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Economy and Society: Shareholder group study argues ESG fund labels misleading – Ballotpedia News  Ballotpedia NewsEconomy and Society: Shareholder group study argues ESG fund labels misleading – Ballotpedia News  Ballotpedia NewsEconomy and Society: Shareholder group study argues ESG fund labels misleading – Ballotpedia News  Ballotpedia News

Impact Investing Forum 2024

London. April 24-25, 2023.

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Economy and Society is Ballotpedia’s weekly review of developments in corporate activism, corporate political engagement, and the Environmental, Social, and Corporate Governance trends and events that reflect the growing intersection of business and politics. ESG Developments This Week in Washington, D.C. ESG advocacy organization Ceres released its list of recommendations to federal agencies. Ceres is one of the largest non-profit groups advocating for capital markets and encouraging businesses to be more environmentally conscious. The organization noted that Ceres’ investor network members, to whom Ceres offers guidance and investment direction on climate change issues, have $32 trillion in assets under management. Roll Call provided the following details: “Ceres last Wednesday publicly disclosed its recommendations for the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to the U.S Treasury Department, asking regulators to include climate risk in their rule-making or policy frameworks ….. Ceres asked the Fed to issue supervision letters regarding climate risk to banks, bank holding companies, and other financial institutions to acknowledge the dangers of climate change to the financial system. They also requested guidance for financial institutions on how to identify and monitor these risks. The group also requests that the U.S. central banks review the largest bank holding corporations to understand how they identify and manage climate risk. They should coordinate a study with OCC and FDIC as well as New York’s and Massachusetts’ state financial regulators. Steven M. Rothstein (Managing Director of Ceres Accelerator to Sustainable Capital Markets) said that these recommendations build on the momentum by identifying practical, familiar steps that these agencies could take within their existing authority to fulfill their commitments to climate financial risk. Jerome Powell, Federal Reserve Chairman, told the Senate Banking Committee that it is “very probable” that the agency will use climate stress scenarios to ensure that financial institutions are aware of the potential risks from global warming. Ceres stressed that agencies must work together to maximize the regulatory response to climate changes. The Financial Stability Oversight Council members must take short-term actions to address climate change risks to the financial system. While individual agency actions are important, collective action can send a stronger and more consistent message to the financial service industry. The benefits of the government acting on an interagency or joint basis are clear. These joint actions can avoid conflicting or duplicate messages which create burden for the industry and they can result a more efficient allocation to resources by the agencies.” A study sponsored by As You Sow revealed that ESG fund labels are confusing and misleading. It was shared with the Securities and Exchange Commission. The study purportedly showed that the ESG landscape is confusing and misleading and that federal regulation is needed. According to Bloomberg Green, “Investing in ESG funds can be like trying to navigate the Wild West,” as both regulations and enforcement are lacking. The shareholder advocacy group led a study that found 60 ESG funds did not adhere to the principles of governance, environmental, and social investing. According to the nonprofit, the findings were shared with the U.S. Securities and Exchange Commission. They show that it is difficult to distinguish between ESG mutual funds and ETFs. A group of graduate students from the University of California, San Diego used data-analytical tools to determine that many fund prospectuses did not provide enough information about why they had stakes in companies in areas like prisons, tobacco, firearms and weaponry, and deforestation. Behar stated …., “We see funds with ESG names getting F’s in our screening tools because they have dozens of fossil fuel extraction companies and coal fired utilities.” Last week, representatives from As You Sow met the SEC to discuss their analysis and make recommendations. The SEC previously stated that it is investigating possible misconduct in relation to flawed sustainability claims ….. As You Sow would like the SEC to require prospectuses to be in a machine-readable format so that automated comparisons can be made of the document’s wording. Behar stated that if the regulator fails to comply, “we may have to file a petition.” Texas SEC probes banks for disclosures regarding ESG-related issues. According to Reuters’ January 5 report, the Fort Worth, Texas office is currently investigating disclosures by banks about their ESG policies. The banks in question are banks that do business with Texas’ state government. Texas has laws prohibiting state entities from using banks that don’t adhere to ESG principles. According to the report, they are looking for discrepancies in public statements and faithful compliance of state laws. According to the wire, the inquiry seems to be related to two Texas laws that prohibit state entities from working alongside companies that discriminate against firearms and fossil fuel companies. Banks have been active in environmental, social and governance (ESG), amid pressure from employees and investors. They have eschewed gunmakers and pledged to phase out fossil fuel lending. This has triggered a backlash from Republican lawmakers, who fear that certain sectors of the economy might lose credit access. The new Democratic leadership of the SEC has pledged to crackdown on public companies that may be exaggerating their ESG credentials to attract investors or burnish their reputations, or underplaying similar risks. Enforcement staff at the SEC’s Fort Worth office in Texas have sent letters to banks that were underwriters in the Republican-led Texas state asking them to support the ESG policies they had outlined in public disclosures. The SEC appears to be examining potential conflicts between what underwriters told investors and Texas regulators about their policies regarding doing business with gunmakers or fossil fuel companies. Sources said …. Lenders who wish to underwrite securities issued by Texas state or local governments have to sign public certifications that they don’t “boycott” energy companies and have no practice, policy or directive that discriminates towards firearm entities or firearm trade associations. According to the Municipal Advisory Council of Texas (a trade association that compiles and publishes these documents), 36 companies have filed such certifications. According to certifications filed between September-November, these include Barclays (BARC.L), Citigroup (C.N), RBC Capital Markets RY.TO), TD Securities TD.TO), UBS Financial Services UBSG.S and Wells Fargo. These lenders have committed to reducing their carbon footprints and achieving net zero greenhouse gas emissions by 2020, which will impact the companies they finance.” According to certifications filed between September and November, these are Barclays (BARC.L), Citigroup Inc (C.N), RBC Capital Markets (RY.TO), TD Securities, TD.TO), UBS Financial Services(UBSG.S) and Wells Fargo. According to the advocacy group, the most important issue for people, and therefore deserves a higher ranking in the ESG hierarchy, is not climate change or zero carbon transitioning. CNBC reported that the survey was conducted as follows: “In the annual ranking U.S. companies based on ESG metrics, there were major moves in 2022 both up and down the list. Meta Platforms fell 691 places due to concerns over misinformation spread on Facebook and Instagram’s social influence. Uber Technologies rose 825 spots to No. 41. These were both unusual circumstances. However, Uber’s ranking may reveal more about the most important issue for Americans when it comes to governance, environmental, and social issues: the treatment of workers. It is the No. It is the No. Lyft, DoorDash and Uber were all placed “under review” this year by ESG research firm. This is because the data doesn’t capture the fact that a large portion of their workforce are independent contractors ….. Just Capital CEO Martin Whittaker says that when the company sets out to create America’s “most right” companies it wants it to do it “as well as possible.” It isn’t confident that ESG’s contingent workforce model will be able to achieve that goal. Whittaker stated that data is difficult to obtain when a business model is built around contingent workers. “The full-time employees, I’m sure, are well paid and receive great benefits. You get data about that. We know that its entire business model is based upon a different relationship to workers, but we didn’t feel we had enough data. He said that it was the same for Lyft and Doordash. “We felt that it was an emerging systemic story, and we didn’t feel like we had enough understanding of what it meant and how we could measure it.” Just Capital knows that workers are the No. The #1 ESG issue for the American public is workers. Every year, it polls the public to determine the weightings for its annual ranking. For 2022, worker issues were nearly 40% and climate 10%, respectively. The No. 1 issue was a fair and living wage. The number one issue was the fair and living wage. The second-highest ranked area, Communities (20%) is partly a workforce metric since it includes job creation.” This brings us back to the topic of Crypto vs. ESG. A long-standing battle between supporters and opponents of cryptocurrency and advocates for ESG and sustainability has been rekindled, this time at Wikipedia. Wikipedia currently accepts donations in a few cryptocurrencies, including Bitcoin. Some ESG advocates view cryptocurrency as environmentally harmful due to the amount of energy required in cryptocurrency mining. Wikipedia, which promised to be sustainable in the future, is now under pressure from its contributors to stop accepting cryptocurrency donations. “Wikipedia is experiencing increasing internal pressure to stop accepting cryptocurrency donations. Since its inception in 2001, Wikipedia has grown to be the largest online encyclopedia site. It relies on donations to keep this site free for all. Wikipedia accepts donations in many cryptocurrencies. This was started in 2014. However, as these digital assets have grown in popularity and come under greater scrutiny for their environmental impacts, there has been a call for Wikipedia to stop accepting crypto donations. The environmental impact of bitcoin and other crypto-mining continues to be a major debate. According to estimates, crypto mining is the 33rd most powerful consumer of power in the globe, surpassing many other countries. This has prompted a rally against mining activities that are thought to be harmful to the environment ….. The proposal…question[sic] the proof-of work mechanism used by bitcoin and other cryptocurrency. This is a computationally costly process. Wikipedia accepting crypto donations also adds to the environmental burden imposed by these transactions. The proposal has sparked discussion across the Wiki community. While some have signed the message being sent by the contributor, the debates about crypto donations continue.”
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