Updated: Feb 16
Pressure continues to build for more clarity on ESG rules and compliance.
What is ESG? Environmental, social, and governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments.
Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Global ESG Bond Issuance Records First-Ever Annual Decline
Global sales of environmental, social, and governance (ESG) linked corporate bonds declined for the first time ever as interest rates soared, market turmoil persisted, and economic uncertainty turned borrowers away from debt markets.
Bloomberg data shows companies and governments worldwide raised $863 billion in ESG bonds in 2022, a 19% drop compared to a year earlier of a record $1.1 trillion. This is the first decline in ESG bonds since green bonds first emerged on Wall Street in 2007.
Total issuance is down, much of that has to do with soaring borrowing costs amid central banks racing to tame the highest inflation in a generation. Bloomberg sheds more color on souring ESG space:
Social bond issuance dropped 34% to about $141 billion last year, the biggest decline across all the labels, as government agencies and corporations dialed back spending on eligible projects. Big borrowers including sovereigns have pivoted to long-term climate goals, following a rush to raise funds for pandemic relief that boosted social issuance.
Sales of sustainability bonds, whose proceeds can be used for both social and green projects, fell by 22% to $154 billion, the second biggest drop. By country, the UK and the US fell most, with 52% and 39% declines, respectively. The most scrutinized segment of the market for environmental, social and governance-related debt — sustainability-linked bonds — plunged 21% to $86 billion.
Green bonds, meanwhile saw the smallest year-on-year decline, dropping 11% to about $480 billion, propped up by a surge in sales from China. BNP Paribas SA, the biggest underwriter of green bonds in 2022, expects sales of green debt to recover to 2021 levels this year, driven largely by Europe and China. The biggest boost will come from China, thanks to supportive local policy and a recent alignment of its local taxonomy, according to a BNP outlook report published in November.
Besides soaring borrowing costs, perhaps many issuers shored up their balance sheets earlier last year before rates soared. Also, securities regulators from Europe to the US have increasingly focused on the ESG space from scams and misleading info by issuers or asset managers who package up 'green' funds.
Deutsche Bank AG and its asset management arm, DWS Group, were one such group that came under fire by regulators for exaggerating green investments in ESG products. DWS recently said it would dial back hype in ESG sales pitches to wealthy clients. And all of this comes as global bond markets have been in turmoil for more than a year.
For the ESG space to thrive once more, it all depends on when global central banks halt aggressive rate hikes and pivot back to rate cuts. IMF head warned earlier this week of an impending global recession.
Update Kentucky and West Vaginia join other states on the ESG issue
Treasurer Allison Ball Announces List of Restricted Financial Companies
FRANKFORT, Ky. (January 3, 2023) - Today, Kentucky State Treasurer Allison Ball released a list of 11 financial companies that are engaged in energy company boycotts. Energy company boycotts hurt Kentucky which is why the Kentucky General Assembly passed SB 205 in 2022, directing the Treasurer to annually publish a list of financial companies engaged in such boycotts. All listed financial companies must stop engaging in the energy company boycott to avoid becoming subject to divestment.
The energy sector represents 7.8% of total state employment or 143,994 jobs. These natural resources account for 94.5% of Kentucky’s electrical power generation. In 2021, Kentucky used its electrical power to heat more than half of Kentucky homes, while boasting the 12th lowest average electricity prices in the nation.
“When companies boycott fossil fuels, they intentionally choke off the lifeblood of capital to Kentucky’s signature industries,” Treasurer Ball said. “Traditional energy sources fuel our Kentucky economy, provide much needed jobs, and warm our homes. Kentucky must not allow our signature industries to be irreparably damaged based upon the ideological whims of a select few.”
Accordingly, the list below was crafted after careful review of publicly available statements and commitments made by the companies. The initial list includes 11 financial companies and can be found here.
The list includes BlackRock, Inc., BNP Paribas SA, Citigroup Inc., Climate First Bank, Dankse Bank A/S, HSBC PLC, JPMorgan Chase & Co., Nordea Bank ABP, Schroders PLC, Svenska Handelsbanken AB, and Swedbank AB.
Within 30 days of a state governmental entity receiving notice of this list, they must notify the Treasurer if they own direct or indirect holdings of listed financial institutions. They must also send written notice to the listed financial institutions. Within 90 days of the financial institutions receipt of notice, the financial institution must cease boycotting energy companies in order to avoid divestment.
Treasurer Ball has long been a national leader in the fight against harmful ESG schemes which hurt our economy, threaten our national security, and prioritize political goals above financial returns. The compilation of this list is the latest in a series of her efforts to oppose this dangerous practice.
West Virginia Attorney General Patrick Morrisey is itching for a fight on ESG.
Morrisey has made a name for himself helping net his state hundreds of millions of dollars from cases over the opioid crisis and taking the Environmental Protection Agency all the way to the Supreme Court—and winning.
The Republican also has threatened to sue the Securities and Exchange Commission, if it requires companies to report on greenhouse gas emissions and other environmental, social and governance matters. Morrisey has tried to deflect what he sees as attacks on the state’s coal industry, joining former Vice President Mike Pence, Florida Gov. Ron DeSantis and other Republicans who’ve made ESG investing a frequent target and stoked Democratic ire.
Such battles are often embraced in Appalachia, the land of the infamously feuding Hatfield and McCoy families, whose homes are depicted in illustrations on Morrisey’s office wall. The ESG foe and onetime Washington lobbyist and congressional staffer now is deciding whether to run in 2024 for governor or for the seat held by Sen. Joe Manchin (D-W.Va.), who defeated him in 2018.
“West Virginians are a warm, generous, giving people,” Morrisey told Bloomberg Law in an interview. “But they also know how to fight.”
Check out yesterdays story from The NY POST October 10, 2022 by Lydia Moynihan
The world’s largest asset manager is facing $1 billion in withdrawals from Republican state treasurers because of the financial giant’s investment priorities, according to published reports.
BlackRock, which manages $8.5 trillion, has come under fire for its aggressive push on so-called ESG investments that promote environmental, social and governance issues.
The outrage has led multiple GOP treasurers to announce they are planning to withdraw — or have already withdrawn — state funds from Larry Fink’s company.
The Louisiana treasurer, John Schroder, said last week he is pulling out $794 million, while Curtis Loftis of South Carolina announced plans to withdraw $200 million by the end of the year. That comes on the heels of the Utah treasurer withdrawing $100 million and Arkansas’ treasurer liquidating $125 million, according to the Financial Times.
People with knowledge say these withdrawals pale in comparison to the billions of dollars state pension funds invest in BlackRock. State treasurers allocate cash on hand in the treasury but have no say in where pension funds are allocated.
Despite, the planned withdrawals, BlackRock’s assets under management have actually surged $1 trillion since 2020.
The withdrawals come as 19 state attorneys general, led by Arizona’s Mark Brnovich, wrote to the Securities and Exchange Commission asking the agency to look into BlackRock's ties with China and whether or not it was prioritizing its fiduciary responsibility to investors.
The letter highlighted that the investing giant invests in and does business with Chinese companies that often flout environmental concerns even as it pushes for US companies to embrace net-zero carb emissions.
The letter also asked the SEC to examine whether the group’s ties to various climate groups and ESG objectives conflict with its fiduciary responsibilities.
Indeed here's a screenshot of todays headlines:
Stephen Akin Founder/investment advisor representative of Akin Investments a wealth management firm with over 35 years in "Wall Street". From planning to execution. We can help create an ESG program for your business. Investors, reach out for a free portfolio review and our perspective on your ESG exposure and investment strategy.