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WCM ESG Week — Theme 2: Banking the Un(der)banked

June 15, 2021 / Julie Sorgi

Deposits in the United States are insured by one of two federal agencies: the Federal Deposit Insurance Corporation or the National Credit Union Administration. In the first quarter of 2021, the Federal Deposit Insurance Corporation reported 4,978 current FDIC-insured commercial banking and savings institutions in the United States providing banking and credit services. In addition, the FDIC acts as the federal supervisor to another 3,209 state-chartered banks and savings institutions in the United States that are not members of the Federal Reserve system. These FDIC-insured and supervised institutions serviced in total over $22 trillion in assets as of quarter one 2021 (FDIC, 2021). In the same time frame, the NCUA reported a total of 5,068 federally insured credit unions servicing $1.95 trillion in assets to over 125 million customers (NCUA, 2021). So, what does it mean to be underbanked or unbanked in one of the richest and most prosperous countries in the world?

Every two years since 2009, the FDIC conducts a household survey in cooperation with the U.S. Census Bureau on the use of banking and financial services in the United States. The survey collects responses from approximately 33,000 households to analyze trends in the financial services industry by geographical, demographic, and economic factors. The last survey, conducted in 2019, estimated 5.4% of U.S. households were unbanked, meaning that no household member had a checking or savings account at a bank or credit union. This percentage represents approximately 7.1 million households. Unbanked rates were higher amongst lower-income, less-educated, and Black, Hispanic, and American Indian or Alaska Native households. Among households reported as unbanked, 48.9% cited the reason for not having an account as, “don’t have enough money to meet the minimum balance requirements” (FDIC, 2019). Furthermore, according to a survey conducted in 2019 by the Federal Reserve, an additional 16% of adults are underbanked in the United States, meaning they have a bank account but still use other alternative financial service products such as money orders or pawn shop loans due to lack of affordability or access to traditional and more secure products (Federal Reserve, 2017).

On a global scale, 1.7 billion adults are reported as unbanked in 2017, with China and India accounting for almost 325 million unbanked individuals alone. Women disproportionally represent 56 percent of all unbanked individuals globally (Findex, 2017). Lack of access to traditional banking services hinders individuals’ ability to build emergency funding, execute financial transactions such as paying bills or cashing checks, and results in a lack of access to credit.

Tune into our Wilde Capital Management ESG Week podcast Day 2: Banking the Un(der)banked where we explore financial services trends with Justin Conway, Vice President of Investment Partnerships at Calvert Impact Capital.

https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-banking-and-credit.htm

https://globalfindex.worldbank.org/sites/globalfindex/files/chapters/2017%20Findex%20full%20report_chapter2.pdf

https://www.ncua.gov/files/publications/analysis/industry-at-a-glance-march-2021.pdf

https://www.fdic.gov/analysis/quarterly-banking-profile/statistics-at-a-glance/2021mar/industry.pdf

WCM Chart of the Week for June 14, 2021

June 14, 2021 / Doug Wilde

Consumers of lumber products may finally see an end to soaring prices. Lumber crack spreads (the difference in prices of finished lumber and raw timber) have been rapidly falling since peaking in early May. Specifically, the measure on this week’s chart uses the CME futures spot rate of random length softwood 2x4s used in construction minus the Timber Mart-South US Louisiana Pine Sawtimber spot rate. Both indices are falling with finished board prices falling at a faster pace.

There are a variety of reasons why finished lumber prices surged, ranging from a beetle infestation in western Canada and the US Pacific Northwest, strong pandemic-stimulated single family housing demand, glue shortages related to the storm-induced petrochemical plant shutdowns in Texas earlier in the year, and a lack of truckers and workers for sawmills. This confluence of events may be playing out in other industries and be part of why the Fed considers rising key consumer and producer prices transitory and not permanent. Nonetheless, inflationary concerns that recently unnerved the capital markets will likely continue to arise for some time to come. [chart courtesy Bloomberg LP © 2021]

WCM ESG Week — Theme 1: Regenerative Agriculture

June 14, 2021 / Julie Sorgi

Between 21–37% of all greenhouse gas (GHG) emissions are attributable to our global food system, from agriculture and land use, storage, transport, packaging, processing, retail, and consumption. As increased GHG levels further accelerate climate change, warming over land is occurring at a rate faster than the global average, with observable impacts on the land system. Traditional agricultural practices and arable land misuse have contributed to the degradation of roughly 75% of the Earth’s land area.

In addition to land degradation, the European Commission Joint Research Centre estimates 36 billion tons of soil is lost every year (Moyer, 2020). Depletion of soil nutrients, due to various natural and anthropogenic activities, affects people and ecosystems throughout the planet, and is both influenced by climate change and contributes to it. Warmer temperatures and changing precipitation patterns alter the beginning and end of growing seasons, contribute to regional crop yield reductions, reduce freshwater availability, and push biodiversity toward an unforgiving cliff (IPCC, 2019).

Recent studies indicate we are facing a biodiversity catastrophe, with 1,000,000 species at significant risk of extinction due to the climate crisis and habitat loss (Moyer, 2020). The frequency and intensity of extreme weather and climate events have also increased due to global warming and will continue to increase under medium and high emission scenarios (IPCC, 2019).

That is not to say that all hope is lost. Amid an abundance of dismal facts and figures, our species maintains both the responsibility and the capacity to discontinue extractive and degrading land use practices and implement large scale restorative and sustainable processes. Regenerative agriculture is a systems approach to farming that builds soil health by supporting biodiversity to return carbon and nutrients back to the soil. It is a holistic land use practice that can involve diversifying crop rotations, planting cover crops, green manures and perennials, retaining crop residues, using natural sources of fertilizer such as compost, employing highly managed grazing and/or integrating crops and livestock, reducing tillage frequency and depth, and eliminating synthetic chemicals (Moyer, 2020). Agro-ecology systems (systems that incorporate natural ecological processes with agricultural production) have many rewards to society, including increases in local income and nutrition, as well as a drawdown of CO₂ back into the soil (Chainlink, 2021). Regenerative agriculture focuses not only on reducing the carbon footprint and ensuring sustainability, but also on going beyond conventional practices to reverse the effects and progression of climate change. Indigenous and local ecological knowledge often contribute to the development of restorative agricultural practices and can enhance resilience against climate change and reduce land misuse (Moyer, 2020).

Tune into our Wilde Capital Management ESG Week podcast: Day 1 – Regenerative Agriculture to learn more. In this interview with Marc Ian Barasch, author and filmmaker, we discuss the ideas behind applying regenerative principles to the business of agriculture, providing for greater abundance for a population of nearly 8 billion people, caring for climate, water, and other systems that are failing as we speak.

https://www.ipcc.ch/site/assets/uploads/sites/4/2020/07/03_Technical-Summary-TS_V2.pdf

https://rodaleinstitute.org/wp-content/uploads/Rodale-Soil-Carbon-White-Paper_v11-compressed.pdf

https://blog.chain.link/reversing-climate-change-how-hybrid-smart-contracts-incentivize-regenerative-agriculture/

WCM Chart of the Week for June 8, 2021 — UN World Oceans Day

June 8, 2021 / Mark Sloss

We held this week’s chart until today to coincide with UN World Oceans Day, which lines up well with SDG 14 Life Below Water as well as several other SDGs relating to climate, food and waste. The chart comes from the Food and Agriculture Organization of the UN’s 3^rd assessment of global marine fisheries discards (2019), illustrating the thousands of metric kilotonnes of discard by ocean region. Although with a variety of supervisory regimes and certifications and consumer scrutiny the amount of discard and bycatch in commercial fishing is believed to be on the decline, the reality is that the overall annual volume is still alarmingly high. From bottom-feeders to apex predators, the incidental injury to or death of sea animals is not only cruel, it risks destabilizing a critical part of the global food system for humans and irreversibly disrupting an essential part of the global climate system. Consumers and companies can and should continue to exert pressure on seafood businesses to improve the sustainability of their supply chains because it is good for people, planet AND profit. #worldoceansday #bycatch #SDG14

WCM Chart of the Week for June 1, 2021

June 2, 2021 / Doug Wilde

On Monday, China’s Politburo, the CCP’s top decision-making body, announced that all married couples could have up to three children along with expanded government support for child rearing and education. It is widely speculated that this is driven by deteriorating demographics in China. In this week’s chart we observe the continued and accelerating upward trend in the 65+ age group versus China’s total population. The Wall Street Journal reported that the prime working age population (citizens between the ages of 15 and 59) has declined from 70.1% in 2010 to 63.35% in 2020. Age distribution is critical to economic vitality and notoriously difficult to alter and in China, the one child policy that was lifted in 2016 may have created a new norm because it lasted so long. The effect may be a permanently lowered replacement rate. We can’t help but find it ironic that the directive comes from the Politburo which is dominated by 60+ year old men (we could only find one female on its current roster). Another significant point that Peter Orszag, a widely respected former Washington budget official, notes in his Bloomberg opinion piece of May 11th, a declining Chinese population could mean lower carbon emissions, which is material since China’s total carbon footprint exceeds that of the entire OECD combined (27% of global GhGs). [chart courtesy Bloomberg LP © 2021]

WCM Chart of the Week for May 25, 2021

May 26, 2021 / Doug Wilde

The US Fed and European Central Bank (ECB) continue to pursue aggressive quantitative easing while the two dominant Asian central banks, the Bank of Japan and the People’s Bank of China, have slowed their securities purchases so far this year. The ECB’s activity is of particular interest, not only because of the size of the balance sheet ($9.2T, €7.6T), but the pace that it has expanded over the course of the past year. The ECB’s monetary support continues at a critical time as the EU economy appears to be emerging from the pandemic-induced slump. Lock downs are slowly being lifted and infection rates are plunging from the March and April spikes. Another promising (gradual) trend emerging is in sovereign interest rates in the region, which appears to be an indication of stronger economic activity in the months ahead. [chart courtesy Bloomberg LP (c) 2021]

WCM announces ESG Week — June 14 – 18, 2021

May 19, 2021 / Mark Sloss

5 days. 5 topics. All ESG. How do we take steps toward a more prosperous, just and regenerative world? WCM ESG Week coming June 14 – 18, 2021. (1) Banking the Un/der Banked; (2) The Business of Human Trafficking; (3) Medical Justice and Access to Healthcare; (4) Regenerative Agriculture; (5) Climate Justice.

Watch our introductory video here, and follow us for more details to come on the week and each theme.

WCM Chart of the Week for May 17, 2021

May 17, 2021 / Doug Wilde

According to the US Federal Reserve, growth in the money supply, widely described as M2, peaked at nearly 27% at February’s month end reading and as of March it registered a 24% annual clip. To place those figures in context, the pre-pandemic average annual growth rate of M2 over the preceding 20 years [February 2000 – February 2020] was 6.1% according to Fed data. The previous peaks in M2 growth never surpassed 10.3%. Put another way, the entire US money supply, from the birth of our nation to now, expanded by around 25% in the past year alone.

This tremendous amount of additional liquidity is tied to quantitative easing and the numerous fiscal stimulus plans that have delivered direct payments to individuals and families that, for the most part, landed in bank deposit accounts. Commercial Bank Liabilities, the equivalent of consumer deposits, have swelled some 26% since the beginning of the pandemic, indicating that stimulus recipients have fortified savings as opposed to increasing spending. The good news is that consumers are in better shape than they have been in several years. The bad news, if it can be considered that way, is that there is likely pent-up demand that could ultimately fuel inflationary concerns.

The most recent annual headline inflation figure (CPI) reported by the US Bureau of Labor Statistics for April was 4.2%, well above the consensus of 3.6% and over two times the Fed’s target rate. Our main concern is whether the recent upward trend in prices is reflationary or a more enduring inflationary trend. The Fed has stated that it considers current price conditions to be “transitory” and thus falling into the reflationary category. [chart courtesy Bloomberg LP © 2021]

WCM Chart of the Week for May 11, 2021

May 11, 2021 / Doug Wilde

The US Census Bureau’s latest survey of retail sales will be reported on May 14^th. The Bloomberg survey of economists’ average forecast is for a 1.0% monthly gain, adding to March’s torrid 27.9% annual pace. March’s level of over $614 billion in purchases is nearly 17% higher than the pre-pandemic level of $525.8 billion of February 2020. Consumption, the most dominant portion of the US economy, is clearly rebounding and could further stoke inflationary concerns. This is occurring as hundreds of billions of US fiscal stimulus dollars have yet to be fully deployed with potentially more on the way on top of elevated commodity prices, shortages in building materials and the labor force far from full employment levels. The Fed remains committed to QE, in effect managing the entire yield curve, and has publicly stated that it will tolerate higher inflation. But for how long? Market pressures may force the Fed to act sooner than they currently plan and that could be a major shock to the system. [chart courtesy Bloomberg LP © 2021]

WCM Chart of the Week for May 3, 2021

May 3, 2021 / Mark Sloss

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.

Wilde Capital Management