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The risk behind the ESG rally as Covid and climate change run the table

24/7 Wall St. logo 24/7 Wall St. 11/20/2020 24/7 Wall St. Staff

a large long train on a bridge over a body of water © Provided by 24/7 Wall St. By David Callaway, Callaway Climate Insights

Covid vs. climate change. It’s really no contest. As the U.S. sheltered from the raging pandemic this year, along with everyone else, greenhouse gas emissions fell more than 9%, to their lowest level since 1983, according to a report by Bloomberg New Energy Finance Thursday.

The extraordinary declines came mostly from the transport sector, as people flew and drove less, and from the power sector, as gas and renewable energy overtook coal and other fossil fuels. The declines were enough to actually put the U.S. within the range of meeting its Paris Agreement commitments, if it were still in the pact.

But … there’s a but. The wildfires we saw in California and other Western states this past summer created enough new emissions to wipe out all the gains by the power sector, which represent almost a third of the decline. A reminder that climate change will keep re-setting the bar no matter what we achieve.

Also a reminder that the combination of the pandemic and climate risk present incredible risk to the financial markets, as described in our feature podcast this week by Bob Powell, with Elias Ghanem, global head of Capgemini’s financial services market intelligence group.

The investment firm published its Wealth Management Top Trends 2021 report this week, and Ghanem tells Powell that sustainable investing will develop from a “nice-to-have into a must-have” in the coming year, as investors adjust their portfolios to both the risk and opportunity of environmental, social and governance strategies.

To me, the most notable facts that emerged were that while 27% of high net worth individuals are interested in ESG, more than 49% of ultra-high net worth investors (more than $30 million) are interested. And that both groups plan to invest almost half their portfolios in sustainable investments by the end of 2021.

Good to know if you’re selling sustainable investment products, especially if those investments can fund solutions in what’s poised to be a historic 2021 in battling both climate change and Covid.

More insights below. . . .

How ESG’s vague meaning is hurting its investment potential

. . . . Do ESG funds outperform because they are environmental, social and governance focused? Or does the vague meaning of ESG create an impossible storyline for investors and fund managers? Mark Hulbert looks at how meaning something different to everyone is hurting the potential for investors to make money and do good.

As a practical matter, it strains credulity to think Wall Street wouldn’t have long ago embraced ESG strategies if they regularly outperformed the market. Wall Street managers are intensely competitive, devoting countless hours and resources to discovering what would give them even a tiny advantage over their competitors. The money managers I speak to assure me that if there were a way of using ESG criteria to reliably and consistently beat the market, everyone on Wall Street would have long since made it a core part of their investment strategies — regardless of whether they believed in mitigating climate change or not. . . .

Read the full story

Scotland’s Space Intelligence measures and maps natural capital to fight climate change

. . . . Talk about seeing the forests for the trees. Two leading Scottish academics tell Darrell Delamaide how they are using artificial intelligence and satellite imagery to map the growth and reduction of forests to create carbon offset opportunities for clients in a new company called Space Intelligence. The company is providing badly-needed metrics to the nascent carbon reduction industry.

Space Intelligence has done some mapping of the U.S. West Coast to help find ways to reduce the risk of wildfires. Once again, the focus here is on analyzing the distribution of trees. Other projects of the firm around the world range from mapping agriculture to using astronomy to track space debris.

For the moment, one of the startup’s biggest projects is for the Scottish government, mapping the country’s forests as well as other surface resources such as water and meadows. The government must now report annually on these resources as Scotland moves toward net-zero emissions. The research also signals where intervention, such as forest restoration, is needed. . . .

Read the full story

ZEUS: The UK just made a major climate commitment

. . . Boris Johnson’s conservative government has been rocked by scandal tied to its handling of both Covid-19 and Brexit, but an attempt to steer the conservation to climate this week carried one big commitment, writes David Callaway. Amid an otherwise vague list of climate pledges and financial promises, Johnson made a promise on auto emissions and electric vehicles that places the UK in the forefront of nations battling to get to net zero.

But the big part of the plan — the major commitment — was certainly the pledge to move Britain off fossil-fuel emissions for autos by 2030, some 10 years sooner than previously pledged. The government will provide grants for cars and for charging points throughout the union. Certain hybrid cars will be given until 2035. See here how it will affect electric vehicles.

This pledge alone would have been worthy of the news cycle, as it puts the UK in the forefront of plans to eliminate gasoline and diesel emissions. California recently put in place plans to ban sales of gasoline autos and trucks by 2035. Europe and China are moving fast in that direction as well. Having lived in the UK, and now living in California, I’d put the UK’s chances of pulling this off well ahead of the Golden State, even with its political troubles. . . .

Read the full ZEUS column

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