The idea of investing in a way that is consistent with your values is continuing to gain traction, maybe even more so through the pandemic. Beyond values, there is also an understanding that investing in a way that is socially, environmentally and ethically aligned also delivers market-like (or potentially even better than market) financial results. According to the US SIF Foundation’s 2020 Trends Report from which this week’s chart is taken, more than $17 trillion of the $51.4 trillion in professionally managed assets in the US as of year-end 2019 were aligned with the principles of ESG investing. Even deeply discounting that figure leaves an enormous quantity of assets and a steep growth curve. Investors who do not cleave to ESG or related disciplines still must take note of a market move of this magnitude. Stakeholders have spoken and ESG is part of the mainstream market conversation.
Another trip around the sun leading to another Earth Day, our second of the pandemic. Amid all the trauma, last year we got a brief glimpse of what hitting the pause button on our use and overuse of the planet would yield. Fresher air, cleaner water, wildlife in the canals and in the streets. We conducted an unintended (and unwanted), all-in global experiment, and graphically demonstrated that the environment does have the capacity to respond to behavioral change on the part of humans.
Stopping everything isn’t the answer. But changing everything could be. This planetary test case provided strong evidence against the argument that global systems are too vast and too complex, and changing human patterns wouldn’t result in any sort of improvement. A change from extractive to regenerative processes in food, energy, materials, housing, and transportation among others not only can help address the challenge of sufficiency but also manage our footprint so we live with rather than just on Earth. There is still time to stop and possibly even partially reverse the mounting damage to atmospheric, oceanic, littoral, arborial and other global systems. The risk of not taking those steps is existential for humanity, and it is also bad capitalism. Wildfire, inundation, desertification, loss of pollinators, extreme weather, even glacial collapse have real economic consequences from interrupting supply chains to destroying value in the billions and trillions of dollars.
Moving to more regenerative businesses and communities will mitigate or even prevent some of these risks from manifesting, and will be more equitable and inclusive and result in more financial opportunity for individuals and entire markets. The best possible investment is one that both reduces risk and catalyzes growth at the same time. Caring for the planet we live with is also the best possible free option to get on that trade.
UN SDG 5 – “Achieve Gender Equality and Empower All Women and Girls”. During Women’s History Month we again turn our attention to equal access to economic opportunity for women in the American workforce. COVID has further exposed one of the ongoing issues with fair and equal compensation, which is the wage gap between women (and particularly women of color) who are mothers and men who are fathers in the same roles. The National Women’s Law Center gathered data pre-pandemic (2018) assessing the compensation picture for frontline occupations which turned out to be the exact roles hurt worst through the last year of COVID, including housekeepers, retail, wait staff, childcare, home health and nursing. Between 15 and 35% are working mothers, and of those as much as 74% of color. The gap between working mothers and fathers ranged from 36 cents down to 13 cents per hour. That is a bit of an abstraction. This week’s chart, taken from the NWLC and the 2018 American Community Survey, illustrates that gap much more starkly in real dollars on an annual basis, and points to the downstream economic drag on food, housing, education, job training and other expenditures and investments families make for healthy living and vibrant communities and economies.
What does a pledge from China of carbon neutrality by the year 2060 actually mean, and how do we measure progress? There are various global targets for climate change mitigation that attempt to quantify what needs to be done so that the global system does not exceed the point of no return, generally seen as a rise of 1.5 – 2.0 degrees Celsius. Under the Paris climate accord, a number of nations committed to carbon neutrality in the next 30 years. China said 40, but as the largest economy on Earth how do we measure their progress? This week’s chart from the US Energy Information Administration country analysis of China (Sept. 2020) is just one hint at the structural challenges China faces in achieving the target. On a per-capita basis China’s carbon footprint is still smaller than the developed West, but their total footprint is more than a quarter of the world’s total output, and their energy mix is just 15% non-carbon and more than half coal. After the pandemic interruption that marked the period around the Lunar New Year, China’s carbon output returned to or even exceeded pre-pandemic levels. We are looking for the steps China will take now to level out carbon growth so that it can begin reversing the trend after 2030, and wonder, even worry whether another 10 years of increasing output takes us past the global point of no return.
Wilde Capital Management is proud to have been part of the Force for Good steering group and the team that prepared the new report, “Capital as a Force for Good: Global Finance Industry Leaders Transforming Capitalism for a Sustainable Future”, which was launched at the ‘Global Leadership in the 21st Century’ conference organized by the United Nations, Geneva and the World Academy of Art and Science, in support of the United Nations’ 2030 Agenda for Sustainable Development.
63 leading institutions in the global finance industry, representing over US$100 trillion, and nearly 30% of the world’s financial assets, are pointing the way for the industry as a whole to respond to major global challenges including climate change, financial inclusion and inequality.
The new report documents and analyzes their activity in terms of environmental, social and governance (ESG) polices, sustainability programs, and stakeholder engagement, whose cumululatve impact determines how they can be a “force for good” in the world. Taken together, these can have significant impact on driving sustainability in the world, both directly and and indirectly through changes in the way capital is deployed, driving up the cost for those that damage it.
What happens when one ESG priority comes into conflict with another? This week we examine a chart from the World Resources Institute (www.wri.org) of data from the Servicio de Información Agroalimentaria y Pesquera chronicling a decade of growth in avocado production in Mexico. Avocados play on ESG themes of healthy eating, job creation and economic opportunity. Unfortunately, the explosion of consumption, primarily in the US as a result of NAFTA, of Mexican avocados has fueled deforestation, draining of aquifers, soil degradation, increased CO2 emissions, threatens indigenous species and even triggers small earthquakes. According to various studies assembled by the World Economic Forum, avocado groves consume multiples of the water of indigenous forest, and the fruit has an end-point carbon emissions footprint many times that of bananas. As with other monocultures like palm in Indonesia, avocado has brought economic opportunity to areas that badly need it like Michoacán province, but at a profound and unsustainable cost. Conscientious consumption and deploying capital to find more sustainable methods of cultivation without depriving Michoacán of needed money and opportunity are examples of where ESG is headed to address whole-systems challenges rather than focusing narrowly on single issues or ideas.
As the sun sets on 2020, we want to extend our gratitude and appreciation for our amazing clients, partners, vendors, friends and colleagues. It was quite a ride, and we are thankful to have taken it with you. We will take a break from the weekly charts to leave room for both celebration and contemplation about the challenges and opportunities in front of all of us in the new year. Wishing everyone a terrific holiday season, and a happy, HEALTHY, and prosperous new year. The COTW will return in January!
This week we are in the midst of examining the likelihood of a pandemic-induced housing crisis and its effects on families, the economy, and markets. As we learned during the Financial Crisis, it is a very slow process to foreclose on a mortgagee and remove them from a home, particularly when there is a massive backlog of borrowers in similar circumstances. Renters, on the other hand, are more immediately vulnerable to eviction and subsequent homelessness. This week’s chart from econofact.org illustrates the percentage of households suffering a moderate or extreme cost-burden of rent (30% to 50% of income) by household income tier. These observations are pre-COVID, so we can reasonably expect this picture to be much worse in 2020. Government-issued moratoria on evictions kept people in their homes but also shifted the economic burden to the literal doorstep of landlords, many of whom are small businesses. As those edicts roll off but the pandemic still rages in the coming months, landlords will of necessity pursue their economic and business interests and housing insecurity will jump. Whether it is on the backs of the landlords or the renters, the social and economic consequences of this income and housing crisis will play out in our communities, in the real economy and in the investment markets for some time to come.
Wildfire has had profound implications both for and because of climate change, for ecosystems, for communities, and for public health and safety. Wildfire has also had major economic consequences. Loss of housing, loss of commercial space, loss of public infrastructure, loss of crops, and loss of tourist revenue all add up to tens of billions of dollars a year just in the United States. The risk of wildfire conspiring with a lack of adequate governance and safety practices led to devastating financial losses and convictions on 84 counts of manslaughter for one of the largest utilities in the country. This week’s chart is from Munich Re and NatCatSERVICE by way of the Insurance Information Institute showing wildfire losses over the last decade (expressed in millions). Note that the spike in 2017 was so significant that the data from prior years is swamped by scale. While 2019 appears to have been a more modest loss year on par with earlier in the decade, according to the National Interagency Fire Center (nifc.gov) as of October 19th this year nearly twice as many acres have burned as by the 19th of last year, on pace with 2018 and 2019. The tale has yet to be written but that would suggest another likely spike in insured and uninsured losses. Economic loss is as much about the incidence of wildfire as it is the private encroachment on wild spaces. People increasingly work, farm and live in vulnerable forested and grassed spaces based on a history of relative fire scarcity that no longer exists. Without addressing both the climate systems issues to mitigate fire risk, and the resiliency of communities and businesses in the face of more frequent and prevalent fire, economic losses will continue to climb.