Take Five: Wheels in Motion

A selection of the week’s major stories impacting ESG investors, in five easy pieces.

This week felt as if everyone was on the move – although not necessarily in the same direction.

Moving out – The decision by State Street Global Advisors (SSgA) and JP Morgan Asset Management to quit Climate Action 100+ (CA100+), a coalition of investors engaging with high-emitting corporates, has been blamed on political pressures in their domestic market. Both US-based money managers have distanced themselves from collaborative initiatives, mindful of anti-trust laws, with SSgA claiming CA100+’s ‘phase 2’ approach was “not consistent” with its engagement strategy. Meanwhile BlackRock, which is reportedly shifting its membership to a smaller international arm, said the grouping’s new approach conflicted with US laws. CA100+ pointed out that 60 members had joined since phase 2 was announced. A series of recent analyses have already noted a widening gap between US asset managers and European counterparts and clients on related matters. This appears to be growing, with increasing numbers in the latter camp moving further in the opposite direction, favouring divestment over engagement – at least as far as the highest emitters are concerned.

Moving on – Twenty-one British universities took initial steps towards ensuring their cash and investments cannot be used to finance fossil fuel projects. Academic institutions responsible for £5 billion have sent requests for proposal asking banks and asset managers to develop climate-positive deposits and funds. They also want their financial services providers to fully align their business models with the International Energy Agency’s Net Zero by 2050 scenario – which insists on no financing of oil, gas or coal development or exploration since 2021. This is a tough ask that few, if any, major financial institutions can currently meet – even Barclays, despite having recently unveiled a new energy policy. Although it scored positively compared to Bank of America’s decision to ease restrictions on funding Arctic fossil fuel exploration, the UK bank was still criticised for allowing corporate financing of energy majors.

Moving in – The market for biodiversity credits received a boost this week, with the introduction of the biodiversity net gain (BNG) concept in England. In essence, BNG requires all new housing and building projects to demonstrate at least a 10% net gain in biodiversity or habitat to obtain planning permission. If this can’t happen on site, developers and land managers can buy biodiversity credits, thus underwriting projects that protect or promote biodiversity elsewhere. Similar to carbon credits, which have had their credibility challenges, biodiversity credits need to prove they can deliver results on the ground as well as to market participants. This is why the UK has also taken a leading role with France in a global advisory panel to support their development. If successful, the nascent market could play a big role in increasing pension funds’ investment in nature capital solutions from their current low level.

Moving mountains – Norwegian asset manager Storebrand excluded First International Bank of Israel for its involvement in Occupied Palestinian Territories (OPT), against the backdrop of an imminent assault on the Gazan city of Rafah. The firm, which screens its portfolios for involvement of investee firms in the violation of human rights in conflict and high-risk areas, said its annual review of engagement related to the region had already started when the 7 October attack by Hamas prompted the Israeli military response. With moves to end the conflict tentative at most, many more investors will likely need to reconsider their responsibilities under the UN Guiding Principles in the coming months.

Moving the Earth – Valentine’s Day was massacred this year by workforce unrest – at least for those US and UK-based paramours reliant on fast-food delivery services to get them in the mood for romance. Riders and drivers at the largest delivery services went on strike during peak demand periods, citing long hours, low pay and dangerous working conditions as their main complaints. While the delivery firms claim their worker retention rates are high, workers claim this is due to a high proportion of them being migrants with limited ability to organise and challenge – especially where unions are not recognised. Alongside this lack of representation, a key factor is the use of ‘black box’ pricing algorithms to determine pay and boost efficiency. Apps used by Uber, Lyft and DoorDash have increased wage uncertainty, providing yet another example of the unpredictable impact of AI.

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