s biggest ‘direct air capture’ plant starts pulling in CO2 (FT)

  • Why stewardship failings pose questions for whole asset management sector (FT)

  • Corporate America, critical of restrictive voting bills, remains largely silent on Texas abortion ban (Washington Post)

  • JPMorgan names new head of ESG for investor relations (Reuters)

  • More Funds Than Ever Rebranding as ‘Sustainable’ (Ignites)

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