Tag: Energy & Climate

At Columbia’s $600 Million Business School, Time to Rethink Capitalism

By James S. Russell, The New York Times

Above: View of Kravis Hall and the lawn at Columbia Business School, seen against the Hudson River and the Riverside Drive Viaduct. The facade is adorned with “bandages” of translucent glass, indicating professors’ offices. Photo by Zack DeZon for The New York Times

On the developing Manhattanville campus, the architecture of Diller Scofidio + Renfro reinforces a social movement in business education to do good as well as make money.

One zigs, the other zags. One teases the passer-by with bands of translucent glass wrapping a core of clear windows; the other, with floors angled in and out — a gentle architectural mambo. The pair of buildings that comprise Columbia University’s new business school, on its growing Manhattanville campus, exude a nervous off-kilter energy.

The 11-story Henry R. Kravis Hall, named for the co-founder of the private equity firm KKR, rises in front of the delicate steel-arched viaduct carrying Riverside Drive. It is separated from an eight-story structure named for the entertainment mogul David Geffen by a circle of grass, trees and benches embedded in a plaza. The ensemble joins a sleek new campus that so far includes a neuroscience research center, an arts center, and a think-tank-style building, called The Forum, devoted to academic discourse.

But the real story of the business buildings lies within. Appearing wraithlike behind the glass, stairways in both wind over and around themselves like crinkly strands of DNA as they ascend full height. These are what the architects, Diller Scofidio + Renfro, working with the FxCollaborative architecture firm, call “network” stairs. Twisting through ceiling surfaces curved and warped to accommodate them, they beg to be used. Their design reflects the close fit of the architecture to person-to-person connection and intensified interaction — what the school’s leadership sees as essential to the sprawling aspirations it has for its graduates to do good as they make money.

The design of the complex just blocks north of Columbia’s main Morningside Heights campus coincided with business schools around the country coming to terms with a rising chorus of criticism that companies are too predatory, exploitative and monopolistic, and that business education had to change.

Geffen Hall, Columbia Bus School by Zack DeZon NYT
View of Geffen Hall and the lawn at Columbia Business School, where floors protrude in a gentle architectural mambo. Photo by Zack DeZon for The New York Times

“The forces at work in the world are necessarily causing a rethinking of the foundations of the economic system we’ve had,” Lee C. Bollinger, Columbia’s president, said in an interview. “Climate change, issues of social justice and what globalization means for societies — all of these are raising profound questions about the nature of what the future can be.”

Glenn Hubbard, the former business school dean who brought the project to fruition, saw the need to break free from fealty to the unregulated free market economy that over decades has led to extraordinary wealth concentration. The idea that business should focus only on making money, attributed to the economist Milton Friedman, “was a simple and direct idea that took over business, banking, even corporate law,” Hubbard explained. “We are trying to come up with a framework that can be more about flourishing, not just profit.”

“The vision now is to bring people together and debate issues going on in the world,” said Costis Maglaras, who was on the faculty as the project was being designed and who succeeded Hubbard.

Just as critics of capitalism are thick on the ground (Thomas Piketty, Tim WuAnand Giridharadasto name a few), business education skeptics ask whether schools can actually get beyond delivering job-ready M.B.A.s to trading floors and consulting firms.

“A piece of me thinks this is great; it’s what they should be saying,” said Steven Conn, author of Nothing Succeeds Like Failure: The Sad History of American Business Schools.” “As a historian I’ve heard this before, and it didn’t amount to much. Institutions are very difficult to change.”

In a Times Opinion essay on business schools, Molly Worthen, a history professor at the University of North Carolina Chapel Hill, wrote, “it is hard to teach narrow, applied skills and also encourage students to wrestle with giant, ambiguous questions about ultimate values and hierarchies of power.”

The architects have taken Columbia’s aspirations to heart in their design. That’s where the twisty stairways come in. They open onto informal lounges and numerous six-person study rooms at the landings, all walled in glass, that are popular even when the adjacent classrooms are empty. (All spaces are completely accessible to people with mobility impairments.)

Kravis Hall Columbia Business School by Zack DeZon NYT
View of network stairs seen through the external clear glass of Kravis Hall. At landings the stairs open to informal lounges. “The buildings are seen as tools,” said Charles Renfro, an architect. “They are about problem-solving and being in the world.” Photo by Zack DeZon for The New York Times

Taken together these venues ease an informal, even serendipitous mixing of teachers and students. “All these varied spaces are visibly locked together,” Charles Renfro said. “We made that the iconic element of the building.”

At $600-million, the complex is anything but bare bones. Yet there are none of the trappings of schools that aggrandize the M.B.A. aspirant as a master of the universe in waiting: grand atriums, leather-chaired lounges, chandelier-festooned ceilings. “The buildings are seen as tools,” Renfro said. “They are about problem-solving and being in the world.”

No professors preside from corner offices. In Kravis, the architect said, “We shuffled together faculty and students on alternating floors.” Thus, professors and students constantly encounter each other in offices, lounges, cafes, and the network stairs. They also constantly encounter the city thanks to the stairs, which kaleidoscopically unveil views of the campus, a tangle of nearby viaducts, as well as brick tenements and public housing towers — in the process reminding people of the messy world beyond.

None of this was possible in Uris Hall, the business school’s reviled 1964 tower on the Morningside campus, with its austere corridors good only for shunting students from class to class. Faculty was sequestered in their own high-floor aerie.

To showcase the school’s integration of social concerns, the architects have made an innovation hub prominent. It unites the Eugene Lang Entrepreneurship Center, the Tamer Center for Social Enterprise, and the Columbia-Harlem Small Business Development Center on the second floor of Geffen, with a network stair swirling through it within a glass tube.

Seeing the hub along their accustomed route, it was easy for students to engage. “The prominence is really helpful,” Bruce Usher, the faculty director of the Tamer Center, said in an interview. Even those devoted to the accumulation of lucre might discover how they can bring business skills to needy communities — at least that is the hoped-for outcome.

Geffen Hall network of stairs by Zack DeZon NYT
View of the network stair swirling within a glass tube at the new Geffen Hall. Photo by Zack DeZon for The New York Times

The centers run programs on managing nonprofits, addressing climate change, and improving employment opportunities for formerly incarcerated people. The Columbia-Harlem center coaches local producers of food, gifts and cosmetics. (Several products that were introduced with the help of the program are sold in a ground-floor public cafe and in nearby Whole Foods stores.)

Manhattanville’s 2007 master plan, by the Genoa-based architect Renzo Piano Building Workshop and New York-based Skidmore Owings & Merrill, also encourages the school to display its community commitments. It eased access to the campus by retaining existing streets, in contrast to the introverted main campus, designed in the late 19th century as a walled acropolis atop Morningside Heights.

Piano devised what he called an “urban layer,” the idea that all the new buildings would float above tall glass-clad street frontages that were largely committed to facilities open to the public.

As Columbia has built out Manhattanville it enlivened its streetscapes with several eateries, a rock-climbing wall open to all, a storefront and traveling “biobus” that introduces children to science, and a wellness clinic focused on the needs of nearby residents whose chronic conditions (often associated with poverty) go untreated.

Kravis is devoted mostly to classrooms and faculty offices while Geffen includes administrative functions, but both buildings are similarly extroverted. In a high-ceilinged corner of the Kravis Hall ground floor, students gravitate to curving, cushioned benches that rise in terraces and look out at people sunning on the lawn of the plaza that unites the two buildings (designed by the landscape architect James Corner Field Operations). Or they can chat with colleagues flowing up and down the adjacent network stairs.

Its counterpart in Geffen is a plaza-facing Commons — a large auditorium walled in glass. Both these spaces try to blur the boundary between inside and outside, town and gown. Passers-by can see who is speaking in the Commons and hanging out in the Kravis terraced lounge. (Academic areas are generally off-limits to the public.)

The tall glass ground floors throughout Manhattanville amplify street-level energy by capturing the slanting sun and refracting fragmentary images of people and activity. Appealing as that is, the contemporary sleekness of the campus sets it apart from the gritty, red brick surroundings. With Manhattanville scheduled to grow over the years to 6.8 million square feet across more than five blocks, a comfortable intermingling of the campus and its neighborhood may develop only slowly.

Neighbors who resisted Columbia’s expansion can take some credit for Columbia’s belated recognition that it had to be better connected to the city it makes home.

Columbia promised that it would develop more opportunities and break down barriers to advancement in the Manhattanville campus for people living and working in the neighborhood who feared displacement by collegiate gentrification. Noisy protests threatened to derail the Manhattanville expansion in the mid-2000s — a reflection of the trust Columbia had failed to build since it lost a battle to build a gym in Morningside Park in 1968.

Kravis Hall lounge by Zack DeZon NYT
One of many lounges at Kravis Hall at Columbia Business School that encourage group work and informal conversations with faculty. Photo by Zack DeZon for The New York Times

Skeptics will be watching the pivot of Columbia and other top business schools, like the University of Pennsylvania and Harvard, to more high-minded teaching methods. It may be all too easy to default to the comfort of traditional quantitative modeling and case-study what-ifs. After all, schools are also buffeted by those who continue to worship the ideology of unfettered markets, and loudly proclaim social and environmentally focused teachings to be excessively “woke.”

But Margaret O’Mara, a history professor at the University of Washington who writes about politics and the tech sector, sees generational change. “Students really want to make the world better,” she said, summing up the challenge as, “How do I find personal and professional financial stability and not sell my soul?”

With starting salaries for graduates at elite business schools topping $155,000, the basis of all-important business school rankings, “Where is the institutional incentive to put out graduates who want to work with NGOs in Africa?” asked Conn, the author. On the other hand, he wonders if climate change and “authoritarianism 2.0,” are among challenges that businesses can no longer ignore, and which might alter those incentives.

The Tamer Center’s Usher sees no turning back. “The broader concern with the world is well integrated into core courses, and we have six electives on climate change alone,” he said. One reason is that “students are more desirable hires with this background.”

Columbia has chosen the programs it has brought to Manhattanville to “ask questions people did not think about 20 or 50 years ago,” Bollinger, Columbia’s president, said, pointing out that the business school is near the future home of the recently established Climate School (to be designed by Piano).

Bollinger is stepping down in June 2023 but feels sure Manhattanville will continue to “bet that these will be the big problems and the big endeavors.”

A correction was made on Jan. 6, 2023 An earlier version of this article misspelled the surname of an economist who is critical of capitalism. He is Thomas Piketty, not Picketty.

 

James S. Russell, The New York Times – James writes on architecture and cities. He is writing a book on how city culture influences business success. 

Additional Articles, Energy & Climate, Impact Investing, Sustainable Business

2022 Trends in Purpose and What They Mean for the Year Ahead

By Allison+Partners and Headstand, Sustainable Brands

This year, we saw companies double-down on purpose amidst a rise in consumer skepticism and politically motivated attacks on ESG. Below are six notable trends and what they might mean for 2023.

Purpose-driven marketing and stakeholder relationships to ESG have seen escalating evolution through the pandemic — with increased challenges and opportunities this year. In 2022, we saw brands double-down on purpose-driven initiatives as they worked to drive consumer loyalty, retain top talent and create exponential impact — all amidst a rise in consumer skepticism and politically motivated attacks on ESG.

Below are a few of the notable trends from 2022 that the Allison+Partners and Headstand Purpose Center of Excellence is tracking, and what they might mean for 2023:

Anti-woke ESG backlash

 Jamie Berman, VP, Boston

Politically motivated backlash against climate-smart investing and corporate climate action reached new levels in 2022, with at least 17 states adopting anti-ESG regulation. Legislative blockades, state-driven boycotts (such as those against BlackRock and others) and other political targeting of net-zero and related climate initiatives have set up a potential blockbuster year in 2023.

The new year will certainly be a reckoning of sorts for ESG, as a GOP-led US House of Representatives comes into power and begins probing investors’ and companies’ ESG commitments. We’ll see more conversation around the role of ESG within investors’ portfolios and its effects on the bottom line as ESG-minded organizations push back on conservative criticism, and the US Securities and Exchange Commission’s pending mandatory climate disclosure rule will also bolster this narrative, especially where allegations of greenwashing are concerned. Even with political headwinds, hope remains strong that ESG investments trends will continue their upward trajectory: In 2021, 49 percent of institutional investors reported incorporating environmental and governance factors into their investment decision-making processes, up 7 percent from the previous year, and ESG investments are predicted to more than double over the next three years, showing a continued momentum for ESG causes moving forward.

New chapter in capitalism

Katy Mendes, VP, San Francisco

2022 was the year that Yvon Chouinard donated 98 percent of his $3 billion company, Patagonia to a new organization, Holdfast Collective — which he said will be “dedicated to fighting the environmental crisis and defending nature” — with no tax deduction, because Holdfast isn’t a normal nonprofit. The entirety of the company’s voting stock, equivalent to the rest of the shares, went into a newly established entity known as the Patagonia Purpose Trust. A statement from the new company shared, “Every dollar that is not reinvested back into Patagonia will be distributed as dividends to protect the planet.”

This incredible move, where Patagonia became a 100 percent-for-the-planet business, signals that a profit-for-purpose business model is entirely possible. While not every executive is positioned to be as transformative as Chouinard, this reimagining of capitalism can hopefully inspire more purpose-driven companies and business leaders to redefine their profit models to more directly and aggressively address urgent social needs in the face of an accelerating climate crisis.

Climate impacts to frontline communities

Megan Rufty, VP, Washington, DC

This past year, we saw the very visible impacts of the climate crisis — from floods to drought — to record-breaking temps and every natural disaster in between. With clear signs pointing to the impacts of climate change, 2022 also saw a growing understanding from activists, government and corporations alike of the frontline communities of the environmental crisis — those that experience the “first and worst” impacts of our rapidly changing climate. Frontline communities are disproportionately carrying the burden of climate change, are more exposed to the physical impacts from natural disasters and pollution, and are often underserved communities of color, without access to protection.

While the direct impacts of the climate disaster were harsher than ever, we saw this year more concerted efforts to protect these at-risk communities. The US passed the Inflation Reduction Act, which will make much-needed funds available to in part serve frontline communities. For example, the Act will invest directly in programs to reduce pollution in these areas. This includes the creation of climate and environmental justice block grants to support community-led projects; and funding for fence-line monitoring near industrial facilities, air-quality sensors, new and upgraded multi-pollutant monitoring sites, and monitoring and mitigation of methane and wood-heater emissions in disadvantaged and disproportionately impacted communities.

In addition, at COP27, negotiators established a loss and damage fund to support the developing world as those communities face and try to rebuild from the effects of climate change. In 2023, the urgency to protect frontline communities will only increase. While 2022 saw government action, this coming year companies have a major responsibility to use their power and platform to advocate for and directly benefit the communities who need it most.

Caution: Greenwashing ahead

Norah Silverstone, Senior Account Executive, Boston

To capitalize on the growing consumer demand for environmentally and ethically sound products, several brands have engaged in greenwashing through false or overstated claims on the ‘green’ credentials of a product or service, in hopes to distract from the brand’s contribution to climate change.

While brand greenwashing may have flown under the radar in the past, consumers and activists are increasingly skeptical and proud internet sleuths who can no longer be easily swayed by misleading green claims. Due to increased skepticism, we saw an uptick in criticism — and in many cases, lawsuits — in 2022 against brands accused of false claims to wash themselves of pressure from third parties to be more sustainable in their operations and products and use their scale to lead the way for other brands. From pulling “sustainable” products to avoiding sustainability marketing altogether, brands are becoming more aware of the risk of engaging in greenwashing and the impact it has on their reputation and success. And as more brands are called out for greenwashing, we expect to see an increase in lawsuits against the companies that don’t act quickly enough to absolve themselves of any and all false green marketing in 2023. To avoid being under fire for greenwashing and earn the trust of consumers, brands need to communicate transparently, authentically and regularly about progress against science-based targets and sustainability initiatives — rather than overstate progress in this area.

Blurred line between politics and corporate action

 Katy Mendes, VP, San Francisco

The decision to overturn Roe v Wade earlier this year uncovered an uncomfortable truth — there are some issues that brands may feel are just too political to weigh in on. When the SCOTUS draft decision was leaked, many brands kept quiet; and less than 10 percent of companies commented on the development.

Yet, the lines between politics and corporate action are increasingly becoming blurred — with many consumers looking to business leaders to speak out and use their platforms to advocate for them when their basic human rights are in danger. A new poll from Axios and Harris Poll suggests that companies that are slow to respond to political crises, or do it inconsistently, suffer the most in terms of consumer reception and trust. In today’s world, “silence is complicity” is a phrase we’re hearing more and more that underlines this new pressure on brands to understand what they stand for, how issues intersect with their business values, and to take action and communicate accordingly.

Employees as critical stakeholders

Cassie Downey, Account Manager, San Francisco

Building upon the point above, research shows that employees who saw their employer’s values in alignment with their own were more likely to recommend their employer as a great place to work (70 percent vs 25 percent); and a majority (84 percent) of employees surveyed said they would only work with purpose-driven companies and brands moving forward. Throughout 2022, we saw numerous examples of employees being treated as critical stakeholders as it related to impact and purpose commitments from corporations — most memorable, perhaps, being the call from employees for statements regarding the Dobbs v Jackson Women’s Health Organization ruling in June.

In order to ensure they are recruiting and retaining top talent, brands should confirm there is alignment between external communications and internal actions, taking into account employee feedback and co-creating solutions and commitments throughout the process. By demonstrating a commitment to the workforce, brands can rally employees around the company’s purpose and ESG efforts to create a more unified workforce that creates a sense of purpose and belonging. As we enter 2023 with signs of economic headwinds ahead, it remains to be seen if employees will retain the same sense of vocal advocacy for issues at work; but many companies have learned the importance of the employee stakeholder, and that is likely here to stay.

Additional Articles, Energy & Climate, Impact Investing, Sustainable Business

How Pittsburgh found a secret climate weapon in ‘the thrilling world of municipal budgeting’

By Claire Elise Thompson, Associate Editor, Grist/Fix

Illustration by Melanie Lambrick

This story is part of the Cities+Solutions series, which chronicles surprising and inspiring climate initiatives in communities across the U.S. through stories of cities leading the way.

Governments the world over have made a lot of great-sounding climate commitments. In Pittsburgh, for example, an ambitious plan adopted in 2018 outlines objectives like 100 percent renewable energy in municipal facilities by 2030, a fossil-free fleet, and zero-waste operations. But setting goals is one thing. Implementing the programs and infrastructure needed to reach them is another — and that work costs money. 

“We had a large, ambitious agenda, but very little resources that went alongside it,” says Grant Ervin, Pittsburgh’s former chief resilience officer who oversaw creation of the 2018 plan. “Following the completion of our resilience strategy and our climate action plans, we were asking the question: Where is the money to help implement these different initiatives that we had identified?”

Answering that was tricky for this midsize post-industrial city, which was designated as “financially distressed” from 2003 until early 2018. For Ervin, the challenge went beyond raising funds for new initiatives. He wanted to ensure the city’s spending — all of its spending — aligned with its climate and equity promises. “If we’re going to address the climate challenge,” he remembers thinking, “we’re going to have to start to leverage our existing resources to do the things that we know we need to do.” 

For Steel City, that meant scrutinizing its entire spending plan through a climate lens with the help of a method called priority-based budgeting

The challenge: budgeting for a cause

There are several ways an organization can slice its budget. One common approach is incremental budgeting, wherein the previous year’s budget provides the baseline for the next, with incremental adjustments. It’s easy to imagine how that might lead to inefficiencies when line items get carried over year after year. 

Priority-based budgeting, on the other hand, maps every single dollar a city spends to a specific program — everything from “rodent baiting” to recycling collection — then scores each one according to how it achieves the city’s priorities. Although the method could be used in the private sector, it was developed for local governments, which work toward the common good rather than a profit margin. 

“We’re going to have to start to leverage our existing resources to do the things that we know we need to do.” – Grant Ervin

“There are so many societal objectives that are really up to local governments to mount a charge to try to solve,” says Chris Fabian, who developed the approach to budgeting around 2010. After years in the public sector, he saw that municipal budgets were not designed to reveal how much money was going toward objectives like climate action, equity, or resilience. Such efforts were often bundled into many different line items, making accountability difficult. He wanted to develop a system that would help cities see how they could redistribute resources to finance their top priorities — from general goals like fostering safe, healthy communities to specific projects like addressing homelessness. 

Fabian cofounded the software and consulting company ResourceX in 2015 and has since helped over 300 local governments across the U.S. and Canada adopt priority-based budgeting. Common priorities the company helps cities advance include equity, safety, and thriving economies. “It does vary,” Fabian says. “If you go into some conservative communities, they might not feel that they have a role in economic vitality. They’re like, ‘The business sector should figure it out on their own.’ Whereas other places invest heavily in visitors bureaus and convention centers and so on.” 

Climate, he says, is something of a new focus for the municipalities he and his teamwork with. In 2020, Pittsburgh became the first to use the process to develop a climate-first budget for the entire city.  

Pittsburgh’s goal: a zero-carbon budget

When Ervin worked for the city of Pittsburgh, he visited towns around the world to learn how they were integrating climate priorities into their spending. Although some Scandinavian cities employ “carbon budgeting” — a greenhouse-gas accounting system that resembles a fiscal plan — Ervin never found an example of a comprehensive financial plan that accounted for climate and equity priorities. 

“One of the things that we had as a goal was to eventually have a zero-carbon budget” — one that wouldn’t cause any net increase in carbon emissions — says Will Bernstein, who became an advisor to Pittsburgh through its participation in Bloomberg Philanthropies’ American Cities Climate Challenge, and is now the city’s climate and energy manager. “But we didn’t really know exactly how to get there in terms of understanding the budget, and how you construct that and how you measure that.” With the help of a $50,000 grant from the challenge, Pittsburgh hired ResourceX to pursue its goal.  

“They reached out and said, ‘We found you guys through a Google search,’” Fabian recounts, “‘and it seems like you might have the tool that we’re looking for, to get budget alignment toward a priority. Have you ever done it on climate?’” 

Over a period of roughly three months in the fall of 2020, city officials tracked nearly every dollar in the $600 million operating budget to a specific program, then scored each program against Pittsburgh’s climate and equity priorities. Of 27 departments, only four did not participate in the process. Then, in early 2021, over 50 representatives from those departments joined a series of workshops to pitch ideas for where costs could be cut and revenue generated, and how that money could finance the city’s climate goals. Pittsburgh identified $41 million that could be reallocated toward climate and equity initiatives. However, those dollars didn’t move right away — and some still haven’t. 

“Sometimes it’s difficult to see a one-to-one transition,” says Patrick Cornell, deputy director of Pittsburgh’s Office of Management and Budget. The goal of a priority-based budget isn’t necessarily to kill any program that doesn’t score highly and move the money to ones that do. It’s an iterative process, more akin to what Ervin hoped to do with the budget: see where the city’s spending might be running counter to its climate objectives, and how that could be fixed over time — whether by ending a program, or changing the way work gets done. 

Pittsburgh installed 30 plugs for its growing EV fleet - Grist
Pittsburgh installed 30 plugs for its growing EV fleet at its 2nd Avenue parking lot — currently the largest fleet charging project in Western Pennsylvania. Courtesy of The City of Pittsburgh

One example of a relatively straightforward shift is electrifying the city’s fleet. “Currently, any sedans that need to be replaced are being replaced with electric,” says Rebecca Kiernan, assistant director of the Department of City Planning, who leads the sustainability and resilience division. But, she adds, the budget is always tight, and the city was already decades behind in updating its fleet. She and her team are also accelerating the EV transition with the help of federal money. This year, the city is getting eight electric recycling trucks, with funding from the American Rescue Plan and the EPA’s Targeted Airshed Grants Program. “Those are gonna be our first [electric] heavy-duty fleet vehicles. So that’s really exciting,” Kiernan says.

Eliminating paper contracts — something Ervin called “master of the obvious” — is an example of changing the way work gets done. A city ordinance approved in November 2021 requires the use of electronic signatures for all city business. Not only did that free up around $50,000 a year by Kiernan’s estimate, it reduced waste. 

Priority-based budgeting: one tool in the box

Pittsburgh enacted its first priority-based spending plan in 2022, a $615 million operating budget that provided, among other things, the money to create Bernstein’s position. The city is still quite a ways off from having a zero-carbon budget. But the priority-based approach appears to have staying power. The city will continue working with ResourceX for at least another three years, aiming to get closer with each iteration to a budget that reflects its climate and equity goals. 

Prior to working with the American Cities Climate Challenge, Cornell wouldn’t have considered priority-based budgeting much more than a fad. “Different things become popular depending on what major cities are doing, or what is new in the thrilling world of municipal budgeting,” he says. And he admits that some departments found the process more intuitive than others. But he and his team have gotten behind the approach — so much so that he took up the mantle of pitching it to the new administration when the mayor’s office changed hands in 2022. Everyone was keen to keep going with it. “??We’re able to think more holistically about different programs that residents are concerned about,” he says. 

And the city has also used that holistic thinking as an opportunity to communicate more openly with residents. In the fall of 2022, Pittsburgh launched a public-facing tool that allows anyone to explore the city’s new priority-based budget and see how various city-funded programs benefit residents. “That’s a brave act,” says Erik Fabian, Chris’s brother and the business development manager at ResourceX. “It’s transparent — some programs are more aligned than others. So that’s being communicated, and putting the city in a position of accountability.”

 

Article by Claire Elise Thompson, Associate Editor, Grist/Fix

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Hypatia Announces Launch of Exchange Traded Fund – Hypatia Women CEO ETF

By Hypatia Capital,

Hypatia Capital Management LLC announced the launch of a new exchange traded fund yesterday, the Hypatia Women CEO ETF (NYSE: WCEO). Hypatia Women CEO ETF (the “Fund”) seeks to provide capital appreciation. There is no guarantee that the Fund will meet its investment objective.

The fund is a series of the Two Roads Shared Trust by Ultimus. Larie Lydick, Vice President of ETF Product at Ultimus, commented on participating in the fund launch. “It was an honor to work with Patricia and the Hypatia team to help launch their new innovative ETF which invests in large women-led companies. I’m glad that the Hypatia team was able to leverage Ultimus’ deep industry knowledge and introductions to the ecosystem to quickly go to market by launching the fund in one of our series trusts. They also took advantage of our Distribution Advantage program, led by Kevin Guerette, to understand the distribution landscape for their ETF. I look forward to working with the Hypatia team and their continued success.”

Vident Investment Advisory will serve as sub-adviser to the Hypatia Women CEO ETF. “We are delighted to partner with Hypatia Capital on this first-of-its-kind strategy that seeks to provide exposure to female CEOs,” said Amrita Nandakumar, President of Vident Investment Advisory.

“We believe investors are increasingly interested in the research that highlights the performance of female leadership. We are excited to launch the Hypatia Women CEO ETF to offer investors the chance to potentially diversify their portfolio from a gender perspective, invest their values, and use their investment dollars to create impact,” said Patricia Lizarraga, founder and managing partner of Hypatia Capital.

Investors can learn more about the Hypatia Women CEO ETF by visiting www.wceoetf.com

 

About Hypatia Capital

Hypatia Capital Management LLC is part of the Hypatia Capital Group, founded in 2007, and is an asset management firm focused on female CEOs and balanced management teams.

Hypatia Capital’s CEO-level female executive network includes over 1000 business leaders. For over a decade, Hypatia Capital has hosted the Private Equity CEO Roadmap Seminar, focused on providing the knowledge and contacts for senior female executives to navigate the private equity environment.

Hypatia Capital, through Hypatia Invests focuses on educating the general public on female focused investing opportunities in all asset classes.

Please visit www.wceoetf.com for more information.

About Ultimus

Ultimus Fund Solutions is a leading provider of full-service fund administration, accounting, middle office, and investor solutions to support the launching and servicing of registered funds, private funds, and public plans. The company offers customized structures designed for the unique needs of pensions, endowments, foundations, and other large institutions. Ultimus’ deep commitment to excellence is achieved through investments in best-in-class technology, compliance programs, organization-wide cyber security efforts, and hiring seasoned professionals.

Headquartered in Cincinnati, Ohio with offices in other major cities such as Chicago, New York, Philadelphia, and Boston, Ultimus employs more than 925 seasoned accountants, attorneys, paralegals, application developers, fund administrators, compliance specialists, and many others with years of experience in the financial services industry. Servicing over 1,600 total traditional and alternative funds, Ultimus helps investment managers and fund families flourish in today’s increasingly sophisticated and dynamic investment landscape. For more information, visit www.ultimusfundsolutions.com

About Vident Investment Advisory (VIA)

Vident Investment Advisory (VIA), a subsidiary of Vident Financial formed in 2014, provides asset management and sub-advisory services to sponsors of index and active investment strategies. The firm offers a comprehensive suite of portfolio management, trading, operations, and capital markets functional expertise. VIA’s extensive knowledge and innovation for a variety of ETF sponsors has made ETF management VIA’s specialty. VIA’s capabilities extend across multiple asset classes, including U.S. and international equities, fixed income, and commodities, as well as long/short, inverse, managed futures, and crypto futures strategies. For more information, please go to www.videntinvestmentadvisory.com.

Investors should carefully consider the investment objectives, risks, and charges and expenses of the fund before investing. The prospectus contains this and other information about the fund, and it should be read carefully before investing. Investors may obtain a copy of the prospectus by calling 1-888-338-3166 or clicking the link above. The fund is distributed by Northern Lights Distributors, LLC, Member FINRA/SIPC, which is not affiliated with Hypatia Capital Management LLC nor affiliated with Vident Investment Advisory.

Important Risk Information:

Exchange-traded funds involve risk including the possible loss of principal. Past performance does not guarantee future results.

The Adviser invests in securities only if they meet both the Fund’s investment and values-based screening requirements, and as such, the returns may be lower than if the Adviser made decisions based solely on investment considerations.

The Fund faces numerous market trading risks, including the potential lack of an active market for Fund sharers, losses from trading in secondary markets, and periods of high volatility and disruption in the creation/redemption process of the Fund. These factors may lead to the Fund’s shares trading at a premium or discount to NAV.

The Fund is a new ETF and has a limited history of operations for investors to evaluate. The Adviser has not previously managed a mutual fund or an ETF.

16256589-NLD-01092023

Additional Articles, Energy & Climate, Food & Farming, Impact Investing, Sustainable Business

Natural capital earns investor interest

By Grant Harrison, GreenFin / GreenBiz Group

The practical upshot: There is no path to decarbonization without major investments in natural capital.

This article is an excerpt from GreenBiz Group’s 16th annual State of Green Business, which explores sustainable business trends to watch in 2023. Download the report here.

 

In economic terms, climate change is the result of a massive externality: an unpriced element in the production, consumption and transportation of goods and services. Fossil fuels are a primary ingredient in the eye-popping economic growth of the past two centuries, but the cost of burning them wasn’t originally factored into the equation.

Increasingly, that’s changing.

Institutional investors across the globe are taking stock of natural capital, which national economies and investors have historically neglected.

Investing in natural capital — the value extracted from soil, air, water, climate and all the living things and ecosystem services that make the economy possible — has long made environmental sense. Examples include advancing sustainable hydroponics, beef alternatives, biodegradable consumer products or degraded land restoration.

But investors are increasingly seeing the economic rationale, too. The World Economic Forum estimates that protecting nature and protecting biodiversity could generate $10 trillion annually in business opportunities, from farming to fashion to finance, creating nearly 400 million new jobs.

The question is how, exactly, all this happens. The year ahead could provide some answers.

A key stepping stone is the ongoing development of the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD), due in fall 2023. The TNFD framework is meant to bridge the information gap that exists between financial institutions and companies — in this case, providing the information needed to understand how nature-related risks impact financial performance.

The International Finance Corporation’s (IFC) Biodiversity Finance Reference Guide, launched in 2022, which builds on the International Capital Market Association’s green bond and green loan principles, launched in 2014 and 2018 respectively, also serves as a key stepping stone.

“The World Economic Forum estimates that protecting nature and protecting biodiversity could generate $10 trillion annually in business opportunities, from farming to fashion to finance, creating nearly 400 million new jobs.”

The IFC’s guide provides investors an overview of the types of investments that support natural capital. It is one of several organizations and collaborations working globally on some aspect of valuing nature for companies, including the Capitals Coalition, the Natural Capital Investment Alliance and the United Nations Environment Programme Finance Initiative.

So where’s the money?

In 2020, the OECD estimated biodiversity finance from all sources to total between $78 billion and $91 billion per year.

And as of this writing, the largest investment strategy with a healthy ecosystems theme was the nearly half-billion-dollar-and-growing Fidelity Select Environment and Alternative Energy fund (FSLEX), although similar funds are poised to expand greatly across North America, EMEA and APAC throughout the coming year.

As major investment firm leadership at the likes of Schroder’s, Aviva and RobecoSAM have become vocal about the role biodiversity plays in their funds’ strategies and holdings, it’s safe to expect some of the billions invested with a dual mandate on climate — that is, simultaneously seeking returns and climate impact — will increasingly be informed by biodiversity mandates, too.

That the financial sector has begun to realize that nature’s economic value is wholly dependent on a healthy climate may sound eye roll-worthy to some in the climate community, but this fact says more about the financial system’s lack of consideration for the value of natural resources than it does a lack of investor ambition. Regardless, the estimated $10 trillion dollar investment opportunity is likely to become a focusing factor.

The practical upshot: There is no path to decarbonization without major investments in natural capital. If the climate crisis truly is the largest investment opportunity in a generation, investing in natural capital is destined to become core to that opportunity.

 

Article by Grant Harrison, GreenFin, GreenBiz Group

As Green Finance & ESG Analyst, Grant leads on program development for GreenFin – the premier ESG event aligning the sustainability, investment and finance communities. Grant works to direct the vigor of capital markets toward the realization of a clean and just economy, and to make GreenFin the launchpad of the ideas, insights and connections that will shift capital allocation to support sustainability.

Grant previously served as Senior Account Executive with GreenBiz, working with clients across financial services, transportation, tech and consulting. Prior to joining GreenBiz, Grant worked under the auspices of the USDA implementing reforestation projects in fire-affected regions of Northern California. Grant holds a bachelor’s degree in American Studies from UC Berkeley and a master’s degree in Environmental Governance from Oxford University. He is animated by a healthy diet of existential anxiety and an enduring faith in humans’ ability to solve problems together. Grant loves, more than most things, to surf.

Additional Articles, Energy & Climate, Food & Farming, Impact Investing, Sustainable Business

Six ESG and Climate Trends to Watch for 2023

By Meggin Thwing Eastman, MSCI

Above: Jurisdictions with active and proposed regulations or guidelines for ESG funds – Solid text boxes represent regulations in force, while dashed boxes represent proposed or planned regulations. List of jurisdictions with regulations or guidelines proposed or in force for ESG funds: U.S. (proposed); Canada; EU; U.K. (planned); Singapore; India (proposed); Hong Kong; Australia (including Section 1013DA); Malaysia; New Zealand; Philippines (proposed); Thailand (proposed); Taiwan. Data as of Oct. 12, 2022. Source: MSCI ESG Research.

 

  • A swiftly changing geopolitical and macroeconomic backdrop has shifted the ESG and climate landscape at a rapid pace, making it imperative that investors understand the challenges and opportunities that companies face.
  • Climate remains at the top of the ESG agenda, with regulators increasingly conscious of the role they need to play alongside governments in ensuring companies and countries meet their climate-related obligations.
  • Beyond climate, ESG is increasingly affecting many other areas, including impacts on everyday life. This year, we have drilled down to bring these detailed insights to you and help inspire some fresh thinking.

The last year has seen a seismic shift in the ESG and climate landscape. Regulators are upping the ante on everything from greenwashing to stricter climate target disclosures, while the war in Ukraine, disruptions in the energy market, rising interest rates and soaring inflation have all combined to produce a global cost-of-living crisis and renewed geopolitical and macro uncertainty. Add to the mix a spate of climate-induced disasters and the increased politicization of ESG investing, and it’s easy to see why investors have tended to tread cautiously as they seek to understand companies’ challenges and opportunities.

In MSCI’s ESG and Climate Trends to Watch for 2023 we discuss the key topics investors face, from climate change, the environment and the road to net-zero, through to regulatory requirements, supply chain innovations, biodiversity and new technologies, as well as issues affecting everyday life.

Here, we briefly touch on six of the 32 trends that we have identified.

 

Networks and renewables cominate capex plans of major US and Europe utilities - MSCI
Data for 26 European and U.S.-based power-generating constituents of the MSCI ACWI Index, as of Aug. 5, 2022. Definitions of capital expenditures are based on MSCI’s ESG climate-change metrics. Source: MSCI ESG Research.

1. Energy crisis, Ukraine war driving fossil fuel agenda, but don’t rule out renewables

The ongoing war in Ukraine and high-inflationary environment may limit near-term pressure to reduce global greenhouse-gas emissions as governments prioritize energy security and affordability. But for power companies, swapping coal and oil for natural gas may not be the only practical option.

In 2023, we’ll be watching which companies are keeping their eyes on longer-term decarbonization trends and expanding their deployment of renewables.

 

 

2. Market conditions could test investors’ commitment to say-on-climate voting

According to our analysis, more investors voted against corporate climate strategies in 2022 compared to 2021, especially where a company’s emissions trajectory was misaligned with global temperature targets. However, energy market turmoil and a focus on energy security may change voting behavior.1

In 2023, we’ll be watching whether opposition to corporate climate strategies will continue or whether more investors will give companies the benefit of the doubt on their climate plans in challenging market conditions.

Companies emissions trajectories and 2022 climate votes - MSCI
Analysis covers all 43 constituents of the MSCI ACWI Investable Market Index (IMI) that held management-sponsored say-on-climate votes in 2022 to date. The percentage of votes against accounts for votes in favor and votes withheld/abstained. Data as of Nov. 9, 2022. Source: MSCI ESG Research and company disclosures.

 

3. Regulators turn their gaze to ESG funds

ESG-oriented funds have long operated with limited regulatory guidance.2 But regulatory interest in fund names and funds’ classification and disclosure obligations are ramping up globally. Spearheaded by the EU’s Sustainable Finance Disclosure Regulation, which imposes requirements on more transparent reporting for ESG funds, other major market regulators are following suit.

In 2023, we’ll be watching for changes in ESG fund names and labels as unfolding disclosure regimes hold managers to stricter account.

 

4. Cutting deforestation: Market restrictions get real

Despite commitments to halt forest loss,3 2021 saw tree-cover loss of 25.3 million hectares globally, an area larger than Great Britain.4 In addition, 2022 saw global wildfires burn down millions of hectares more. COP155 addressed such natural losses, while the European Parliament recently introduced legislation requiring products sold in the EU to be deforestation-free.

In 2023, we’ll be watching which companies exposed to deforestation can improve due diligence and supply-chain monitoring as they seek to maintain access to key markets.

Paper and forest products companies lead, but deforestration policies thin - MSCI
Share of companies within selected industries of the MSCI ACWI IMI that have disclosed a deforestation policy; industries included where at least 2% of the peers have disclosed a policy. Data as of Oct. 12, 2022. Source: MSCI ESG Research.

 

5. Mining old electronics to fuel new energy tech

In recent years, China and the EU have strengthened policies and guidelines on the circular treatment of materials and waste, including electronic waste (e-waste). In September 2022, the U.S. followed suit, passing a bill on recycling electric-vehicle batteries. Efficiently extracting metals from e-waste could reduce dependency on mining and emissions.

In 2023, we’ll be watching which companies up their efforts to mine secondary metals from e-waste — both to keep regulators happy and boost access to metals critical for clean-energy technologies.

A long way off from a circular economy for metal - MSCI
Analysis includes 68 technology-hardware and household-durable constituents of the MSCI ACWI Index, as of Sept. 27, 2022. Based on the public disclosure of these companies (e.g., annual reports and 10-Ks), we analyzed the differences in the reporting of e-waste collection and recycling metrics, as well as any targets related to these collection and recycling efforts. Source: MSCI ESG Research.

 

6. Cotton’s crunch point and the future of fiber

Cotton makes over 25% of the clothes we wear, but its harmful impacts, like soil degradation and water consumption, have spurred demand for more environmentally friendly options.6 Apparel retailers have responded by working with third-party certifiers for sustainable cotton and exploring alternatives. However, catastrophic flooding in Pakistan and the withdrawal of some certifications from China have created supply issues.

In 2023, we’ll be watching to see which retailers can navigate these near-term shortages and which ones are prepared to back new, alternative fibers.

Apparel retailers relied on third-party certification for responsible cotton - MSCI
Data is based on apparel-retail constituents of the MSCI ACWI Index, as of Oct. 21, 2022. Source: Refinitiv, MSCI ESG Research.

 

Understanding the impact of ESG and climate

For investors, considering ESG and climate factors is not a new concept, but it is one that is likely to become even more important given increased regulation, demands for transparency and an ongoing quest for standards. The trends identified here, and in our wider publication, are already shaping society and hint at the risks and opportunities that companies and investors may face in the years ahead. Understanding them will be a first step in assessing the potential impact they could have on investment portfolios.

 

Article by Meggin Thwing Eastman, MSCI

Footnotes:
[1] Masters, Brooke. “Shareholders back away from green petitions in US proxy voting season.” Financial Times, July 1, 2022.
[2] ESG funds are defined as any fund that employs any ESG considerations in its security-selection process (values and screening/ranking/exclusions/integration/optimization, etc., and their combinations). In simplest terms, it is the widest possible net under which any and all funds employing any ESG considerations in security selection are captured. All fund characterizations based on data from Broadridge and MSCI ESG Research, as of July 2022.
[3] “Glasgow Leaders’ Declaration on Forests and Land Use.” UN Climate Change Conference UK 2021, Nov. 2, 2021.
[4] University of Maryland and World Resources Institute. “Global Primary Forest Loss.” Accessed Oct. 12, 2022.
[5] The 15th Conference of the Parties to the Convention on Biological Diversity in Montreal, Canada, commonly abbreviated as COP15 (Dec. 7 to 19, 2022.)
[6] In 2021, companies in the apparel-retail sub-industry with combined revenues of over USD 100 billion were sourcing cotton certified to a third-party standard. This reflects revenue from eight out of 12 constituents of the MSCI ACWI Index in the apparel-retail sub-industry that report sourcing third-party certified cotton. Apparel-retail sub-industry defined according to the Global Industry Classification Standard (GICS®). GICS is the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.

Energy & Climate, Featured Articles, Food & Farming, Impact Investing, Sustainable Business

How vulnerable is Wall Street to climate change? The Fed wants to find out.

By Jake Bittle, Grist / Salon

The Federal Reserve is putting the country’s biggest banks to a test

Regulators have long known that climate change poses a threat to the U.S. financial system. Major disasters like hurricanes and wildfires can wipe out buildings and crops, causing losses for the banks that make loans against these assets. Even efforts to take on climate change could cause problems: A rapid, widespread shift to renewable power could send shock waves through financial markets as stocks and bonds tied to fossil fuel companies fall, hurting the bottom line of banks, insurers, and other institutions tied to them.

Now the Federal Reserve, which is tasked with overseeing the country’s financial system, is trying to figure out just how vulnerable big banks are to this kind of upheaval. The Fed on Tuesday released new details about a climate risk analysis it is asking six major U.S. banks to conduct, offering a peek at the worst-case climate events that financial regulators are worrying about.

Banks often use stress tests like these to assess risks in their portfolio, and since the financial crisis the Fed has required large banks to ensure that they can withstand sudden financial shocks, but this is the first time that the U.S. government has asked major banks to account for their exposure to climate change. The results of the so-called “pilot climate scenario analysis exercise” will offer new insight into whether these banks could survive major climate shocks, and could also help inform new regulations such as the ones that followed the 2008 financial crisis.

The banks that will participate are some of the largest and most diversified in the country: Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, Goldman Sachs, and Morgan Stanley. This batch controls about half of the banking market in the United States as measured by total deposits, and also manages billions of dollars for investors and pensions. The Fed’s exercise asks these banks to consider two major types of climate danger: the “physical risk” of natural disasters and the “transition risk” of a movement away from fossil fuels.

In the first part of the exercise, banks will assess how their portfolios would fare if one or more major hurricanes struck the Northeast, a “region in which all participants have material commercial and residential real estate exposures.” The Fed wants banks to pay particular attention to their real estate portfolios: how many residential and commercial loans would fall through, and how much money would it cost the banks if that happened?

In the second, the Fed will look at how their investments and loans would perform during a rapid energy transition to net zero emissions by 2050. If the world’s nations did come together and decarbonize on that timeline, it’s likely that major oil companies and other carbon-intensive companies would see severe losses. Rating agencies like Standard & Poor’s might downgrade their credit, making it harder for them to borrow their way out of trouble, which in turn would cause losses for the banks that finance and insure them.

Many large financial institutions still provide large loans and underwriting services for fossil fuel producers. A new report from the advocacy group Reclaim Finance found that even banks that have signed a prominent global net-zero pledge have provided a combined $269 billion in financing for fossil-fuel companies over recent years. Five of the Fed’s six participating banks are named in the report as top fossil-fuel financiers — all except Goldman Sachs.

Yevgeny Shrago, policy director for the climate program at Public Citizen, the consumer advocacy group, said the Fed’s exercise is a welcome start, but it doesn’t go far enough.

“It’s not even a fire drill,” Shrago told Grist. “It’s like looking at the map of a building and being like, do we have enough exits?” The exercise focuses on how climate change could affect banks’ balance sheets, Shrago said, but it doesn’t consider how losses at those banks could lead to broader financial turmoil for small banks, insurers, pensions, and ordinary people.

The Federal Reserve is independent from the Biden administration, but the bank’s announcement comes on the heels of other regulatory actions. The Securities and Exchange Commission is in the middle of finalizing a rule that would require publicly-traded companies to disclose their greenhouse gas emissions, and the Treasury is seeking information from major insurers about how climate change could affect their business.

The Federal Reserve has asked banks to submit their responses by the end of July, and plans to make the results of the study public later this year.

 

Article by Jake Bittle, Salon

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

Wall Street’s New ESG Money-Maker Promises Nature Conservation—With a Catch

By Natasha White, Bloomberg

Big global banks are eyeing some of the world’s most fragile countries for a new experiment in financial engineering: debt relief in exchange for environmental protections.

Called “debt-for-nature swaps,” they present a tempting solution for the rising number of nations in distress, particularly those with ecosystems to protect. A country gets to avoid default and lower its debt burden, as long as it’s willing to earmark some of the savings to salvage a coral reef, preserve a forest or build a wind farm, for example. Global investors get better returns and enhanced green credentials. Wall Street takes a cut.

As much as $2 trillion of developing country debt may be eligible for this kind of restructuring, according to a rough estimate by the Nature Conservancy, a US nonprofit that’s taking a lead role in these deals. Belize inked a $364 million nature swap in 2021; Gabon signaled plans for a $700 million restructuring in October; Ecuador is said to be working on a $800 million transaction, and Sri Lanka is considering a $1 billion deal.

Buoyed by the finance industry’s newfound enthusiasm for biodiversity, backers of this latest flavor of swap are finding eager partners in investment banks and institutional investors. These are “turbocharged swaps,” said Daniel Munevar, economic affairs officer at the United Nations Conference on Trade and Development and former adviser to finance ministries in Greece and Colombia. “The limit in these operations isn’t the money to fund the swaps, it’s how much debt can be swapped.”

Behind the feel-good headlines, it’s unclear whether these kinds of swaps will deliver the promised benefits. The terms can be murky. Transaction costs are high. Experts question whether the complex and costly deals will achieve long-term financial stability. In December, as negotiators gathered at the United Nations’ COP15 biodiversity conference in Montreal, Greenpeace and dozens of other non-profits called for debt-nature swaps to be rejected.

“Debt-for-nature swaps have been popular for the wrong reasons. And the main wrong reason is that they generate the impression that you can kill two birds with one stone, that you can address a debt problem and you can improve nature conservation,” said Jeromin Zettelmeyer, director of Belgian think tank Bruegel and a former sovereign debt expert at the International Monetary Fund.

The first debt-for-nature swaps debuted in the 1980s, small deals limited by what governments and nonprofits could bring to the table. But with emerging market debt rising and the costs of climate change bearing down disproportionately on some of the most-indebted countries, there’s new interest in a supersized version. “There’s tons of demand,” said Ramzi Issa, managing director for credit structuring at Credit Suisse Group AG, who helped arrange Belize’s $364 million deal. “Investors haven’t really seen this before.”

The tiny Caribbean country is the biggest test to date. Better known for Mayan ruins and a nearly 200-mile barrier reef, Belize is also a serial debt defaulter, and by late 2020, it was again on its knees. The pandemic was keeping tourists away, depriving the country of its main revenue source. Its debt level approached 130% of GDP, almost double the International Monetary Fund’s sustainable threshold for the nation.

“The IMF was insisting on a program,” said Mark Espat, a former Belizean politician, now a consultant, who advised the country on its debt-for-nature swap. The IMF acts as a lender of last resort to debt-stricken countries, but its strict conditions make many governments balk. For Belize, that would have meant higher taxes, job losses and lower spending on social and conservation projects, Espat added.

Climate Risk and Crippling Debt - Bloomberg Green

The Nature Conservancy offered an alternative. It had arranged a debt-for-nature swap with Seychelles a few years earlier and was looking for a bigger deal. Together with Credit Suisse, it proposed to finance the buyout of Belize’s $553 million “superbond,” if the government agreed to spend some of the savings to protect its fragile mangroves and coral reefs. After almost a year of negotiations, around 85% of bondholders agreed to take 55 cents on the dollar, in cash, and staked their claims to a role in Belize’s ocean conservation.

The second part of the deal required TNC and Credit Suisse to re-sell the new debt — repackaged as “blue bonds,” a maritime twist on “green bonds” — to investors. That was harder: Belize had defaulted, changed terms on or restructured its dollar bonds at least five times in 14 years. Investors like Swedish pensions manager Alecta only bought in after the US International Development Finance Corporation agreed to provide insurance.

Here’s how it worked:

  • The Nature Conservancy set up a Delaware-based subsidiary, Belize Blue Investment Company, and raised $364 million from Credit Suisse
  • BBIC loaned those funds to Belize so it could buy back $553 million in debt, at a 45% discount from bond holders
  • Credit Suisse, via a special purpose vehicle in the Cayman Islands, issued $364 million in blue bonds to finance the deal
  • Belize will pay back the new, smaller loan from BBIC over 19 years with an interest rate starting at 3% and rising to 6% in 2026. It must set up a $24 million conservation endowment, and commit to spending $84 million on conservation and to protecting 30% of its oceans
  • The US International Development Finance Corporation insured the BBIC loan, essentially putting the US government on the hook if Belize can’t pay

At the time, the deal was hailed as an all-around success. It cut the country’s debt by 12% of GDP, reopened its access to financial markets, and redirected money once destined for foreign creditors into the local economy. Belize promised to funnel almost $180 million over two decades to protect its oceans. Investors were glad to have backed a worthy cause.

It was a textbook case of blended finance: Public funds are used to de-risk private investment and the two money streams combine to finance the otherwise unfinanceable. The strategy is widely viewed as a way to plug the multi-trillion-dollar gap in finance for decarbonization, climate adaptation and nature protection in developing countries.

‘The nirvana we’re trying to reach.’

Debt swaps like this one are “the nirvana we’re trying to reach,” said Oliver Withers, head of biodiversity at Credit Suisse. “Products that are scalable and that can be replicated. That’s the really exciting thing with debt swaps — it ticks both of those boxes.”

Not everyone is so sanguine. A closer look reveals that Belize’s costs were far higher than the initial $10 million price tag, said UNCTAD’s Munevar, who has studied the transaction. Millions more are hidden in Belize’s interest payments. Munevar compared what Belize pays with what Credit Suisse returns to investors in the new blue bonds. Over the life of the deal, the difference adds up to $84 million, Munevar estimated.

That spread, which TNC says is in fact $86 million, covers insurance premiums for DFC and private-sector reinsurers, along with $14 million to repay a $10.5 million loan from TNC to Belize at 3% interest and “standard financing costs (such as audit, accounting, rating agency expenses),” according to an organization spokesperson. TNC will be reimbursed at cost for staff time spent on conservation work.

Still, that’s a much higher cost than the $10 million initially disclosed, and it speaks to how murky and complicated these deals are, Munevar said. “I find this profoundly concerning — first, because it leads to a misleading assessment of the cost-and-benefits of the arrangement and second, because this is an arrangement based on taxpayer money from both Belize and the US.”

These costs make the swap “one of, if not the most, expensive debt restructurings in recent history relative to the size of the transaction,” said Munevar. Sean Newman, an emerging-markets debt consultant and former chief investment officer of Sagicor Group, a financial services conglomerate in the Caribbean, agreed that the deal is “outrageously expensive.”

For Bruegel’s Zettelmeyer, the cost comes as no surprise. These operations are “small, they are complicated to arrange and so you end up in effect paying a lot to arrange this to someone for a very small gain,” he said. “It’s an inefficient type of operation and ultimately then the country pays for it.”

Credit Suisse said any lower borrowing costs were passed on to Belize; the difference was “provisioned to cover ongoing transaction costs,” including insurance premiums and third-party maintenance expenses. The Zurich-based bank declined to specify how much it earned on the deal.

Christopher Coye, minister of state in the Belize finance ministry, said the country’s transaction costs totaled $14 million, including financial and legal expenses related to the Eurobonds buyback, the issuance of the new blue loan and blue bonds, and conservation agreements. The government was “completely transparent with this transaction,” he said. “Every single blue bond related agreement was tabled in Parliament for debate and passage.”

Greenpeace and the group of 30 advocacy groups raise other concerns. In particular, such deals lock public funds into new conservation organizations, possibly giving short shrift to other needs, such as health or education; they also jeopardize wider and lasting reforms to debt management. “The risks and pitfalls of turning to financial markets to fund marine conservation are being ignored,” the organizations said in their December letter.

Belize stands by its transaction, costs and all. “Whatever spread there is in there for Credit Suisse or for any other entity, Belize is far better off than it would have been otherwise,” said Espat, the domestic financial consultant. To the growing number of countries interested in this kind of restructuring, he had the following advice: “Negotiate as hard as possible.”

(Corrects title of emerging- markets debt consultant in 18th paragraph.)

 

Article by Natasha White, Bloomberg,

With assistance from Sydney Maki and Demetrios Pogkas

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

Upcoming Regulations in ESG Ratings: Three Implications for Business

By Ellinor Haggebrink, BSR

Key Points

  • ESG assets may hit US$53 trillion by 2025, a third of global assets under management (AUM).
  • There are increasing concerns over greenwashing, the reliability of these ratings, and how well they reflect a company’s commitment to ESG.
  • Upcoming regulations are a win-win for both rated companies and rating agencies.

The field of ESG ratings is in a phase of rapid growth—as of today, it is estimated that there are 150 different ESG data providers in the market, and these figures are expected to grow with continued consideration from investors. The estimated scale of ESG-related assets under management (AUM) is predicted to reach US$53 trillion by 2025, equivalent to a third of all global investments.

This fast-paced development is due to an increasing regulatory focus on ESG in potential investments with the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR), together with more sophisticated demand from investors for products that shift society to a greener economy and help mitigate climate change. These two drivers are only likely to increase in intensity over the coming years, leading to ESG ratings taking on a key role in the ecosystem of sustainable finance.

However, with increased influence comes increased scrutiny, and the rapid development of this industry has rendered vocal criticism. This often points to the lack of common standards, as there is no unified definition of what “ESG” should be measuring. Instead, different ESG raters provide indicators on different aspects of sustainability, and applied methodologies vary.

ESG raters often find varying conclusions, despite access to the same information, and on average, the correlation between the leading providers’ scoring of the same company can be as low as 0.54. In comparison to the regulated field of credit ratings, where correlation is close to 0.99, this stands out. Consequently, the market receives mixed signals about ESG performance, and business, in turn, gets mixed messages about what steps to take to improve their scores. Plus, there is often limited transparency around underlying methodologies due to confidentiality, which makes it difficult for companies to understand the criteria used to assess them.

All these factors have created legitimate concerns over greenwashing, questioning the reliability of these ratings and how well they reflect a company’s commitment to ESG. Consequently, voices have started to call for regulations in the industry. There is a need for more standardization, to calibrate the market so that actors are more aligned with the help of regulatory initiatives.

In 2022, Japan’s Financial Services Agency released a Code of Conduct for ESG rating and data providers. This is the first of its kind being issued by a national regulator, consisting of six principles covering transparency around methodologies and data sources, with a comply-or-explain approach. Emerging trends are starting to move in other parts of the world—for instance, the UK government has established a working group for a voluntary best practice code for ESG raters, looking to bring them within the scope of the Financial Conduct Authority. Similarly, the European Commission expects to issue regulation to monitor the reliability and transparency of ESG ratings in 2023, as part of the European Green Deal.

Regulations seem to soon be the new reality for ESG rating agencies. But what are the implications for business? Is this good news?

  • Common language: Despite being rolled out in different global jurisdictions, regulatory frameworks in the making all strive for alignment of terms used in ESG ratings to enable common understanding across the industry. A cohesive terminology adopted by policymakers and regulators creates increased consistency for issuers and a chance to streamline sustainability efforts and related public disclosure.
  • Increased transparency: There is an increased demand for an improved understanding of how ESG raters arrive at their scorings, and upcoming regulations all promote more transparency around methodologies, data gathering, and the weight of certain metrics to assess ESG performance. Better insight into the rating criteria enhances issuers’ understanding of what it takes to improve their scores, target selected areas, and come out stronger in the next assessment.
  • Less greenwashing: One of the main objectives of regulating the ESG ratings field is to crack down on greenwashing and avoid (sometimes unintentional) misleading claims on ESG performance. Improved transparency of rating objectives and methodologies makes it more difficult for issuers to inflate their sustainability credentials, especially when overseen by a regulatory body. This puts increased pressure on companies to prevent exaggeration and instead back up their sustainability claims with hard evidence.

While upcoming regulations will serve to make life easier for rated companies, it is a double-edged sword, as it simultaneously raises expectations to deliver on sustainability commitments. But at the end of the day, this is good news for everyone. ESG ratings play an important part in supporting the sustainable investing landscape and are here to stay; seeking a more harmonized and transparent system and eradicating claims for greenwashing will help create trust in this industry.

This is a win-win not only for rated companies and investors subscribing to the ratings, but also for the ESG raters themselves.

 

Article by Ellinor Haggebrink, manager, BSR

Ellinor supports BSR’s sustainability work across industries with a focus on ESG investments, advising financial institutions and their clients on how to integrate sustainability strategies into investment decisions and corporate management. Ellinor brings with her 10 years of experience from the responsible investment field, engaging companies on behalf of institutional investors to improve ESG management on a variety of topics. Prior to joining BSR, Ellinor worked at Sustainalytics, leading engagement projects on sustainable seafood and sustainable agriculture. She also previously worked at GES International ,focusing on strengthening ESG management in emerging markets investments.

Ellinor holds a Master’s in Political Science and a BA in Spanish from Lund University, Sweden. A Swedish native, she also speaks English, Danish, and Spanish.

Energy & Climate, Featured Articles, Food & Farming, Impact Investing, Sustainable Business

Sustainable and ESG Investors Advocacy

From 2020 through the first half of 2022, 154 institutional investors and 70 investment managers collectively controlling nearly $3.0 trillion in assets at the start of 2022 filed or co-filed shareholder resolutions on environmental, social or governance issues.

  • As shown in Figure G below, public funds were the leading category of investors—in asset-weighted terms—that filed shareholder resolutions during this period, accounting for 67 percent of the assets of all institutional investor and money manager filers. However, they represented just 7 percent of the filing institutions. When the number of institutions rather than assets are considered, money managers were the leading segment filing resolutions.

 

Fig G - Types of Investors Filing Shareholder Proposals 2020-22 - US SIF

  • As shown in Figure H at top of page, the leading issue raised in shareholder proposals, based on the number of proposals filed from 2020 through 2022, was on ensuring fair workplace practices, and particularly on ending de facto discrimination based on ethnicity and sex. From 2020 through mid-2022, investors filed a total of 311 proposals on these fair labor issues.
  • Investors also focused on disclosure and management of corporate political spending and lobbying. Shareholders filed 288 proposals on this subject during this period. Continuing a trend of several years, many of the targets were companies that have supported trade associations that oppose regulations to curb greenhouse gas emissions.
  • A surge in shareholder proposals on climate change that began in 2014 has continued, as investors have wrestled with whether US corporations are doing enough to assess their climate risk or to meet the greenhouse gas reduction challenges laid down by the Paris Climate Accord: 265 proposals were filed from 2020 through 2022.
  • The proportion of shareholder proposals on social and environmental issues that receive high levels of support has been trending upward. During the proxy seasons of 2014 through 2016, just 2 percent of shareholder proposals on environmental and social issues received majority support. From 2017 through 2019, that proportion rose to 6 percent. From 2020 through mid-2022, 14 percent of environmental and social proposals, on average, received majority support.

 

US SIF 2022 US Sustainable Investing Trends ReportOrder a copy of the 2022 Report on US Sustainable Investing Trends from the US SIF.

Energy & Climate, Featured Articles, Impact Investing, Sustainable Business

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