It was quite a PR comeback, considering BlackRock had been getting skewered in the press after its former head of sustainable investing, Tariq Fancy, penned a handful of damning op-eds calling most sustainable investing “PR spin” and a “deadline distraction” from climate change.

Nevertheless, the new BlackRock U.S. Carbon Transition Readiness ETF arrived to much praise. Its stated approach: investing in large- and mid-cap companies that “BlackRock believes are better positioned to benefit from the transition to a low-carbon economy.” Of course, believing a company is well positioned to benefit from the transition is one thing; seeing them actually lead the transition is another.

The fund has holdings in more than a dozen laggard energy companies, with less than 20% of near-term investment in the energy transition (see sidebar). Eight of its holdings have been actively blocking climate policies. It’s not just BlackRock, of course. A number of funds marketed as sustainable, low-carbon or ESG-aligned are heavily invested in many of the very same companies you’d see in conventional funds. Usually lots of Big Tech (Facebook, Apple, Google owners Alphabet) and a good lacing of Big Oil.

The Carbon Transition Readiness funds put a different spin on things. As the Financial Times noted, “Rather than exclude companies that rate poorly on climate-related metrics, the new ETFs take an underlying equity index – the Russell 1000 and MSCI All World ex-US index, respectively – and assign portfolio weightings that reflect a carbon transition readiness score.” In practical terms, that presumably means the fund chose to sink only US$2.7 million into Exxon but put $4.5 million into Chevron and $10 million into Kinder Morgan because of varying carbon transition scores.

Said BlackRock’s CEO, Larry Fink, “These funds will enable investors to understand which companies are transitioning faster than others.” Sorry, Larry, but did investors actually need these funds to understand that Exxon and Chevron are transitioning at a glacial pace?

“If this ETF is really named ‘Carbon Transition Readiness’ then I have to ask what we are transitioning to and what we are getting ready for?” said As You Sow CEO Andrew Behar. “Based on our analysis, this ETF ignores Larry Fink’s statement, ‘climate risk is investing risk,’ while doubling down on business as usual.”

We asked Tim Nash, founder of Good Investing, for his take. “Since these ETFs launched with so much money already committed, this is likely an active fund created for institutions who were facing pressure to lower their carbon risk exposure and wanted to take a small step in the right direction. However, these ETFs won’t go far enough for most activist investors.” For those looking to divest from fossil fuels, Nash suggests AGF Global Sustainable Growth Equity ETF or iShares ESG Equity ETF Portfolio.

Bottom line: look before you leap.

Fund spotlight:
BlackRock U.S. Carbon Transition Readiness ETF
What’s promised: This ETF invests in large- and mid-capitalization U.S. equity securities “tilting towards those that BlackRock believes are better positioned to benefit from the transition to a low-carbon economy.”

What’s inside: The fund is dominated by all the standard Big Tech firms found in conventional ETF holdings: Apple, Amazon, Alphabet, Facebook, the last two of which have been booted off the Corporate Knights Global 100 index because of red-flagged illegal activity. In fact, more than a quarter of this fund’s holdings trip our red-flag alarms, including manufacturers of harmful pesticides, major weapons contractors (think Honeywell and Raytheon) and Big Pharma laggards failing on offering fair access to medicines. Since this is a low-carbon transition fund, let’s break down which holdings trigger Corporate Knights climate-related flags:

• 14 energy companies with less
than 20% of their near-term investment in the energy transition, including Exxon, Chevron, Kinder Morgan and ConocoPhillips.
• 8 climate-policy-blocking companies,
including Berkshire Hathaway, Goldman Sachs and Valero, as well as a few energy companies mentioned above.
• 3 big brands selling industrial meat,
including Spam-king Hormel.
• 1 deforestation and palm oil laggard,
namely Kraft Heinz Co., which Global Canopy gives a big fat zero to when it comes to its overarching commitment on deforestation (a primary contributor to climate change).

BlackRock’s position: “LCTU leverages BlackRock’s proprietary climate analytics to analyze a company’s ability to thrive in the transition to a low carbon economy, resulting in a portfolio with almost 50% less carbon intensity than its Russell 1000 benchmark.” LCTD’s GHG intensity is said to be 18% lower than benchmark.

The post ESG BS Detector: Do new “green” funds support the carbon transition? appeared first on Corporate Knights.

Democrat Joe Biden may have ejected Donald Trump from the White House, but Republicans have been emboldened to pass laws aimed at disenfranchising liberal voters in future elections. Echoing Trump’s baseless charges that the election was rigged, lawmakers in Iowa, Georgia, Florida, Texas and seven other GOP-led states pushed through rules that restrict absentee voting, tighten ID requirements and empower partisan state officials to settle disputes. Most of these measures were contrived to inconvenience Black, Brown and young voters, whose support for Biden tipped the scales in November.

Biden criticized the initiatives as “un-American.” But he has little power to stop them without a firm grip on the Senate.

Also in a tight spot are corporate leaders. Once, businesses could support either major party – or both – without drawing fire. But coordinated voter suppression, swiftly following the January 6 Capitol insurrection, tipped the scales. Emotions boiled over in Georgia, the “swing state” that gave the Democrats their slim Senate majority. When the state legislature began considering Bill 202 in March, civil rights groups such as Black Voters Matter and the New Georgia Project urged supporters to contact Georgia corporations to demand they speak out against suppression and cut off support to complicit Republicans.
Some firms’ responses provide a textbook example of how not to act in a crisis.

Atlanta-based Delta Air Lines led off by taking credit for helping write the bill. When activists protested, CEO Ed Bastian clarified that the bill wasn’t perfect but did contain some positive measures. Delta employees exploded with rage, and Black leaders called for a Delta boycott. Soon after, Bastian reversed himself: “After having time to now fully understand all that is in the bill … it’s evident that the bill includes provisions that will make it harder for many underrepresented voters, particularly Black voters, to exercise their constitutional right to elect their representatives. That is wrong.”

Calling the bill “unacceptable,” Bastian promised Delta would work with politicians across the spectrum to expand voting rights nationwide. (Result: right-wing supporters picked up the call for a Delta boycott.)
Atlanta’s pride, the Coca-Cola Company, traced a similar path. At the height of last year’s George Floyd protests, Coke CEO James Quincey said, “Companies like ours must speak up as allies to the Black Lives Matter movement.” But when called on to oppose Bill 202 in mid-March, Coke stayed bottled up – emerging only to agree with a chamber of commerce memo expressing “concern” over the bill. As protesters called for a boycott, one Black leader told The Guardian, “The hypocrisy is astounding, the silence is deafening.”

At the end of March, after the bill was signed, Quincey stepped up. He told MSNBC that “this legislation is wrong and needs to be remedied. We will continue to advocate for it both in private and now even more clearly in public.” The Republicans demanded a boycott of Coke products, their call picked up by Trump himself. (A subsequent CNN investigation found Trump’s luxury properties kept right on selling Coke, at $9 a glass.)
Other Georgia companies such as UPS and Home Depot stood up sooner for democracy and anti-racism. But they left out specifics, such as whether they’d continue funding Republican politicians.

The lesson for business: in these divided times, stand up for what’s right. You can’t please everyone, but hedging and vacillating will just piss off everybody.

One positive outcome to this controversy: investment giant BlackRock has just accepted a shareholder proposal that the firm conduct a third-party racial equity audit, to identify its own shortcomings in diversity and inclusion.

CtW Investment Group, one of several activist shareholder groups pushing financial giants to embrace racial equity audits, says Wall Street “has played a critical role in perpetuating unequal wealth distribution to communities of color.” Goldman Sachs and Citigroup are among the big players that turned down such proposals, but BlackRock’s participation is expected to put pressure on other firms to follow suit.

The post Voter-suppression backlash proves business must take a stand appeared first on Corporate Knights.

The exchange took a step in that direction in December with a proposal that at least two members of most listed companies’ boards cannot be straight white men. Small boards with five or fewer members will be allowed to have just one “diverse” director.

The move has drawn praise from the American Civil Liberties Union – hardly known as a friend of big business. “By pushing its listed companies to address racial and gender equity in corporate boards, Nasdaq is heeding the call of the moment,” said Anthony Romero, the ACLU’s executive director. “Incremental change and window-dressing isn’t going to cut it anymore as consumers, stakeholders and the government increasingly hold corporate America’s feet to the fire.”

Critics accuse Nasdaq of trying to set quotas for corporate boards, but the exchange has noted that more than two dozen studies have found links between diverse boards and improved financial performance and corporate governance.

Under the proposal, all Nasdaq-listed companies will have between two and five years to comply with the new rules, or explain in writing why they have not. The Securities and Exchange Commission is set to rule on the proposal this summer.

Quartz estimates that the move will add at least 570 women to corporate boards, plus at least the same number who identify as Black, Hispanic, Asian, Indigenous, LGBTQ or other minorities.

Welcome as Nasdaq’s move is, it is not the first – nor the most aggressive – push for boardroom diversity. California passed one law in 2018 and another last year stipulating that, among other requirements, companies with nine or more directors must include at least three from under-represented groups. Goldman Sachs, a Wall Street powerhouse, said last July that it would take a company public only if the board includes at least one woman or member of a racial minority.

Such initiatives are bearing fruit. A record number of women took the reins of Fortune 500 companies last year, including at UPS, Clorox, Gap and Citigroup. Forty-one Fortune 500 companies now have female CEOs, up from 24 in 2018 and just two at the start of the millennium. The ball may be rolling more slowly than many would like. But at least it is rolling – and in the right direction.

Vanguard Group and Fidelity Investments are not putting their climate-change mouths where their money is.

The two asset-management giants, which together manage close to US$10 trillion, clearly recognize the benefit of investing in companies with strong environmental records. Fidelity’s vast stable of mutual funds, for example, includes a water sustainability fund centred on new technologies to improve the availability of safe and affordable water.

“Investors are increasingly seeking to meet their financial goals while contributing to positive social and environmental outcomes,” Fidelity proclaims in its promotional material. “As stewards of our clients’ capital, we endeavour to satisfy these aspirations.”

One may be forgiven, however, for wondering whether these endeavours amount to much. Neither Vanguard nor Fidelity Investments signed a pledge by 30 mostly European money managers last December to invest only in companies with net-zero carbon dioxide emissions by 2050. (One signatory is Fidelity International, which was spun off in the 1980s.) Nor have they joined Climate Action 100+, a five-year global initiative by 400 investors to prod the largest corporate greenhouse-gas emitters to mend their ways.

InfluenceMap, a London-based climate-action advocacy group, notes in its latest Asset Managers and Climate Change report that the two firms lag their main U.S. rivals, BlackRock and State Street Global Advisors: “Their transparency on the climate engagement process is poor with minimal references to transitioning companies in line with Paris goals or governance of lobbying practices.”

Fidelity was the worst performer of 30 groups assessed by InfluenceMap in 2020, prompting the rebuke that it “continues to show limited to no evidence of engaging on climate.”

In contrast to the water sustainability fund, the report singles out Fidelity’s Contrafund as “particularly misaligned” with the goals of the Paris Agreement, given the fund’s holdings in oil production and the lack of investment in electric vehicle technology.

Vanguard supported just 21% and Fidelity 23% of all climate-related shareholder resolutions that they voted on during the 2020 proxy season. Together with Los Angeles–based Capital Group, they opposed every resolution related to climate policy lobbying – as they had in the previous two years. By contrast, most leading European asset managers backed the vast majority of such resolutions.

As InfluenceMap puts it, “The lack of support from the world’s largest asset managers on resolutions relating to lobbying, energy transition plans, and other key climate issues remains a barrier for forceful stewardship by investors on the climate emergency.”

The post Heroes & zeros: Who’s advancing diversity and who’s selling out the climate? appeared first on Corporate Knights.

The post Vanguard, BlackRock and State Street knee-deep in dirty investments appeared first on Corporate Knights.

Around the world, investment firms, corporations and governments are scrambling to respond to calls for increased climate action and societal justice with pledges to measure everything against an environmental, social and governance (ESG) yardstick. But in the ESG stampede, insiders warn that too many stocks are getting tossed into green funds without enough oversight.

There have been grumblings about “greenwash” in the sector for years, but Tariq Fancy turned it up to 11, so to speak, when the former chief investment officer for sustainable investing at BlackRock (the world’s largest asset manager), raked the industry over the coals in a March op-ed.

“Wall Street is greenwashing the economic system and, in the process, creating a deadly distraction. I should know; I was at the heart of it,” Fancy wrote in USA Today. In many instances, “existing mutual funds are cynically rebranded as ‘green’ – with no discernible change to the fund itself or its underlying strategies – simply for the sake of appearances and marketing purposes. In other cases, ESG products contain irresponsible companies.”

His charges were damning, but they weren’t news to those paying attention. Last year, UK-based ShareAction examined 75 of the most influential asset managers worldwide and concluded that “50 have a very limited approach to managing ESG risks, receiving either a D or E rating.” Though a third ranked higher than a B (BMO and HSBC Global Asset Management earned Bs, while RBC and Manulife scored Cs), BlackRock, tellingly, was slapped with a D.

Nonetheless, Hugh Wheelan, co-founder of Responsible Investor, says that Fancy is only partly right. “Do we face swathes of greenwash in ESG statements, fund compositions and company ‘assessments’? Yes, with caveats. Little of what goes into environmental funds is 100% green (nothing is), and ESG is not a science.” Still, he urged the public to reject easy cynicism and remain committed: “Now is the time to hold fund managers to account.”

At the heart of the problem is the lack of agreed-upon standards for qualifying for, say, an “ESG-aligned” investment fund. Though that’s starting to change. In March, the U.S. Securities and Exchange Commission announced a new Climate and ESG Task Force in its enforcement division, tasked with “proactively identifying ESG-related misconduct.” Across the pond, the EU’s new rules designed to stamp out ESG-fund greenwashing take effect in June.

Debate rages over whether that green taxonomy is too watered down or too tough to support higher-carbon companies as they transition to net-zero. Mark Carney’s take: “We don’t just need brown/green; we need 50 shades of green and we need a way to communicate more precisely.”

Most agree with Fancy about one thing: “We’re running out of time and need to accept the truth: To fix our system and curb a growing [climate] disaster, we need government to fix the rules.” Or rather, we need to turn up the pressure on government to fix the rules.

Fund spotlight:

BlackRock iShares MSCI ACWI Low Carbon Target ETF (CRBN)

What’s promised: This ETF “seeks to track the investment results of an index [composed of companies] with a lower carbon exposure than that of the broad market,” giving investors “exposure to a broad range of global stocks that are less dependent on fossil fuels.”

What’s inside: Traditional ethical investors might gasp when they see 15 makers of controversial weapons, including Lockheed Martin, nestled in this portfolio. Turns out even the world’s largest maker of bombs, missiles, fighter jets and nuclear subs has developed a low-carbon transition plan (net-zero thermonuclear warheads, anyone?).
Even if you generously assume the same holds true for the handful of for-profit prisons, harmful pesticide-makers and mining firms tied to severe environmental damage in this ETF’s portfolio, low-carbon purists will no doubt take issue with some of the fund’s most climate-contentious holdings, including:

• 6 thermal coal-burning companies
• 11 climate-policy-
blocking companies, including Berkshire Hathaway and Chevron
• 4 deforestation and palm oil laggards linked to clearcuts in the Amazon rainforest and Southeast Asia (deforestation is a primary contributor to climate change), and
• 6 industrial meat companies, including Tyson Foods, America’s largest beef, pork and poultry processor (animal agriculture is a significant contributor to climate change).

BlackRock’s position: BlackRock says the ETF’s MSCI weighted average carbon intensity (tons CO2e/$M sales) is just 64.74, significantly lower than the 178.5 average for benchmark MSCI ACWI Index. Whether that will convince climate-conscious investors that this fund deserves their attention remains to be seen.

Adria Vasil is the managing editor of Corporate Knights. She’s also the author of the bestselling Ecoholic book series.

The post ESG BS detector: iShares Low Carbon ETF appeared first on Corporate Knights.

Fancy made three main points:

1. Wall Street is hawking funds labelled as green or sustainable that in many cases are anything but.

2. The much-pedalled idea that sustainable investing is good for the bottom line is a myth.

3. Sustainable investing acts as a deadly distraction delaying what really needs to be done to avoid climate disaster: government stepping in to fix the rules.

As is often the case with whistleblowers, his claims were challenged by conventional wisdom, with the head of sustainability research at Morningstar chastising Fancy for providing “only the sketchiest of evidence to support a rather outlandish position.”

I found myself admiring Fancy’s courage. When his article was first published in USA Today, he was still listed on BlackRock’s website as their chief sustainable investment officer, even though he left the firm two years ago. He has now been removed from the site and, one can guess, the BlackRock Christmas card list.

But the admiration quickly gave way to a deep concern. Not because Fancy is wrong about greenwash being rife in the sustainable investment industry. Although he didn’t mention it, BlackRock’s gold-standard sustainability product (iShares MSCI Global Impact ETF) is literally invested in Spam, a factory-farmed salty heart attack in a can. Try squaring that with the fund’s mandate, which is to invest in “companies that derive a majority of their revenue from products and services that address at least one of the world’s major social and environmental challenges.” Potshots aside, many of the investments in the iShares MSCI Global Impact fund (as well as many of the funds in this year’s Responsible Investing Guide) do offer meaningfully increased exposure to companies like Tesla and Ørsted that are clearly delivering sustainable solutions.

That brings us to the next point. I am little bemused by anyone who makes sweeping statements about the impact of sustainable investing on the bottom line. It’s almost like lumping the four seasons together and saying they are all hot or cold. Many carbon-intensive industries are on a long-term sunset trajectory as they’re being priced out by cleaner options, which is why the Canada Pension Plan’s oil and gas stock holdings have plunged from a quarter of its portfolio 10 years ago to just 2% today. There are half a trillion reasons why a chief investment officer at BlackRock should know this; that’s the dollar amount of returns they sacrificed as a result of not decarbonizing their equity portfolio a decade ago, according to Corporate Knights analysis.

(As a side note, I shared this finding with BlackRock’s CEO Larry Fink when we bumped into each other last year in a Swiss mountain village. I followed that up by leaving an urgent two-word message from the “North American office” at his Hard Rock Hotel in Davos: “Short Exxon.”)

And while the market is frothy at the moment with clean economy pure-plays, the compound annual growth rates for major low-carbon markets (green energy, electrification of transport, plant protein, energy efficiency) are jumping off the charts.

It shouldn’t take a rocket scientist to figure out that you will do better in the long-term the more you dial up your exposure to rising industries (low-carbon solutions) and dial down exposure to those in secular decline (high-carbon problems).

Fancy is right that “systemic challenges require systemic solutions and you need government action to do that.” I also shared his outrage when Larry Fink recently suggested that we can rely on the current incrementalist market approach to deal with the climate crisis, saying “I prefer capitalism to self-regulate.”

But the idea that shelving sustainable investing will make way for the government to fix our problems is woefully misguided. Governments do not solve problems in a vacuum. They solve problems when they feel pressure to do so and when they believe the solutions fall within the Overton window (the range of policies that are politically acceptable to the mainstream population at a given time).

Regardless of the imperfections of portfolio construction, when millions of people vote with trillions of their own dollars to invest in a more sustainable world, it shifts the Overton window of what politicians think is legitimate policy.

We have seen this movie before. After the movement to divest from apartheid South Africa spread from college campuses to blue chip corporations, it provided a window for then-Canadian Prime Minister Brian Mulroney to help galvanize the international community to turn up the pressure. That pressure was ultimately credited by Nelson Mandela for helping to bring about the end of apartheid.

Now we are seeing the same thing happen with the climate, where the fossil fuel divestment movement has spread from universities to the inner sanctum of the Bank of England and the G20.

When you vote with your dollars and your ballots you are more – not less – likely to get better returns.

Toby Heaps is the CEO and co-founder of Corporate Knights Inc. and publisher of Corporate Knights Magazine.

This story appears in the upcoming Spring Issue of Corporate Knights.

The post Editor’s Note: We can’t let greenwash make us lose sight of the prize appeared first on Corporate Knights.

A combination of pasta, hot dogs, oranges and green peppers got him through the month.

Some 30 years later, riding Tesla’s soaring stock, Musk passed Jeff Bezos to become the richest man on the planet, with a net worth of US$189.7 billion as of January 8, 2021.

In carrying out his mission to accelerate the world’s transition to sustainable energy, Musk has become a prophet for clean capitalism, with Tesla now ranked as the most sustainable and valuable car company in the world.

Musk is not alone. The Prince of Wales, the pope, and critically, a protest movement catalyzed by Greta Thunberg have all turned up the heat for businesses to get real about cooling the planet.

Prince Charles has long championed the environment and the central role industry and finance must play in its protection, but he’s dialled up the urgency significantly in the past year. In the fall, he said climate change poses such a severe threat that the world’s only option is to adopt a military-style response reminiscent of the U.S. Marshall Plan that helped rebuild post-war Europe 70 years ago.

In January, the prince looked back more than 800 years to the Magna Carta (which inspired a belief in the fundamental rights of people) to issue a companion document – the Terra Carta, or Earth Charter – that aims to enshrine the rights and value of nature in capitalism, inviting the world’s CEOs to make a sustainable future the growth story of our time.

Pope Francis once described unbridled capitalism as the “dung of the devil.” In a sign of the times, he recently gave his blessing to the Council for Inclusive Capitalism, a partnership between the Vatican and the leaders of some of the world’s largest businesses, including the chiefs of BP and Bank of America.

This seemingly unholy alliance seeks to make capitalism a more holy instrument for answering the cry of the earth and the cry of the poor.

There are now more than 300 companies, representing more than US$3.6 trillion in market cap, that have committed to a net-zero-emission target in line with a 1.5°C future.

Some worry these are empty words that give the impression that sufficient action is being taken – a sort of delay tactic. Thunberg, the teenaged activist who kicked off a citizens’ climate movement, says, “We must forget about net-zero – we need real zero.”

She spells out what that means:

“Immediately halt all investments in fossil fuel exploration and extraction. Immediately end all fossil fuel subsidies. And immediately and completely divest from fossil fuels. We don’t want these things done by 2050, 2030 or even [next year]. We want this done now.”

She’s right, but defunding carbon bombs will not be enough; not even close. The real action is going all in on funding climate solutions. What gets funded gets done. How we invest our trillions starting right now will determine our future.

To paraphrase Indian philosopher Jiddu Krishnamurti, the climate-solution revolution is today, not tomorrow. The litmus test for companies and countries (and anyone, really) is what percentage of your current budget is allocated with an intention to create a carbon-free sustainable world. If it’s less than 100%, you’ve got work to do.

The recently released Corporate Knights Global 100 Most Sustainable Corporations in the World is a list of companies that are, in the words of Prince Charles, who spoke at this year’s launch, “leading the way by putting sustainability at the heart of their products, services, business models and investments, helping to move the world onto a more sustainable trajectory.”

This year’s Global 100 companies rose to the top of a pool of 8,080 global firms that earn more than $1 billion a year, based on rigorous assessment of 24 indicators, including percentage of taxes paid and percentage of revenue and new investments aligned with a sustainable economy. Several new performance indicators reflect social concerns highlighted by both the pandemic and the Black Lives Matter movement, including providing paid sick leave and executive and board racial diversity.

On average, one-third of new investments on the part of Global 100 companies are clean, in contrast to less than one-quarter for their peers, while the percentage of Global 100 companies that offer at least 10 days of paid sick leave (86%) is more than double that of their peer benchmark, the MSCI All Country World Index (41%).

Global 100 companies also earned on average 41% of their revenues from products or services aligned with the UN Sustainable Development Goals, compared to just 8% for their peers.

But none of this would have legs if the good guys weren’t also faring well financially. On this score, the Global 100, which is calculated as an index, handily outperformed its MSCI ACWI peers by 10% over the last year, and 43% since the Global 100 index was launched in 2005.

What is needed now is for the rest of the business world, most importantly the big-money investors who have been sitting on the sidelines, to also lean into this more civilized form of sustainable capitalism.

Encouragingly, the largest pension fund in Ontario, the $205 billion Ontario Teachers’ Pension Plan, recently committed to achieving net-zero greenhouse gas emissions by 2050. This marks a stark contrast to the Canada Pension Plan, which has no such target and has been singled out for its “troubling incrementalism” by Osgoode Hall pension scholars – while forgoing $6 billion in returns as a result of its fossil fuel investments over the past 10 years, according to Corporate Knights analysis of its equities portfolio.

But now that BlackRock, the largest investor in the world, with a whopping $8.7 trillion under management, has jumped on the net-zero-emissions bandwagon, it is only a matter of time before it becomes the standard, placing a 100% sustainable and zero-carbon economy within our grasp.

The good news for our species is that the forces of pride and profit have shifted in favour of those on the right side of climate history, with shame and economic shambles awaiting those who cling to the wrong side.

Just four of the 13 Canadian companies on the Global 100 have committed to align their businesses with net-zero science-based targets, compared to more than half of Global 100 companies in general, though there is still time for them to get on board in the lead-up to global climate talks this fall in Glasgow.

With the sun shining on climate solutions, companies are free at last to shed their carbon cloaks.

A version of this article appears in the Winter Issue of Corporate Knights as well as the Toronto Star.

Toby Heaps is the CEO and editor-in-chief of Corporate Knights.

The post Editor’s Note: Time to go all in on the zero carbon economy appeared first on Corporate Knights.

Do-it-yourself investors who want to divest from fossil fuels can now purchase a single fund and get a broad mix of global stocks and bonds. The new iShares ESG ETF portfolios (available in Canada through any online brokerage) are part of BlackRock’s – the world’s largest asset manager – commitment to put climate change and sustainability at the centre of its investing approach. These portfolios are game-changers for sustainable investing, making it so much easier and more accessible for smaller investors who want to use a buy-and-hold strategy.

Up until a few years ago, DIY investors using exchange-traded funds (ETFs) had to go through the pain of buying stock ETFs and bond ETFs separately. Moreover, stocks were split up by geographic location, so we had to buy at least three or four different funds to get global exposure. The ETF industry has been steadily catching up, and I’ve watched as the Canadian Couch Potato model portfolios (the standard bearer for Canadian DYI investors) have quickly gone from five funds down to three, and now to a single “all-in-one” ETF from providers like Vanguard, iShares and BMO.

All-in-one ETFs, also known as “asset allocation” or “one-click” funds, are very similar to the balanced mutual funds that are so popular at the banks. Instead of buying separate funds for Canadian stocks, U.S. stocks, international stocks, and bonds, asset-allocation ETFs combine all those different asset classes in just one fund. All-in-one ETFs automatically rebalance as the market swings back and forth, ensuring that investors never end up taking too much – or too little – risk. Understandably, these all-in-one ETFs are very popular in Canada, with more than $4.5 billion under management.

Sustainable investment options have always lagged behind with these types of innovation in the investment world. When a pipeline activist came to me in 2014 demanding that not one penny go toward coal, tar sands or pipelines, I had to stretch my creative boundaries and cobble together a model portfolio using 11 different sector ETFs. Even funds labelled “ethical” and “green” generally contained fossil fuel holdings. So imagine my delight that iShares announced a lineup of ‘all-in-one’ ETFs based on their “ESG Advanced” series of sustainable funds.

According to its methodology brief, the iShares ESG Advanced funds exclude ethically questionable businesses, including fossil fuels, adult entertainment, alcohol, weapons, for-profit prisons, gambling, genetically modified organisms (GMOs), nuclear power, palm oil, predatory lending and tobacco. Additionally, the funds exclude companies from any sector with a major controversy or that have a poor environmental, social and governance (ESG) rating.

The most stringent of sustainable investors will still take issue with some companies in this iShares portfolio. The funds have what’s called a “home bias,” meaning that they have a deliberately high allocation to the Canadian stock market, so investors in these funds end up overweight in the financial sector. Big banks like RBC, TD Canada Trust and Scotiabank still feature prominently despite their massive investments in oil and gas, since they have a heavy weight in the Canadian market. The same is true with mining, since a disproportionate number of mining companies are listed in Canada.

These new ETF portfolios are just so cheap, simple and straightforward that they eliminate many of the trade-offs that sustainable investors previously had to contend with. Whether they win favour with every sustainable investor in Canada is another matter.

The post New BlackRock ETFs let Canadians divest from fossil fuels – sort of appeared first on Corporate Knights.

“I have instructed the Secretary of Energy,” Trump continued, “to formulate a plan which will make funds available so that these very important companies and jobs will be secured long into the future.”

At the same time, others were wondering if fossil fuels even have a future. The price of Brent crude had fallen to US$20 a barrel, an 18-year low. Oil-futures prices in Texas, where producers were running out of room to store inventory, dipped into the negative – meaning some producers were paying US$40 a barrel just to get rid of the stuff. With Russia and Saudi Arabia flooding the world oil market while COVID-19 stopped most traffic, industry analysts speculated that an inflection point had been reached.

In a story headlined “Oil Companies Are Collapsing, but Wind and Solar Energy Keep Growing,” The New York Times said renewable energy sources would generate a record 20.7% of electricity in the U.S. this year, up from 18% last year. “While work on some solar and wind projects has been delayed by the [virus] outbreak, industry executives and analysts expect the renewable business to continue growing in 2020 and next year even as oil, gas and coal companies struggle financially or seek bankruptcy protection.”

Though oil prices have rebounded somewhat from their record lows (Brent was back above $40 a barrel this summer), the International Energy Agency recently said 2020 would see the lowest oil demand in 25 years: “Even assuming that travel restrictions are eased in the second half of the year, we expect that global oil demand in 2020 will fall by 9.3 million barrels a day versus 2019, erasing almost a decade of growth.”

The pain came home to roost when oil giant Exxon last week announced a second-quarter loss of US$1.1 billion, with gross revenues of $32.6 billion underperforming analyst forecasts by a hefty $5.5 billion. Exxon shares have fallen 38% so far this year – and oil prices could tumble again.

Recently, the Telegraph noted that “there is mounting evidence that a second wave of COVID-19 could send prices spinning into a nosedive once more.” Earlier this week Stephen Innes, Chief Global Markets Strategist at AxiCorp said, “Most oil market participants expect more downward pressure on oil … with COVID-19 ravaging the landscape and OPEC+ adding more barrels into play.”

Meanwhile, the Times reported that U.S. solar capacity – spurred on by falling prices for solar panels – grew 23% in 2019. “We blew through all of the projections,” said Caton Fenz, CEO of ConnectGen, a Houston-based developer of wind and solar power. “We’re surfing a long-term wave.”

While the COVID crisis stalled most corporate initiatives, including Big Oil’s recent commitment to big renewables, the global shift remains underway. Just last week, BP announced it’s slashing its oil and gas production by 40% and increasing its low-carbon investments tenfold by 2030 (to $5 billion per year), as part of its 2050 net-zero targets.

At Corporate Knights’ Building Back Better roundtable on energy innovation in late May, federal Natural Resources Minister Seamus O’Regan declared that embracing green energy is not a retreat, but an advance.

“Net-zero is not just a plan for our environment. It is a plan for our economic competitiveness. And increasingly, this is where markets are going,” O’Regan said.

Noting that Sweden and Norway’s sovereign funds and institutional investors such as BlackRock are shifting away from fossil fuels, he added, “Ultimately, you follow the money. And the money is increasingly steering us toward net-zero solutions.”

A version of this story appeared in the Summer Issue of Corporate Knights.

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Specifically, though, what will happen over the next 10 years? Or the next 30? Consulting giant McKinsey just released a major report examining the increasing impact of climate change. Drawing on the firm’s global consulting teams, and supplemented by scientists, engineers and risk experts around the world, the study paints a frightening picture of the future.

But unless you can see the future clearly, how can you prepare for it?

The report, “Climate Risk and Response: Physical Hazards and Socioeconomic Impacts,” explores how physical climate change creates increased socioeconomic risk. From lethal heat waves to riverine floods and glacier melts, the study estimates the probabilities of diverse potential impacts, to help decision-makers better understand and mitigate these risks.

McKinsey’s experts see five major types of potential disruption creating billions of dollars’ worth of risks by 2050:

• livability (for example, a billion people will live in areas with a 14% average annual likelihood of experiencing lethal heat waves);
• food systems (increased drought conditions are expected to reduce the global annual harvest by at least 15%, at least once a decade);
• physical assets (a 38-centimetre rise in sea levels in Florida could lead to massive property destruction from a 100-year storm, totalling US$50 to $75 billion);
• infrastructure services (flood damage to municipal infrastructure in Ho Chi Minh City, Vietnam, could hit US$8 billion); and
• natural capital (45% of land areas are projected to experience biome shifts, eroding local livelihoods, ecosystem services and species habitat).

Starkly, the report says our institutions are “unprepared” for the real impacts of climate change. That’s partly because even the nature of risk will change over the next 30 years. It reviews nine case studies, the socioeconomic impact of which by 2050 varies between two and 20 times versus today’s levels. The earth is warming now and will continue to warm even if we reach zero emissions. “Managing that risk will require not moving to a ‘new normal,’ but preparing for a world of constant change.”

In each case the report studied, the poorest communities were typically the most vulnerable. “Emerging economies face the biggest increase in potential impact on workability and livability.”

Introducing the report at the World Economic Forum in Davos, Switzerland, in January, McKinsey senior partner Dickon Pinner positioned it as a tool for creating hope. The study proves, he said, that “we need to put physical climate risk at the heart of all decision-making and risk management.” While the report paints a bleak picture, he hopes it will motivate more people to action.

At which point one of Pinner’s co-panelists in Davos quipped, “So, the good news is that we know the bad news.”

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