TBLI Weekly - May 7th, 2024
Your weekly guide to Sustainable Investment
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TBLI Radical Truth Podcast
Financial Inclusion is a lie /w Emmanuel Daniel
The term “financial inclusion” as described by the fintech industry is a lie, says Emmanuel Daniel, in his recent book “The Great Transition – the personalization of finance is here”. Emmanuel Daniel is the award-winning founder of The Asian Banker and Wealth and Society. He argues that the phrase was forcibly requisitioned by the platform players because it suited their business model of onboarding millions of customers and then monetizing them. He points out that the way that technology players are funded by venture capitalists today does not allow them to create a viable business model to succeed in financial inclusion.
What will you learn:
New US climate rules for pollution cuts ‘probably terminal’ for coal-fired plants
By: Oliver Milman - The Guardian
Experts say only ‘handful of plants’ operating with the dirtiest fuel will likely survive, and only Trump and lawsuits could save them New climate rules imposed by Joe Biden’s administration requiring huge cuts in carbon pollution from coal-fired power plants will accelerate the decline of an industry that until recently provided most of America’s power, experts say, potentially even dealing a death blow to coal in the US.
Coal, once the backbone of the US economy and feted by Donald Trump as he rose to the presidency, is being driven out of the power sector by cheaper renewables and gas and now faces an Environmental Protection Agency (EPA) regulation, finalized last week, that demands all coal plants not retiring by 2039 to slash their carbon emissions 90% within the coming decade.
The situation is now “probably terminal” for most of the several hundred US coal plants not already earmarked for closure, according to Seth Feaster, a coal industry analyst at the Institute for Energy Economics & Financial Analysis, who said “just a handful of plants” will likely survive beyond the end of the 2030s.
“Not many plants will be able to cut their pollution that much and fewer still will survive the energy transition past 2040,” Feaster said. “You’ll probably be able to count them on one hand.
“The decline has been unrelenting and now it’s a question of when coal ends, not if. The US hasn’t had a national climate policy, unlike in Europe, and yet we are likely to get rid of coal much faster than in Europe.”
Coal is the dirtiest of all fossil fuels in terms of its planet-heating emissions, still accounting for more than half of the carbon pollution coming from the US power sector even as it has been eclipsed in the past decade by gas and, for the first time last year, by renewables such as solar and wind energy.
In 2023, coal plants accounted for 16% of the US’ electricity, down from more than half during a peak in 1990. Feaster said that daily data shows that stretches of 2024 so far have seen coal dip below a 15% share. “It’s amazing to see how quickly solar and batteries are being built and how low coal’s market share is getting,” he added.
Scientists have warned that the world must urgently ditch coal, followed by other fossil fuels, to help avoid worsening impacts from the climate crisis and on Tuesday the G7 group of advanced economies, which includes the US, agreed to end the “unabated” use of coal by 2035.
The new EPA rules allow coal plants to use technologies to achieve such abatement, primarily carbon capture and storage (or CCS), which traps planet-heating emissions at source and buries them to avoid pollution billowing into the atmosphere. However, despite years of support and subsidies from the US government, CCS remains costly and is unproven as a way to slash emissions. Coal is the dirtiest of all fossil fuels in terms of its planet-heating emissions, still accounting for more than half of the carbon pollution coming from the US power sector even as it has been eclipsed in the past decade by gas and, for the first time last year, by renewables such as solar and wind energy.
In 2023, coal plants accounted for 16% of the US’ electricity, down from more than half during a peak in 1990. Feaster said that daily data shows that stretches of 2024 so far have seen coal dip below a 15% share. “It’s amazing to see how quickly solar and batteries are being built and how low coal’s market share is getting,” he added.
Scientists have warned that the world must urgently ditch coal, followed by other fossil fuels, to help avoid worsening impacts from the climate crisis and on Tuesday the G7 group of advanced economies, which includes the US, agreed to end the “unabated” use of coal by 2035.
The new EPA rules allow coal plants to use technologies to achieve such abatement, primarily carbon capture and storage (or CCS), which traps planet-heating emissions at source and buries them to avoid pollution billowing into the atmosphere. However, despite years of support and subsidies from the US government, CCS remains costly and is unproven as a way to slash emissions.
Poorer nations must be transparent over climate spending, says Cop29 leader
Mukhtar Babayev says clear accounting crucial to build trust as developing world seeks trillions in support
Poor countries must demonstrate clearer accounting and transparency to back up their calls for trillions of dollars of climate finance, the president of global climate negotiations has said.
Mukhtar Babayev, the ecology minister of Azerbaijan, who will lead the Cop29 UN climate summit in November, urged governments in developing countries to draw up reports showing their progress on cutting greenhouse gas emissions, and their spending on the climate crisis.
“It’s very important to build this correct, good and honest trust between the parties,” he said in an interview in Baku, the capital of Azerbaijan. “It’s a very, very important step, the creation of a transparency mechanism between the countries.”
At Cop29 in Baku, countries will be expected to come up with a new global goal on supplying climate finance to poorer countries, to help them cut their greenhouse gas emissions and adapt to the impacts of extreme weather. Some governments from the global south are calling for the sums to reach more than $1tn a year.
These pledges are expected to be subject to bitter wrangling at Cop29, as rich countries are unlikely to agree to provide anything like such sums from their taxpayers but the role of other sources of finance – such as the private sector – is still in question.
Babayev said large sums would be required to help poor countries update their emissions-cutting plans, known as nationally determined contributions, or NDCs, in line with the need to limit temperature rises to 1.5C above pre-industrial levels.
He sees efforts to improve the transparency of accounting for emissions cuts and climate spending as a crucial first step. “It’s like a triangle. First, transparency. It’s trust between the parties. Next, finance. Next, NDC. Today we are looking to this triangle,” he said.
Transparency, or clear accounting, is one of the most vexed issues at the global climate negotiations, partly because of the difficulty of monitoring the many variables involved – from greenhouse gas emissions to the spending of climate finance – but chiefly because of deep sensitivities over national sovereignty, and unwillingness to submit to international monitoring.
Yet there are many examples of how a lack of transparency is hampering global efforts to tackle the climate crisis. Greenhouse gas emissions have frequently been found to be greatly in excess of those reported: for instance, the International Energy Agency found in 2022 that emissions of the potent greenhouse gas methane were 70% higher than countries had admitted.
Climate finance spending is cloaked in secrecy and subject to gross distortions: an investigation by Reuters last year found Italy had helped open a chain of ice-cream shops in Asia, and Japan had supplied money for a coal-fired power plant in Bangladesh and an airport expansion in Egypt, under the guise of climate finance.
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Under the 2015 Paris agreement, countries must start to submit new transparency reports. Developed countries were required to submit theirs first, in 2022; for developing countries the deadline is the end of this year.
Babayev wants countries to submit their reports early if possible, well before Cop29 begins on 11 November, as a way to unblock the logjam on finance. If poor countries can show clearly they are making efforts to cut emissions, adapt to the impacts of the climate crisis and account for any climate finance they receive, developed countries will have less excuse for withholding climate finance from them.
“If all these sides deliver, if countries will submit the transparent picture of their activities, that will also be a very good argument for the developed world to deliver the priorities of the developing world,” Babayev said. “We would like to be the interconnector.”
U.S. investors pulled a record $8.8 billion from sustainable funds in Q1
BY STEVE KERCH
U.S. investors soured on sustainability in the first quarter of 2024, with a record $8.8 billion being pulled from funds that focus on impact, a new report from Morningstar shows.
Despite the drag from the United States numbers, sustainable funds globally attracted nearly $900 million in new money in January, February and March. That represented a rebound from the end of 2023, when $88 million was withdrawn from those funds, Morningstar found.
The fund tracker defines the global sustainable fund universe as open-end funds and exchange-traded funds that, by prospectus or other regulatory filings, claim to focus on sustainability, impact or environmental, social and governance factors.
Worldwide, just short of $3 trillion was invested in those funds at the end of the quarter, with the vast bulk of that figure, $2.5 trillion, represented by Europe. U.S. investors own $335 billion in such assets, Morningstar’s data show.
“Boosted mostly by the asset growth among European passive strategies, global sustainable fund assets inched up by 1.8% at the end of the first quarter,” the report said. That gain came “against a mixed macroeconomic backdrop, including the uncertain inflation and interest rates prospects, the artificial intelligence boom, as well as continued geopolitical risks.”
Less interest in sustainable funds resulted in a record low debut of new funds focused on impact and ESG. Morningstar said only 97 such funds were added in the first quarter, down from 176 in the fourth quarter of 2023. And the reduction in sustainable fund launches wasn’t limited to the U.S.: The trend was seen across the globe, the report found.
U.S. asset manager BlackRock remains the dominant force in sustainable funds, with $368 billion under management. Amundi and UBS, the two largest European firms in the space, have $177 billion and $171 billion, respectively, under management.
Here are the top 10 U.S. sustainable funds bringing in the most investor money in Q1:
Other highlights from the report:
Why this money manager believes ESG investing is out and impact investing is in
By: BRENDA BOUW - The Globe and Mail
Investing through an environmental, social and governance (ESG) lens has lost its way in recent years, a shift that money manager François Bourdon blames on “sustainability tourists” – and not the travel kind.
The managing partner of sustainability-focused firm Nordis Capital, based in Montreal, says too many companies venture into sustainability in one part of their business while maintaining other parts that can be harmful to society and the environment.
“ESG is becoming a bit toxic. Nobody really knows what it is and what it includes or doesn’t include,” Mr. Bourdon says.
The result is a shift from ESG investing, which is more about risk management, toward impact investing, in which capital positively impacts society and generates a financial return, he says.
“This evolution is better for sustainability investing. It will help clean up the sector,” says Mr. Bourdon, whose firm oversees about $100-million in assets. “We believe investors who care about sustainability want a manager committed to it throughout its business practices, not just paying lip service.”
The firm’s global equity strategy has returned 5.3 per cent over the past 12 months and returned 9.3 per cent since inception on Dec. 21, 2022. The performance is based on total returns, net of fees, as of April 25.
The Globe spoke recently with Mr. Bourdon about his investing strategy, what he’s been buying and selling, and a couple of stocks he wishes he hadn’t sold.
Describe your investing style.
We’re a sustainability-driven investment firm. We have a combination of micro and macro stock-only strategies across four buckets.
The first is shorts: These companies produce products that aren’t good for society. An example is Phillip Morris International Inc, which is on our short list because cigarettes aren’t good for people.
The second is a neutral bucket: We don’t touch these companies. Their products are good for society and the planet, but their operations and governance are bad, so one crosses out the other. An example is Tesla Inc. which we don’t own for this reason.
Third is our long bucket, which includes companies that are needed for society and have very good operations from a sustainability perspective. An example is Walmart Inc.
Fourth is our impact bucket, which includes companies with products and services critical for society and the transition to a low-carbon future. An example is uranium producer Cameco Corp, which has a commodity that’s needed for the energy transition.
What’s your market outlook?
It will be a volatile year in the markets, driven not by the economy but by the U.S. election in November and the ongoing Russia-Ukraine and Israel-Gaza wars. We think the global economy will expand slowly, at around 3 per cent this year, while growth will be about 2 per cent in the U.S. and 1 per cent in Canada. Commodities such as copper, oil and gold remain strong. We also think higher inflation of between 3 and 4 per cent, and higher interest rates, will be the new normal for the near future.
What have you been buying or adding to lately?
We recently added Teck Resources Ltd. after it sold its coal business last year and Freeport-McMoRan Inc. Both are copper producers. Copper is used in products such as power lines, solar panels and wind turbines, and plays an important role in the transition to renewable energy.
We also bought Valemont Industries Inc. q which makes fabricated metal products and tower structures used in developing and maintaining the electricity grid, which we think will be critical. We also added to green infrastructure company Ameresco Inc.It got crushed alongside other green stocks last year, and there’s some misplaced bankruptcy risk related to that company.
Australian red meat industry has recorded 78% reduction in emissions since 2005, industry report found
By: Aston Brown - The Guardian
Drop is a result of reduced land clearing and greater vegetation regrowth, but experts say land clearing in Queensland may be significantly underreported
The Australian red meat industry has recorded a 78% reduction in net greenhouse gas emissions since 2005 due to reduced rates of land clearing and increased forest regrowth, a report commissioned by Meat and Livestock Australia (MLA) has found.
The report, released on Thursday, found that net greenhouse gas emissions from the red meat industry were equivalent to 31m tonnes of carbon dioxide in 2021.
But the emissions data was derived from the Australian National Greenhouse Gas Inventory, which analysis suggests may be significantly underreporting land clearing in Queensland, making any claims based on that data “not reliable”.
The report said high rainfall in 2020-21 resulted in a large increase in carbon sequestration due to increased vegetation growth on land managed by the red meat sector, an area equivalent to about half of Australia’s landmass.
This drove a 40% recorded decrease in industry-wide emissions on the previous year. However, the report said the carbon sequestration estimates were “associated with high levels of uncertainty”.
MLA in 2017 announced the industry’s goal to reach net zero emissions by 2030. Climate and agricultural scientists have said the target is unachievable.
Julia Waite, the MLA’s carbon neutral 2030 project manager, said lower rates of land clearing and greater volumes of regrowth had offset the sector’s direct emissions, about 80% of which is methane released by cattle burps and manure. Those emissions fluctuate with the recorded size of Australia’s cattle herd and have remained relatively stable since 2005.
“Given the variability of the Australian climate, we anticipate sequestration volumes will retract when conditions trend back towards drier El Niño,” she said in a statement on Thursday.
Cattle population data in the report, which put the herd size at 23.3 million in 2021, is based on Australian Bureau of Statistics farm surveys. The ABS’s head of agriculture statistics, Rob Walter, told Guardian Australia in March that these surveys were never designed to record Australia’s cattle population and are “clearly a lower estimate than the actual number of cattle”. One study found we may be undereporting the number of cattle by 10 million.
Waite said the annual emissions report by MLA was informed by the best available science and nationally maintained data.
Earlier, Waite told Guardian Australia that emissions reductions from carbon sequestration in vegetation “has a shelf life” because the rate of sequestration declines as forest regrowth reaches maturity. She also said net zero by 2030 “isn’t a static target”.
“To maintain an enduring net zero emissions position will require percentage reductions in direct emissions of raising livestock and energy, which will also reduce over-reliance on sequestration,” Waite said.
Since 2017, MLA has co-invested $152m into research and development largely focused on nascent technologies such as methane-reducing feed additives. MLA previously said more than $180m had been invested, but has since revised the figure.
Greenhouse gas emissions attributable to the red meat industry, including those released by fertiliser production, supplementary feed and transportation were not included in the report. It said this was due to “data and methodological limitations” but that they could possibly be included in future.
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