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[OP]
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Aug 17, 2008
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"Big Technology Stocks Dominate ESG Funds"
https://www.wsj.com/articles/big-techno ... 1581330601

"The data point to one of the biggest frustrations critics have about the world of socially conscious investing: There is no industrywide rulebook to determine what should go into ESG funds."

Abbreviated version via email attached.

Update #1 Feb 11/20: (A) Fixed Income and (B) Institutional Investors

(A) Green Bonds

* IIRC, TD Bk was the first to borrow in Canada under a Green Bond prospectus.
* 2019 saw $255B of "Green Bonds" issued. https://www.climatebonds.net/2020/01/re ... 0-national
* The FT opines "ecological dividends from green gilts have so far been hazy at best" in the following;

Environment bonds: how green is my tally
JANUARY 20 2020
https://www.ft.com/content/36e173c0-38b ... 1a5e5568c8

Classic grumpy Brit. You have a perfectly decent global market, generating up to $400bn of issuance this year and all of it nicely aligned with cuddly capitalism. Then along comes Robert Stheeman with a large bucket of cold water. Green gilts, reckons the head of the UK’s debt management office, are unlikely to be cost effective.

The inconvenient truth is that he is quite right. Sovereigns and corporates issued an aggregate $255bn of green bonds last year, whose proceeds are supposed to help save the planet. Most trade within the yield curve for their maturity. But they remain illiquid compared with conventional bonds.

To counteract that, the UK would need to build up outstanding issuance amounting to tens of billions. But that would be hard to justify unless the financings made a genuine contribution to carbon reduction.

So far, environmental dividends from green bonds have been hazy at best. China, the second-largest issuer, is the biggest emitter of carbon dioxide. It belched out 27 per cent of global pollution in 2018 for roughly one-fifth of economic output and population.

Issuers reserve plenty of wriggle room on disbursing proceeds. Apple, the biggest corporate issuer, gave itself “significant flexibility”, adding “there can be no assurance” that funded projects meet “investor criteria or expectations regarding sustainability performance”.

The cocktail of market fashion and loose pledges is a potent one, pulling all sorts of issuers into the fray. Kenya made its debut in October with a $41m bond to finance environmentally friendly student accommodation in Nairobi. Germany plans its maiden multibillion-euro issue this year and is reportedly considering a coupon as high as 2 per cent.

Italian energy group Enel launched a “sustainability-linked” offering to raise money for general corporate purposes. It is promising to pay up to an additional 25 basis points if it fails to meet certain sustainability targets.

Most investors do not give a fig for the figleaf of greenwashing. Low standards mean environmental bonds lack credibility. Until issuers and index compilers adopt tighter criteria, big sovereigns should hang back. The UK government should listen to its bond man.

(B) Institutional Investors

Climate change pushes investors to take their temperature
Reuters JANUARY 20, 2020
https://www.reuters.com/article/us-davo ... SKBN1ZJ0KV

"...the temperature metric has been adopted by only a handful of the thousands of financial institutions worldwide but the buzz it has generated shows how investors’ concerns about climate risk are finally moving into the mainstream."

"Despite the growing enthusiasm for temperature scores, a dearth of standardized data, methodologies and disclosure makes it extremely hard to calculate a single meaningful number."

"Those numbers are then crunched with assumptions about the relationship between emissions and temperatures. "
Images
  • Big Technology Stocks Dominate ESG Funds.png
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  • YoY-gb-issuance.png
  • GB issuance-by-country.png
  • Green Bond Issuance by largest global economies CY 2019.png
  • Use of Proceeds Breakdown.png
  • GB Issuance by individual sector.png
  • French government bond yield curve spread.png
[OP]
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Aug 17, 2008
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The 2000's version of alchemy presented like a play.

Hypothetical Scene 1

• Borrower: I'd like to sell you another black T-shirt.
• Investor: I have enough black t-shirts. I'll pay you less => a greater/wider spread, to take another.
• Borrower: <glumly> Oh...

Hypothetical Scene 2

• Borrower: I'd like to sell you another black T-shirt, but with "organically" grown cotton.
• Investor: Ooo... I'd pay for that!

Real Scene Played Out Today

Screamed across desks and squawk boxes this morning from Vancouver to Montreal, "New Provie!!!"

Details pop up on BBG.

• Dealers on the behalf of Ont: Ont would like to borrow more, but they promise to segregate these funds and only use them for "green" initiatives.

• Investors: OK, if Ont can "differentiate" these bonds, then we can pretend that our overall exposure to the most indebted quasi sovereign borrower has not increased and will accept a lower yield aka a tighter spread. How many can I get?!?

• Bond Salesman: How many can See-no-evil MonkeyHear-no-evil MonkeySpeak-no-evil Monkey get?
• Syndication/Transaction Mgmt: XXX mm Done!

Meanwhile, in the background, DCM and Gov't Finance desks are their rubbing hands for finding another way to borrow more at a lower yield. OFA is going to love us.

---

Ontario prices $500-million seven-year green bond, finance ministry says

https://www.theglobeandmail.com/busines ... -ministry/

"The proceeds of the green bond would be used for projects that include light rail transit in Toronto,and flood protection for portions of the city.


It was the first green bond issue done off Ontario’s domestic medium-term note program."
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I heard the acronym but didn’t know what it means - this thread made me google it Face With Tears Of Joy Looked at the Holdings of ESGA, BMO MSCI Canada ESG Leaders Index ETF - all the “usual suspects” (banks, energy, utilities, industrials, retailers) plus a handful of weed (!) stocks - and not a single renewable energy company!! Seems counter-intuitive, at the very least..
[OP]
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@freilona A new fund being offered in the market now - http://www.middlefield.com/gsidf.htm#MHLSDF%20AD, http://www.middlefield.com/pressrls/gsidf/011720b.pdf


Who Put the ‘S’ in ‘ESG’ (and What Does It Mean)?
https://www.bloomberg.com/news/articles ... -quicktake

There’s been a lot of attention given lately to ESG investing, but not always a lot of explanation. What the E in ESG stands for is easy to guess -- environmental. The G, governance, is harder to remember but at least is specific. The S on the other hand, is neither easy to guess or pin down: social. It’s a term that can encompass concerns from gender equality to worker rights to new ways to provide funding to charities working in poor countries. What was once a fringe approach has now seen big investors, including KKR, Vanguard Asset Management and Columbia Threadneedle Investments, create funds focused on social concerns. And companies are learning that the rise of S means that bad behavior can be increasingly expensive.

1. What’s the big idea?
There are many subsets to social investing, but the common thesis is that capitalism has obligations that go beyond shareholders and return on equity -- that investors and companies also need to consider their impact on customers, employees, local communities and society in general. While different strands of the social investing movement may focus on labor standards, LGBTQ rights or corruption, they’re meant to send a common message: Businesses need the consent of these overlapping constituencies to operate, and a threat to this ‘license’ can have an impact on their bottom line.


2. This isn’t totally new is it?
Organized efforts at this kind of investing can be traced back decades and include church-affiliated organizations in Sweden that began an ethics-based mutual fund available to retail investors in Europe in 1965 and the Pax World Fund, which launched in the U.S. in 1971. These approaches, which focused on screening out companies seen as doing specific kinds of harm, later came under the term socially responsible investing, or SRI. Over time more companies adopted corporate social responsibility (CSR) policies amid increasing scrutiny of their business practices. Meanwhile some investors advocated what became known as impact investing as they sought to make a positive effect on the world, rather than just avoid the bad stuff.

3. How is ESG investing different from earlier efforts?
The biggest change under ESG is that SRI, CSR and impact investing are now coming under a single umbrella just as ESG has been embraced by policy makers, regulators and an ever-bigger number of investors. An ESG approach is more numbers-based, and typically involves scoring a wide range of information about a firm, from its carbon emissions to safety at work and gender mix in the boardroom. In practice, SRI has been more specific, screening out companies making products deemed harmful, like tobacco or arms, or focusing on individual goals, such as the historic boycotts of South African products because of apartheid.

Common Good
<Chart not reproduced here>
Debt issued to fund projects that have positive social impact is at a record high
Source: Bloomberg

4. How does social compare with the other parts of ESG?
Environmental concerns have been in the spotlight as policy makers tuned in to climate concerns, but some say investors should now be shifting their attention toward social sustainability -- both because it’s the right thing to do and for its financial benefits. A recent Deutsche Bank report suggested “the S in ESG will increasingly be the ‘next big thing’ when it comes to investor focus.” The claim is that long-term returns will be higher from investing in companies that pay attention to the social part of their business, whether that’s by taking care of their staff or being responsive to customers and the wider environment.

5. Within social, what’s hot?
Impact investing is a fast-growing sector, with over $500 billion in assets globally at the end of 2018, according to the Global Impact Investing Network, though it remains only a fraction of the more than $30 trillion of funds allocated toward ESG strategies. In the U.S., KKR exceeded its $1 billion fundraising goal for its first Global Impact Fund in August. The bond market has also embraced social investing recently, with the outstanding volume of debt rising to nearly $40 billion, almost all of which has been issued in the last three years, according to data compiled by Bloomberg. There are three main types of bond for the socially-focused investor:

  • Social bonds: All the money raised must be used to promote improved social welfare and positive social impact directly for vulnerable, marginalized, underserved or otherwise excluded or disadvantaged populations
  • Social-impact bonds: To fund a particular project with repayment linked to whether the project achieved its goals
  • Sustainability bonds: All the money raised will be used for either green or social activities

6. What risks does a focus on social hold for companies?
It’s not news that companies can be hurt when they’re caught doing something bad for their community. But given the greater awareness of ESG and the way information travels across social media, the impact of getting things wrong is probably bigger than ever before. A recent analysis by Moody’s Investors Service suggested social considerations posed “high credit risk” to $8 trillion of debt that it assesses. Moody’s said emerging-market governments, health-care providers, heavy industries and consumer sectors had the highest risks related to social.

7. What changes are in the works?
Better data and definitions are two big things that need improvement for the movement to grow. In a survey by BNP Paribas SA, 46% of asset owners and managers found social to be the most difficult sector to analyze. Academics at NYU Stern said in a 2017 study that there were bigger gaps in the data around ‘S’ than ‘E’ and ‘G’. The study found that the available data focused on what was convenient to measure rather than meaningful, and that it lacked consistency. Efforts are being made: European authorities have said they aim to follow their classification of sustainable finance with another covering social, though that won’t be for some time. And bodies such as the Sustainability Accounting Standards Board (SASB) are seeking to get universal adoption of standardized reporting that would include social elements. Meanwhile, there’s plenty of experimenting with new approaches, such as ETFs that design their holdings in conjunction with charities that in turn receive a cut of the fund’s investment fees.

The Reference Shelf
  • A report on the scope of impact investing and a panel discussion.
  • For 3M, DuPont and Chemours, lawsuits stemming from PFAS contaminations may be a multibillion-dollar problem, Bloomberg Intelligence estimates.
  • Amazon.com is facing mounting criticism as activists raise issues about worker rights, antitrust laws and climate change.
  • Australia’s economy would be boosted by as much as 8% if the employment gap between men and women narrowed further, according to a report from Goldman Sachs.
  • Companies with the highest credit ratings have more women on their boards.
  • A report by BNP Paribas SA on “The S in ESG.”
[OP]
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Aug 17, 2008
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Is it "fashionable," PC or to use a London/Euro desk term "care"? You decide.

Report links (h/t @TayTayLLP) listed alphabetically;

BofA Merriil Lynch - https://www.bofaml.com/content/dam/boam ... A_to_Z.pdf
Credit Suisse via dropbox - https://www.dropbox.com/s/mg49datowzifg ... G.pdf?dl=0
Goldman Sachs - https://www.goldmansachs.com/insights/p ... report.pdf
McKinsey & Company - https://www.mckinsey.com/business-funct ... ates-value
Morgan Stanley - https://www.morganstanley.com/what-we-d ... sting.html
[OP]
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Forgive me for answering in this thread. Need to point the thread out and to give it the occasional pump. Smiling Face With Sunglasses BTW, I'm going to have to start charging you after this one, as this wasn't any 15 min or even 2hr exercise. :facepalm:

freilona wrote: @MrMom , what do you think about this “bonds ETF”? :) (I still have the remaining JPST proceeds in my RRSP as USD cash; was thinking to buy some GLD to maintain a non-equities allocation, but “green bonds”? Made me feel warm and fuzzy! And would rather own something with a (decent) yield.. Smiling Face With Open Mouth And Smiling Eyes)

iShares Global Green Bond ETF (NDQ: BGRN)

Background:
This fund invests in a portfolio of investment-grade global green bonds, where the use of proceeds is directly tied to promote climate or other environmental sustainability purposes through independent evaluation.

Performance: The fund was launched in November, 2018, and showed a one-year total rate of return of 6.83 per cent to the end of April. The year-to-date return as of May 21 was 1.59 per cent.

Distributions: The fund makes monthly distributions, the amount of which may vary considerably. The trailing 12-month distribution to May 1 was US$2.29, for a yield of 4.2 per cent at Friday’s closing price.

Portfolio: There are 383 positions in the portfolio. The majority of the holdings are European, with France accounting for 22.7 per cent of the assets, Germany 9.8 per cent and the Netherlands 8.1 per cent. About 10 per cent of the holdings are U.S. and 3.5 per cent Canadian. Some 12.4 per cent of the bonds are issued by supranational organizations, such as the World Bank.

The portfolio’s effective duration (a measure of risk) is 7.9 years. The longer the duration, the more vulnerable a bond or a fund is to interest rate movements.

Key metrics: This ETF has about US$75-million in assets under management. It’s lightly traded, with an average daily volume of 17,726 units. There are 1.4 million units outstanding. The net expense ratio is 0.2 per cent.
...
However, the iShares fund offers superior credit quality – just 0.29 per cent of the portfolio is unrated; the rest is BBB or higher with 55 per cent of the assets rated AAA or AA. And it has a better yield, based on the results of the past year.

On balance, my choice is the iShares fund.”

(c) Gordon Pape - Published May 24, 2020

Interested in green bonds? These ETFs give you easy access to these fixed-income securities

A brief update on this sector. According to Morningstar, "Despite the Downturn, U.S. Sustainable Funds Notch a Record Quarter for Flows." Recently, the World Bank (International Bank for Reconstruction and Development, IBRD) borrowed USD8B in "green bonds" and BMO and TD had a hand in this. Granted, "Asset Managers/Insurance/Pension Funds" participation was only 18% of the $8B.

Some argue that more ESG "modules" need to be added to biz schools and the CFA program. Others counter that combined ESG measures are "imprecise."


Step 1: What qualifies as ESG?

Two examples in BGRN. I pointed out a real life ethical trade in one of my prior posts about Nuclear energy. Personally, this is the least environmentally safe source of energy as the waste materials are dangerous for thousands of years after. That's my bias, but I am not alone. BGRN holds one OPG debt issue and three Électricité de France issues. 79% of their 2019 electrical output by EDF was from nuclear. There maybe others.

Step 2: Broadly analyzing ESG returns.

The debate continues about whether an ESG focus adds anything to performance. Here are two articles that have stuck with me. The first one is targeted towards the BBG Terminal user, but the conclusion is what is important. The second article was written by Christopher Burnham who's resume is at the end of the article.

(1) ESG tilting provides some benefit to bond portfolios during COVID-19
https://www.bloomberg.com/professional/ ... g-covid-19

"we also found evidence that downside risk tends to be slightly lower in high ESG portfolios."

"by the end of February, we note that both ESG indices began to outperform the US Corp, precisely when the market began to come down. Moreover, the relative outperformance peaked at about 1% precisely around the market bottom on March 20. Of course, as discussed previously, this could be driven by small credit risk differences between indices rather than by their ESG score differences. Regardless, ESG tilting during the onset of the coronavirus crises mitigated some of the losses of bond portfolios, both in its own right but also because ESG tilting tends to bias portfolios towards issuers with higher credit rating."

(2) BlackRock’s ESG Strategy Plays Politics with Public Pensions
https://www.barrons.com/articles/blackr ... 1590661589

It appears that Fink is now rejecting this old credo by assuming that the prices of shares do not properly reflect the threat of climate change, and thus, BlackRock will now make investments that correct for this “mistake.”

A shift to ESG investing would both allow BlackRock to charge higher fees and, from a marketing perspective, distinguish it from competitors like Vanguard, State Street, and Fidelity.

If individual investors want to choose social investments, they are certainly welcome, but pension plans shouldn’t be making social and political decisions for their millions of members. Instead, if they are wise, they will pursue the low-fee, index strategy that was the solid foundation on which BlackRock was built, and in doing so, will immediately be in the top third of all state pension plans by performance.

Step 3: Choosing the right comparison for ESG ETF's. Apples to Apples or Apples to Grapefruits.

The first BBG article chose to compare an ESG index to a US Corporate index. From my limited exposure to ESG funds, that comparison is meaningless. IDK how other studies are conducted, but take a look at BGRN's "Exposure Breakdowns" (attached) compared to their "holdings" download.

The downloaded holdings breakdown is;

Government Related 47.5%
Corporate 34.4%
Treasury (Sovereign) 14.5%
Covered 3.5%
Cash/Der 0.14%

The discrepancy between the "Exposure Breakdowns" and the downloaded file lies in entities such as KFW or Kommunalbanken. Maybe these are classified as "Financial Institutions," but they are no different than EDC is. They are not necessarily owned by the government, but are subject to legislative review.

My point is that while these two ESG ETF's may hold some corporates, the bulk of their investments are in government entities.

Conclusions

Completely up to you if this investment makes sense under your own ESG or "warm and fuzzy" feeling for your money. ESG returns should be benched to the proper apple. In this case, you should look at a combination of a high grade corporate and a SSA (Sovereigns, Supranationals and Agencies) ETF, if one exists. Are you getting anything more, limited downside, less volatility equal liquidity etc for what might be a more expensive fund?

P.S. I never addressed liquidity and I have no direct evidence to offer aside from the Fed and BOC needing to step into the secondary markets with supporting programs. You can choose to trust me, from my previous posts or not, that in 2008 to 2010 and during this recent spike in Risk Off, very few investors wanted to add to any quasi sovereign debt.

Bonus

I added a chart comparing BGRN vs GRNB vs (the famous) ZAG. IDK if these performance numbers are correct as I had to use Barchart. Stockcharts could not find BGRN.
Images
  • Asset Managers with Largest Sustainable Fund Flows Q1 2020.JPG
  • Exposure Breakdowns.JPG
  • BGRN vs GRNB.JPG
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Omg thank you so much, @MrMom ! I swear not to ask any more questions this month! Smiling Face With Open Mouth And Smiling Eyes

Thought this was an interesting video on VanEck’s (the other “green bonds” etf provider) home page: https://players.brightcove.net/70829837 ... 7410958001
A History Paved in Gold

CEO Jan van Eck shares how VanEck’s history in gold investing has helped shape the firm’s growth and investment philosophy.
“Think outside the box” yadayada.. :)
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[OP]
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@freilona

Financial markets are definitely rewarding to those who are creative and you should be commended for keeping an open mind.

I could be wrong, but I see Environmental, Social and Governance as another layer of bureaucracy and reporting, not as a separate asset class.
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@MrMom ,

Saw it in Blackrock’s Investment themes afterwards:
3) Resilience rules
• Portfolio resilience has to go beyond nominal government bonds and consider alternative return sources that can provide diversification.
• A focus on sustainability can help make portfolios more resilient. We believe the adoption of sustainable investing is a tectonic shift that will carry a return advantage for years to come – and the coronavirus shock seems to be accelerating this shift.
Market implication: We prefer U.S. Treasuries to lower-yielding peers as portfolio ballast and see a strong case for sustainable investing.

Even looked at Chinese bonds ETFs (as they keep overweighing Asian Fixed Income):
We stay overweight based on a slowdown in the spread of the virus, Chinese monetary easing, low energy exposure and reasonable relative value. We see demand from Chinese and regional investors.


But of course still hesitant to bet the money I’ll be withdrawing in less than 10 years on something yet unproven.. sigh
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@freilona
Please see my answer "Step 2" point 2 article in full if you have time, re: Blackrock

Re: China, pls compare the VanEck ETF holdings vs the Blackrock one. No need to download anything. Just open up two tabs.

Is it June already? Winking Face
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MrMom wrote: Is it June already? Winking Face
But-but-but - I didn’t even ask, was just thinking out loud! 🤪
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Never held any FB which is a big drag on my PA => ESG hurts performance. Not being a user means I am also late to find out about family functions, but my personal choice is something I am more than happy to make.
Images
  • Personal ESG.JPG
[OP]
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FortisBC's inaugural Green Bond issuance to mark new step for sustainability
http://pdf.reuters.com/htmlnews/htmlnew ... nCNWsQTHra

Company is seeking to issue a Green Bond to support its green initiatives

SURREY, BC, July 6, 2020 /CNW/ - FortisBC Energy Inc., FortisBC's natural gas utility and subsidiary of Fortis Inc. (TSX/NYSE: FTS) announced a plan today to complete a public offering of a Green Bond, a specialized investment targeted to support projects and activities that promote environmental sustainability. Upon successful issuance, the bond is expected to be the first Green Bond for a natural gas provider in Canada.

<Edit: Further details in the PR>
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In case anyone was interested...

I've been members of energy cooperatives such as Peace Energy and am invested in shares with them. They don't yield much. In fact they give very little return. But I believe in the value of investing in localized projects for the greater benefit and like to support initiatives such as these that can build developments and provide local jobs.
https://peaceenergy.ca/

There are other companies such as TREC
http://www.trec.on.ca/
and Windshare (website currently down)
http://www.windshare.ca/
CoEnergy
https://coenergy.coop/

etc. many out there. Some are provincial residents only
Support your local Credit Union!

Sask Pension Plan Upto $6300/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
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Q&A: Even After the Pandemic, Renewables Are Seen as a Safe Bet
July 13, 2020 4:56 am ET
https://www.wsj.com/articles/BT-CO-20200713-701566

"Sachin Shah, the company's chief executive, spoke with The Wall Street Journal about ESG investing and where the coronavirus has left renewables. Here are edited excerpts:"

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