FINSUM + Magnifi: The Big Loophole to Biden’s Tax Plan is…
April 27, 2021
In its fourth-quarter earnings report, BofA stole public attention by cutting its 2020 corporate tax
rate to 5.8% from what would have been 21%. How in the world did it do so? The answer made
it the envy of Wall Street. It accomplished this by increasing the share of its investment in
environmental, social, and corporate governance. This move was met with jealousy from
smaller businesses as other Wall Street Giants such as Citigroup, Morgan Stanley, and
JPMorgan also saved with ESG. The trillion-dollar ESG club plans to ramp up its investment in
upcoming years as part of portfolio pledges to net-zero emissions. These initiatives are good for
regulators, shareholders, activists, and the bottom line. Investors are looking to the future and
ESG will be a useful tool in limiting its tax bill with the New Administration.
FINSUM + Magnifi: China Forcing Financial Institutions to Go Green
April 27, 2021
Central Bank Governor Yi Gang said that Chinese financial institutions will have to commit to green finance as soon as possible to meet the country's climate goals. President Xi Jinping has made it clear that the country wants to hit peak emissions pre 2030 and neutrality by 2060. The central bank wants financial institutions to be an integral part of this change and is introducing new measures to ensure they hit their target. The central bank will target ratings, deposit insurance rates, and macroprudential policies. It will also incentivize green bonds and direct climate change stress tests for the macroeconomy. The details of these plans will be unveiled this year to meet the country’s carbon requirements ASAP.
FINSUM + Magnifi: Water Crisis Give New Dimension to ESG
April 6, 2021
Two extreme water crises have occurred since the new year and are moving water conservation to the top of the ESG pecking order. Access to clean water during Texas blackouts was a major concern and on the other side of the globe, Taiwan is experiencing a historic drought, detrimental to its semiconductor industry. Most ESG opportunities are centered around greenhouse gas emission, however nine of the ten greatest risk factors for humanity are linked to the water crisis. Many companies couldn’t survive without ample water. The Thomas Schuman Capital U.S. Water Security Index gives its weight to the largest 550 companies by their water footprints and risk exposure. Companies like AT&T or Microsoft are given higher weights. The TSC has outpaced the S&P 500 by over 14% since its inception. The Invesco Water Resources ETF directly invests in purification and conservation companies and has also outpaced the S&P.
FINSUM + Magnifi: Agriculture Changing the ESG Landscape
March 2021
Farming, often considered one of the original green industries, has fallen out of sync with
environmental, social, and governance (ESG) practices because of the increased use of chemicals and
GMOs. However, the industry is seeing a turnaround with new policies and technology. The Biden
administration is looking to incentivize companies for green initiatives like carbon replenishment of the
soil as agriculture contributed to 9.9% of greenhouse gasses in 2018. Companies like Royal DSM,
Novozymes, and Bayer AG are working on enzymes to increase plant growth, feed additions to minimize
greenhouse gases from animal byproducts, and satellites to improve soil administration. Sustainable
agriculture is gearing up to compete with traditional mainstays.
FINSUM + Magnifi: ESG Grows and Branches into New Territory
March 2021
The pandemic has shifted the paradigm for many investors as they look to environmental, social, and governance (ESG) to make up a larger share of their portfolio. ESG will shape the future of investing but there is a new way to invest in green companies with a new twist. Sustainably linked bonds (SLB) allow firms to receive money for green energy initiatives but rather they will pay a penalty if they don’t meet expectations. Marilyn Ceci head of ESG development at JP Morgan expects SLB to hit $120-150 billion despite issuance since inception being only around $20 billion. SLB isn’t a threat to ESG as the industry is expected to grow from $270 billion last year to over $400 billion this year, but rather a compliment to the growing industry. ESG's ability to withstand the full business cycle is a testament to its future.
FINSUM + Magnifi: Here's How ESG Flows Really Work
(February 2021)
When the average investor conceptualizes an ESG investment they are picturing diverting funds to a growing new wind energy company or a carbon-neutral delivery service. The reality is that technology companies comprise a bulk of ESG investment, and not because they are green in an intuitive sense but because they have little need to pollute. Here is an example of how that plays out: Asia captured 83.33% of emerging market ESG investment because of its heavy tech weighting. Taiwan Semiconductor Manufacturing, Tencent, and Samsung are the big tech companies generating returns for Asian EM ETFs over other regions.
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