TBLI Weekly - July 18th, 2023


TBLI Weekly - July 18th, 2023

Your weekly guide to Sustainable Investment

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Join us for TBLI Private Online Screening of BREAKING SOCIAL on Sept. 14 followed by a Q&A session with director, Fredrik Gertten.

BREAKING SOCIAL is the new documentary from award-winning director Fredrik Gertten, which investigates how the super-rich, the money maximisers, have gained control over the bulk of political and economic life, also in traditionally stable democracies. It argues that most of the frustration and popular uprisings as in Chile, Black Lives Matter, Women’s Rights Protests in Iran and the climate movement have the same root cause: the breaking of the social contract and undemocratic rule.

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‘This is just the beginning’: Extreme heat around the world as fires rage in southern Europe


Blisteringly high temperatures are expected to continue across parts of southern Europe this week, as the continent braces for its second extreme heat wave, putting people’s health at risk and setting the stage for wildfires.

Last week’s “Cerberus” heat wave is making way for another, which Italian weather forecasters have named “Charon” – the ferryman in Greek mythology who carries souls to the underworld. Italy, Spain and Greece have already faced unrelenting heat for days, but the European Space Agency has warned that the heat wave is only just beginning. In Italy, which has been particularly hard hit, temperatures in many cities are expected to soar above 40 degrees Celsius (104 Fahrenheit).

Hannah Cloke, a climate scientist and professor at the University of Reading, compared the effect to that of a giant oven over the Mediterranean. “The bubble of hot air that has inflated over southern Europe has turned Italy and surrounding countries into a giant pizza oven,” she said in a statement Monday. “The hot air which pushed in from Africa is now staying put, with settled high pressure conditions meaning that heat in warm sea, land and air continues to build,” Cloke explained.

Extreme heat is being felt around the world, with the head of the World Health Organization on Monday urging world leaders to “act now” on the climate crisis. High temperatures hit 52.2 degrees Celsius (126 Fahrenheit) on Sunday in northwest China. While in the US, California’s Death Valley reached nearly 52 degrees Celsius (125.6) on Sunday.

Just the beginning

As the human-caused climate crisis accelerates, scientists are clear that extreme weather events such as heat waves will only become more frequent and more intense. Global temperatures have already risen 1.2 degrees Celsius from pre-industrial levels due to humans burning planet-heating fossil fuels.

“Current policies globally have us hitting 2.7 degrees (Celsius) warming by 2100. That’s truly terrifying,” Lewis said in a statement. “As scientists agreed last year: There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all. Deep, rapid and sustained cuts in carbon emissions to net zero can halt the warming, but humanity will have to adapt to even more severe heatwaves in the future.” he said.

Last month was the planet’s hottest June on record by a substantial margin, according to the European Union’s Copernicus Climate Change Service, accompanied by record high ocean temperatures and record low levels of Antarctic ice. That unprecedented heat has continued into this month. The first week of July was the hottest week on record, according to preliminary data from the World Meteorological Organization, putting the planet into what Christopher Hewitt, WMO climate services director, described as “uncharted territory.”

Extreme heat is among the deadliest weather phenomena. However, he said, the reality is that “these heatwaves often lead to many premature deaths, especially among the elderly.”

“This is a matter of climate justice or fairness because climate harms such as extreme heat are being unequally felt,” Hilson said, and “we must ensure that we continue to cut polluting emissions of carbon dioxide to prevent these events from becoming even more frequent; but the authorities also need to put adaptation measures in place with an eye on these unequally felt harms.”

These measures include “cool zones or drop-in centres with transport to get there, more trees in relevant residential neighbourhoods, and appropriate (and preferably renewable-powered) aircon in care homes,” Hilson added.

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Funds and the State of European Sustainable Finance

Most assets under management in Europe (~EUR 7 trillion out of EUR 12 trillion) are invested in ESG funds or strategies with some sustainability-related focus. Most of the fund-based capital in Europe is therefore impacted to some degree by the EU Taxonomy, the SFDR and MiFID II. This has impacted on several aspects, from product launches and fund flows through to the levels of transparency for end investors.

This paper explores how the universe of funds domiciled in Europe have performed across these different streams. In particular, we focus on article 8 and 9 funds, assessing the degree of sustainability-related disclosures for European-domiciled funds, their performance on, and disclosure of, select adverse impact indicators, and exposure to sustainable investments.

The state of European sustainable finance has evolved rapidly in recent years. In 2018, the European Commission released an action plan for financing sustainable growth with the aims of reorienting capital flows toward sustainable investment, managing financial risks stemming from climate change and fostering greater transparency in economic activities to achieve sustainable and inclusive growth. Of relevance to funds, the action plan is underpinned by several legislative reforms, many of which fund managers are now contending with. The EU Taxonomy¹ came into effect in 2020 and established criteria for classifying sustainable activities, allowing fund managers to evaluate the extent to which the economic activities of the companies they invested in were environmentally sustainable. SFDR, which took effect in 2021, endeavors to bring greater transparency to investors on sustainability factors and how sustainability risks are integrated in fund managers’ investment processes. More recently, requirements to integrate sustainability considerations in investment products through amendments to MiFID II have been implemented. Collectively these regulations have had an impact on the European fund market, ranging from product launches and fund flows, through to the levels of transparency they provide to end investors.

This paper explores how the universe of funds domiciled in Europe performed across these different streams. In particular, we focus on article 8 and 9 funds — those classified by fund managers as promoting environmental and social characteristics or having sustainable investments as their objectives, as defined by SFDR regulation.² We assess the degree of EU Taxonomy-alignment for European-domiciled funds, their performance on, and disclosure of, select adverse sustainability impact indicators, and exposure to sustainable investments.

Request the full report on MSCI.com

Women lead the way with ethical investments

Demand for more ethical investments has soared – and women are more likely to opt for them. Annabelle Williams, personal finance specialist at Nutmeg, takes a look at why.

Demand for ethical investments, most notably ethical investment funds, has jumped over the past few years, and there are signs women are behind this growth.

Investing has long been a male-dominated pursuit. Most professional investors are male – some 93% of fund managers, for example, are male. 5.5% of all UK-based funds are run by men called Dave, while women are at the helm of 7.7% of funds.[1] Meanwhile, the majority of stocks and shares ISAs are held by men, even though women have opened more cash ISAs.

Just blaming wage growth for inflation is misleading and dangerous


It raises risk of economic stagnation, further exacerbating the current inflation and interest rate predicament

Excessive wage increases are increasingly being framed as the sole cause of a UK inflation problem that is causing mortgage difficulties and forcing families to make tough choices with their shrinking purchasing power. While this message gained traction recently due to the latest wage data and inflation warnings from the UK chancellor and the Bank of England, it is partial and can easily mislead. It oversimplifies the inflation challenge and the appropriate policy response. It also increases the risk of economic stagnation, further exacerbating the current inflation and interest rate predicament.

The current phase of high UK inflation is similar to advanced countries’ experience in the 1970s and 1980s. Initially driven by a few factors (energy and food in this case), it leads to broader price increases across the entire goods sector before impacting on services. Consequently, inflation does not fall rapidly even after the initial shock has subsided. Meanwhile, the process itself fuels and is fuelled by wage growth which is less sensitive to interest rate rises. According to the latest data, annualised wage growth for the three-month period ending in May was 7.3 per cent, surpassing the consensus forecast of 7 per cent. Private sector pay rose by 7.7 per cent, outpacing the public sector’s 5.8 per cent. The data release pushed market interest rates higher, while mortgage providers, reacting to previous rate increases, raised the average two-year mortgage rate to over 6.6 per cent, a level not seen in 15 years.

The data followed the calls for wage restraints from both the chancellor Jeremy Hunt and BoE governor Andrew Bailey at the Mansion House gathering of high-level representatives from the finance industry and elsewhere. Bailey also kept the door open for a second consecutive 0.5 percentage point interest rate hike at the upcoming meeting of the Bank’s Monetary Policy Committee.

The UK inflation debate now focuses excessively on wage-push inflation, where providers of goods and services pass on higher wage costs to consumers. This is unfortunate for three reasons. First, it comes at a time when real wages have already been significantly eroded by an inflation that peaked above 10 per cent. Even the latest wage gain, although high in nominal terms, falls short of the May consumer price inflation of 8.7 per cent. Second, the drivers of inflation are more complex and diverse than just wages. They include the initial timid policy response to what was mischaracterised as “transitory” inflation by most central banks; disrupted international supply chains; a tight labour market; and the prioritisation of profit margin maintenance by some companies.

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Is net zero maximalism blinding us to the death of business as usual?


Regardless of whether or not climate targets are met, global industries are being changed beyond recognition - political and business leaders need to recognise business as usual is not an option

One of the biggest challenges faced by businesses trying to navigate the net zero transition is the extent to which so much of the discourse surrounding this grand industrial revolution is defined by a battle between two maximalist positions. So many of the debates and so much of the modelling is based on an assumption that we will either deliver near complete decarbonisation by 2050, or we will soldier on with business as usual until the point at which it gets so hot that business, and everything else, becomes distressingly unusual.

This dichotomy is hard to break, not least because it suits both climate hawks and climate sceptics alike.

From the climate hawk perspective, the focus simply has to remain on net zero emissions by 2050 at the absolute latest. As temperatures the world over smash records this summer, death rates spike, and agricultural yields plummet, the implications of more than 1.5C of warming from a humanitarian and security perspective, let alone an economic one, become painfully apparent.

Advocating for a more incrementalist approach to decarbonisation in this context is to tacitly admit that the 1.5C target is dead, the Paris Agreement's 'well below' 2C goal is on life support, and the world is heading for a very dangerous place. It risks positioning policies and investments that would result in still disastrous levels of warming as a win, on the grounds they are marginally better than business as usual. More broadly, if the mission is to avert the worst of the climate crisis it makes no sense to deploy emissions targets, technologies, and theories of change that demonstrably fail to achieve that goal.

Hence, we should just stop new oil and gas projects, electrify everything, and halve emissions inside seven years. This is entirely as it should be and completely the right level of ambition. It is much too late for incrementalism. As those hemp-loving hippies at the Office for Budgetary Responsibility argued again last week, the status quo is now much riskier and likely to prove much more expensive than efforts to rapidly decarboninse.

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This AI-Powered Firm Is Ensuring Lending Practices Aren't Racist


Lending practices have typically been racist, but one BIPOC-led fintech firm is aiming to shift that with a powerful new partnership.

Stratyfy, a company that uses AI and machine learning to streamline equitable credit underwriting decisions recently announced that it joined forces with Beneficial State Foundation on its Underwriting for Racial Justice (URJ) program.

The two-year pilot program equips 20 lenders with Stratyfy’s technology to minimize racial bias in assessing credit risk.

“We are honored to partner with Beneficial State Foundation on this groundbreaking initiative,” said Laura Kornhauser, co-founder and CEO of Stratyfy in a statement shared with ESSENCE. “The innovative lenders selected for the URJ program are redefining how people of color in their communities are able to access credit, and Stratyfy is the technology chosen to deliver the collective insights and recommended actions to make it happen!”

“Stratyfy is a key partner in this effort, using their credit risk solution to help lenders confidently make bold and meaningful changes, while managing risk and meeting regulatory requirements for safety and soundness,” said Erin Kilmer Neel, executive director and chief impact officer at Beneficial State Foundation. “Beneficial State Foundation launched the Underwriting for Racial Justice program to guide lenders through a process to increase access to fair credit.”

Black borrowers are more likely than other racial groups accrue high interest loans to keep businesses afloat, secure credit cards or purchase a home.

The following lenders will take part of the pilot program: Beneficial State Bank, Berkshire Bank, BetterFi, Chehalis Tribal Loan Fund, Community Vision, Eastern Bank, Enterprise Community Loan Fund (ECLF), Leech Lake Financial Services, LISC, Montecito Bank & Trust, NBT Bank, N.A., New Orleans Fireman’s Federal Credit Union, REDF Impact Investing Fund, Rivermark Community Credit Union, Texas National Bank, Twin Cities Habitat for Humanity Lending, Inc., Urban Redevelopment Authority, Vermont Community Loan Fund, Working Solutions CDFI and Washington State Employees Credit Union.


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