Welcome to Moral Money.
Today we have:
University board members feeling the heat from fossil-fuel divestment activists
Shareholders target a former ExxonMobil chief executive for expulsion from the JPMorgan board
Finnish pension backs BlackRock’s sustainability drive
A bipartisan push for carbon taxes in Washington
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Critical faculties drive the divestment debate
Shut your eyes and imagine for a moment that you are running a gigantic university endowment. Your students are demanding that you divest from fossil fuels, unleashing protests inspired by Greta Thunberg. Meanwhile your faculty has just held a vote showing a clear majority of them favour divestment too.
So do you ignore this, and court political criticism? Or do you start to divest, even if members of your foundation’s board dislike the idea?
That is the predicament that the Harvard Management Company now finds itself in, after the faculty of arts and sciences voted last week to divest from fossil fuels. On paper the vote is non-binding, and some board members hate the idea of divestment, since they do not consider it a sensible response to climate change.
“The board won’t move much, if at all,” one member told Moral Money.
However, the vote sends a clear message. “The status quo when it comes to investment strategy has lost the confidence of the faculty,” Kirsten Weld, professor of history, said to FT Specialist publication FundFire.
Harvard leaders know that pressure is rising, not least because of fears about stranded assets. Another big concern is how resistance to divestment will affect future donations. How will today’s students react when they are being asked to give back to their alma mater? “You would think our great universities and colleges would want to think long term — and understand that they will not have any donors any more if they don’t invest in a comprehensive, conscious way,” said Erika Karp, chief executive of Cornerstone Capital.
As we noted in our 2020 preview, this issue is coming to a head at universities around the US. Last week Georgetown, for example, announced that its endowment would gradually divest over 10 years.
Other large endowments, such as Stanford, are engaged in intense internal debates about whether to do the same. “The mood is changing fast,” says a board member of a Californian university endowment.
Harvard is not likely to make a decision for another few weeks. But whatever its board or Stanford’s do (or not do) next, this will have a powerful symbolic effect, given the size of their funds and central place in American corporate and financial culture. There could be plenty more agonised discussions to come. (Gillian Tett and Billy Nauman)
Oil exec’s board seat under threat at JPMorgan Chase
The financial sector is quickly becoming public enemy number one for climate activists, as they turn their focus to the banks they blame for funding the global expansion of fossil fuels.
JPMorgan Chase has drawn the bulk of criticism thus far, for the scope of its fossil-fuel financing and its perceived cosiness with the industry. This week Majority Action, a shareholder advocacy group, launched a campaign targeting the latter issue, calling for investors to oppose the renomination of Lee Raymond, the former chief executive of ExxonMobil, to the bank’s board.
Mr Raymond, who Majority Action calls “the architect of ExxonMobil’s climate denial strategy”, is “uniquely poorly qualified” to guide the bank through this period of growing climate risk, the resolution states.
This is not the first time investors have raised these issues. Legal & General voted against Mr Raymond and Jamie Dimon’s board appointments last year citing concerns about their independence and “insufficient progress” on climate matters.
Should JPMorgan choose to nominate Mr Raymond to its board again this year (which would mark his 34th year in that position), Majority Action will lead the charge against his re-election, said Eli Kasargod-Staub, its executive director.
If it comes to a vote, it will provide a real test for investment managers such as BlackRock that have begun putting climate issues at the centre of their stewardship policies. “Are they going to be using their voting power responsibly?” Mr Kasargod-Staub asked. “Or are they going to shield companies like JPMorgan from accountability?” (Billy Nauman)
Finnish pension puts its money where BlackRock’s mouth is
Ilmarinen, Finland’s largest pension, has injected $600m into another new environmental, social and governance exchange-traded fund from BlackRock — kicking off a push by the world’s largest asset manager to establish itself as an ESG leader.
The investment marks Ilmarinen’s second in less than 12 months with a new BlackRock ESG ETF. In May 2019, Ilmarinen pumped about $850m into a BlackRock ESG ETF comprised of US companies. For this latest investment, BlackRock has built an emerging markets ESG fund designed by index-maker MSCI.
This is the first launch since BlackRock chief executive Larry Fink’s big announcement in January that the company would double the number of sustainability-focused ETFs it offers to 150.
The asset manager is preparing to launch three ETFs that exclude controversial businesses more aggressively than its current ESG ETFs. Companies involved in palm oil, for-profit prisons, certain weapons and other controversial businesses, will not make the cut.
BlackRock is also adding new thresholds to certain ESG ETFs to exclude companies that make more than 5 per cent of their revenues from thermal coal or oil sands.
Anna Hyrske, head of responsible investments at Ilmarinen, said it had consulted with other fund companies but settled on BlackRock in part because of its price. The new ETF has a 0.16 per cent management fee.
The cash injection is immaterial to a company managing $7.4tn in assets, but Ilmarinen’s investment shows serious ESG adherents are backing BlackRock’s environmental commitment. After facing mounting criticism about BlackRock’s ESG authenticity, Mr Fink will welcome this vote of confidence in his new-found appreciation of the importance of climate change risk. (Patrick Temple-West)
Carbon taxes on the docket in Washington
Moral Money has often noted that a key issue for investors to watch in 2020 is whether the Republican party is going to shift its position on climate change. This week that question will be notched up another gear when a bipartisan group, formed to tackle climate change issues, discusses its plans with group of senators on Thursday.
The proposal calls for carbon taxes (or carbon “dividends” as they prefer to label them) to unleash free-market incentives to curb carbon emissions. One striking point is that it has strong backing from Wall Street companies such as JPMorgan and a string of oil majors, as well as a host of American luminaries.
Will Republicans buy into it? The White House has not given any clear indication yet. But the Republicans in the climate group insist that polling data show the party needs to act to avoid electoral damage — and there is a groundswell of Republican leaders who recognise this. They are using every trick they can imagine to sell the ideas to their party, such as talking about a “cleaner and healthier environment” (rather than the more polarising phrase “climate change”) and free-market incentives (rather than government fiat). Watch this (possibly bipartisan) space. (Gillian Tett)
Chart of the Week
Have we hit peak carbon?
The head of the International Energy Agency is “hopeful” that global carbon dioxide emissions have peaked after global output flatlined in 2019. Global CO2 emissions from energy use — which make up the largest portion of greenhouse gases by far — remained unchanged at 33 gigatonnes in 2019, data from the IEA show, even as the world economy expanded by almost 3 per cent. Please read the FT’s full coverage here.
Grit in the Oyster
Many companies and investors say they try to “do well by doing good”. As a reminder that many still fall short, here’s a little grit in the ESG oyster.
Green push fails to save France’s sole blue-chip female chief
Until very recently, Isabelle Kocher was the toast of sustainability advocates across the world as a result of her efforts to speed up French utility Engie’s transition to renewable energy. Now, after a boardroom struggle she has been ousted from her position as chief executive largely because of the company’s persistently weak share price.
This may mean other chief executives will be slower to follow Ms Kocher’s lead on sustainability. Her departure also deals a symbolic blow to President Emmanuel Macron’s aim to tackle gender inequality. Now, France’s CAC 40 stock market index of blue-chip companies is without a single female boss.
Tips from Tamami
Nikkei’s Tamami Shimizuishi keeps an eye on Asia to help you stay up to date on stories you may have missed from the eastern hemisphere.
As the death toll surpasses 1,000, China’s coronavirus outbreak has brought a new focus to an issue that has long been at the top of conservation groups’ agenda: the illegal wildlife trade.
Scientists working to find the origin of the disease believe the virus originated in wildlife sold illegally in a live animal market in Wuhan — such as bats or pangolins, the ant-eating, endangered mammals whose scales have been used in traditional Chinese medicine.
The Chinese government has already taken action and issued a temporary ban on trade in wildlife, but many wildlife conservation groups are pushing for a permanent ban. “The (permanent) banning of such sales will help end the possibility of future outbreaks of zoonotic diseases, such as the Wuhan coronavirus,” said Dr Christian Walzer, chief global veterinarian at the Wildlife Conservation Society. “Poorly regulated, live animal markets mixed with illegal wildlife trade offer a unique opportunity for viruses to spill over from wildlife hosts into the human population.”
This is not the first time that scientists have traced a cause of infections to live animals in the market. The World Health Organization said the Severe Acute Respiratory Syndrome (Sars) virus which broke out in 2002-03 originated in bats and spread to other animals such as civet cats before reaching humans. The mammals have reportedly been treated as a delicacy in southern China.
The Chinese government installed controls during the Sars outbreak, but the wildlife trades have since regained popularity. “We learned the lesson [with Sars]. The pattern will keep repeating itself until we ban, not only in China, but in other countries, the sale of wildlife, specifically for food and in food markets,” said Dr Walzer.
The illegal wildlife trade is worth about $20bn a year, according to the World Wildlife Foundation, making it the fourth biggest illegal trade worldwide, after drugs, people smuggling and counterfeiting. The WWF thinks that this health crisis could become a “wake-up call” for the wider public to demand an end to the unsustainable use of endangered animals.
Later this year, China will host the Conference of the Parties to the Convention on Biological Diversity (COP15). The global pressure on the Chinese government to demand stricter regulation on wildlife trades looks likely to intensify to protect biodiversity as well as human health.
Do stakeholders come first when the stakes are highest?
It’s one thing for a company to care about “stakeholders” when times are good, but the real test will come when times get tough. A look at China during the coronavirus outbreak may provide a window into what to expect. Xi Jinping is urging companies to avoid lay-offs, but companies such as Cathay Pacific are asking employees to take weeks of unpaid leave. This has prompted employees to raise some tough questions around why they (the stakeholders) should be the ones to take the financial hit. (FT)
Grantham offers Fink cost-free advice
Speaking of endowments and BlackRock’s focus on climate risks, Jeremy Grantham, the co-founder of GMO, told the FT last year that he had resolved on his 80th birthday to speak his mind. The value-investing veteran lives up to that in an interview with Bloomberg, in which he calls out university endowments that have been “bought” by oil money, casts fossil-fuel companies as pariahs and has this message for Larry Fink:
“Now we know you can bark loudly. Can you bite? And will you perhaps think about having your giant index funds vote a little greener?
. . . You’re not going to lose business in the index business because you become a little greener in how you cast your proxies. It’s the one area I can think of where there’s no real cost to either the buyer or the seller.”
With ESG investing now a $32tn business, Moral Money’s Gillian Tett explains in this video on “conscious capitalism” that companies are realising they cannot afford to ignore issues such as climate change and income inequality.
Decoding ESG: How the Biggest Shops Build Sustainable Funds (Ignites)
Democracy is under threat, we must add a D to ESG (FT)
The threats to energy security have changed (FT)
Hydrogen not the magical answer to zero-carbon prayers (FT)
Big investors ignore proxy advisers on controversial votes (FT)
- Justice Department Drops Antitrust Probe Against Automakers That Sided With California on Emissions (NY Times)
This newsletter has been updated to clarify that the group prosing carbon taxes is not a senate committee.