Bank risk managers put climate at the top of their agenda

For most of my life, I haven’t been a fan of golf. With all the elitism and environmental issues and a myriad of other issues, it certainly ranks among the least ESG-friendly sports. And that’s not to say how terribly boring it looked on TV.

However, being in our forties has done strange things to all of us. Last summer when everything inside was locked, some of my friends got in on the game and invited me to join them. At first, I hesitated. But when they explained that it was really just an excuse to go outside and have a few beers in a socially distanced way, I came back pretty quickly.

And a year later, we’re still playing most weekends, even though New York is starting to reopen.

I’m not alone: ​​A wave of new players during the pandemic has been credited with saving the sport from extinction. But now comes a new twist: environmental, social and governance (ESG) fashions are hitting golf.

This week, the Moral Money team received a PR pitch from a company touting its new line of sustainable golf apparel. It may sound ridiculous. But the mere fact that someone thinks there is a market for eco-friendly golf clothing is a striking sign of the times.

Personally, I won’t be rushing to update my wardrobe. On the one hand, I have managed to become comfortable with the cognitive dissonance required to be a golfer writing an ESG newsletter.

Plus, I think my money would be better spent on golf lessons. If I really want to reduce my environmental impact, the best thing I can do is stop creating plastic pollution by throwing balls into the water. Billy Nauman

An investigation that caught our attention

Every day, our inboxes at Moral Money are inundated with about a million arguments (give or take) about ESG surveys or reports. And to tell the truth, it is rare that they are even opened.

Apologies to all the PR people reading this and clenching their fists in rage, but there are so many of you, so few, and not enough hours in the day.

The big problem is that most of these locations follow a similar formula: [Group X] interrogates [Group Y] and found a growing interest in [insert ESG topic here]. They rarely provide compelling information that we haven’t seen before.

Sometimes, however, one of them jumps out and catches our eye, like this new survey of banking risk managers at EY and the Institute of International Finance (IIF).

In their survey, they found that interest in climate risk is (yes) soaring among banks. But what emerges from this survey is that it was not designed specifically to measure opinions on GSS.

Pollsters simply asked bank risk managers what they thought was the biggest threat to their business. And the climate arose organically at the top of the heap.

Over a one-year period, the climate ranks third behind credit risk and cybersecurity. And over the next five years, risk managers see the climate as the number one issue facing banks.

This is the 11th year that EY and IIR have conducted this survey, and climate risk has truly “come out of nowhere,” said Mark Watson, Managing Director of Financial Services at EY Americas.

One of the “dazzling” reasons for this is the increase in extreme weather events such as forest fires and hurricanes that can disrupt daily operations, he said. Banks are also concerned about upcoming climate stress tests of central banks, stranded assets and transition risks that will accompany measures taken by governments to curb emissions.

However, the heightened awareness is not entirely negative. Watson said banks are taking a closer look at the climate now because they see a big opportunity. “I think people are finally realizing that in financial services, we don’t get to a zero carbon economy without funding.”

The obvious question is: what are they doing about it? We’ve, of course, seen a number of net zero promises of, say, uh, varying ambition. But Watson believes more serious action is on the horizon.

Banks were already appointing dedicated climate risk teams at very high levels, he said. And he thinks banks are planning a big push on bridging finance to enable large companies, SMEs and individuals to go green.

“Once you see innovation in this large-scale space, the acceleration will be huge,” he said. (Billy Nauman)

Despite corporate racial fairness promises, minority founders face funding challenges

JPMorgan Chase announced new long-term commitments to advance racial equity © JP Morgan Chase

With the huge amount of money pledged by companies for racial equity last year – including JPMorgan’s $ 30 billion pledge, you can expect cash flow to start-ups. founded by minorities.

But these funds did not quickly filter through the financial system. During the pandemic, less than 1% of the $ 150 billion companies raised from venture capitalists went to black start-up founders, according to Crunchbase. Funding for female founders has also plummeted, PitchBook said.

There has been a “flight to risklessness” during the pandemic that has stung those outside the clubby venture capital network, which has historically favored white and male founders, said Olivier libby, a venture capitalist in New York.

Libby’s company was one of the few venture capitalists to seek out minority founders long before the Black Lives Matter movement took a closer look at the lack of diversity in the corporate world. This week, her company unveiled its first Series A-focused venture capital fund, which includes only women and minority founders in its first seven holding companies – one of the only generalist funds founded by white VCs in have such a diverse portfolio.

The industry needs to do more with its financial clout to make a meaningful change, Libby told Moral Money. A lot of large corporations and limited partners were reserving allocations for minority venture capitalists, he said. While this is “fantastic news,” most funds start small.

Libby’s fund companies first experienced funding challenges over the past year. Travis Montaque, founder of Holler, one of the fund’s investments, said there had been a decline in investments last year as his company experienced significant growth.

“If we’re really going to make the changes that we talked about last year as an industry, the legacy venture capital funds that have been around for a while – most of them are controlled by people like me. – must also invest in seriously under-represented founders, from their primary vehicles, not a sidecar, not a donor advised fund, ”Libby added. (Patrick Temple-Ouest)

Lego learns that dropping plastics isn’t easy

© Steve Mayes

Legos have always enjoyed a sense of timelessness. Its plastic bricks don’t break down, ensuring that parent’s blocks stored for decades in an attic can be presented with joy to next-generation toddlers keen to build.

But the ABS plastic used by Lego has long posed an environmental problem for the Danish company. For 1kg of ABS, you need about 2kg of oil. Eager to reduce the use of plastic, Lego has sought for years to develop bricks that respect the environment. But the problem haunting Lego’s drive for sustainability is that plastic alternatives have to interlock together and still be easily separated – a metric known as “clutch power,” in Lego terms.

Lego announced a breakthrough on Wednesday. He tests the plastic of discarded bottles for bricks that seem to do the trick. More than 150 people have tested more than 250 different bottle variations over three years to get to this point, the company said.

It will still be some time before recycled plastic bricks appear in Lego products, the company added. The next phase of testing is expected to take at least a year.

While Lego’s efforts may take some time, it highlights increased R&D spending on sustainable alternatives – from agriculture (see BASF’s announcement this year) to fashion. Once this demand is established, investors will hopefully be ready to invest money in experimentation, and progress can accelerate, brick by brick. (Patrick Temple-Ouest)

The cards of the day

Supply and demand: traders invest in fossil fuels and clean energies

For commodity traders, abandoning hydrocarbons is not a threat but an opportunity for profit, writes Neil Hume, FT’s natural resources editor. Market leaders are already investing money in renewables and looking to expand into fast-growing markets such as carbon trading, while continuing to invest in oil projects in the hope that a gap will supply will occur over the next decade.

This year has been an unprecedented year for ESG shareholder proposals in US companies. To date, there have been 34 majority votes for ESG proposals, breaking the record of 21 last year, according to a new study released Thursday. Last year only two votes exceeded 70 percent, while this year 17 did.

Smart reading

A bullish case for ESG

Do ESG mutual funds keep their promises? A trio of academics this month released a report they said offered “the most comprehensive empirical overview to date of ESG mutual funds.” Their conclusions are unshakeable: “Put simply, the analysis reveals that at present, ESG funds do not present particular concerns from the point of view of investor protection or capital markets”, they said. declared. “There is simply nothing in our results to suggest that ESG funds are worse than conventional funds in terms of costs, returns or risks. ”

Further reading

  • The resignation of the Brazilian Minister of the Environment acclaimed by activists (FT)

  • Small hedge fund takes on big oil (NYTimes)

  • Here’s how the EU could tax the world’s carbon (Bloomberg)

  • EU tries again to strike deal on greener agricultural subsidies (Reuters)

  • Environmental investment frenzy expands meaning of ‘green’ (WSJ)

  • Twilio and Asana to go public long term as ESG push continues (WSJ)

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