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Companies Walking Back Sustainability Goals May… Actually Be a Good Thing?
3 min
09 Nov, 2023
By Fennel
It seems like nowadays every company has set net-zero emissions targets or made some sort of sustainability pledge. While this has been going on for a number of years, the number of companies making these commitments has been on the rise.
What’s rarer, though, is companies that are already beginning to walk back their sustainability goals.
But this may actually be a good thing.
Take a look at Unilever, the company that owns brands ranging from Dove, to Ben & Jerry’s, Hellmann’s, Axe, Vaseline and Liquid IV. As a large, multinational corporation, it’s been called out for its widespread impacts on the environment — including things like its plastic pollution and palm oil procurement.
Unilever saw the need to address these environmental concerns, launching a “Sustainable Living Plan” in 2010, which emphasized its more sustainable brands and sought to reduce waste across the company. Afterwards, it announced a “Net Zero by 2039” plan which aimed to reduce its scope 1, 2 and 3 emissions to zero by 2039.
But in the first few years of its net zero plan, progress towards this goal still seemed minimal, and even Unilever acknowledged this.
In October, Unilever’s CEO decided to scrap its aspirational net zero plan in favor of a new, less ambitious goal.
"We will do that not by setting a lot of aspirational goals that are so long term that none of us will be around to be held to account for them but instead by short-terming our work that is by making real, steady, meaningful progress on the big issues quarter on quarter, year on year," Unilever CEO Hein Schumacher said. "Time-bound, costed roadmaps will ensure we stay on track and we will hold ourselves accountable to targets that are explicit, stretching, transparent and measurable."
While environmental activists may be less excited about Unilever’s new “composite score” that associates environmental impact with other business goals. It demonstrates a reality check that Unilever was faced with.
Unilever has been open about the challenges of actually getting a huge international corporation to net zero. Other companies have been more quiet, but still encounter similar issues.
For example, Shell made a net zero by 2050 commitment in 2021, but the company silently scrapped the plan just two years later.
For an oil company like Shell, any net zero target will take a lot of work due to the carbon intensive nature of the industry. Two years ago Shell seemed unfazed, but now that it has had time to try to reach this goal — mainly through purchasing millions of carbon offsets — it’s come face to face with the reality that it may have bitten off more than it could chew.
In both Unilever and Shell’s case, revising their net zero plans doesn’t necessarily mean that they’re done with sustainability. It’s more of a wakeup call that if you pledge to do one thing, you actually have to do it.
"I don’t see this as part of the anti-woke pushback, remotely, but a reflection of the reality that as sustainability imperatives mainstream, the shotgun approach to commitments risks attacks for greenwashing and lowered overall impact," sustainability strategist John Elkington, who consults with Unilever, told GreenBiz.
Other companies may likely go through the same process of making sustainability promises that they can’t keep, and then switch to more achievable goals, which may be a good thing. Regulators are cracking down more and more on greenwashing, and both investors and consumers are willing to call out companies that they believe aren’t going far enough with sustainability.
It seems like the mania of making far-off net zero pledges may fade, and companies may have to figure out ways to make more tangible, immediate sustainability changes. As the former solution ultimately translates to kicking the climate change can down the road, and people might not be fooled for much longer.
Questions for Retail Investors to Consider:
∙ Have any companies in your portfolio made net zero pledges? Have they reported progress on this goal?
∙ How can you tell when a sustainability pledge is good for business, or just lip service?
∙ How can sustainability goals differ from company to company?
∙ ∙ ∙
The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.
Expand your knowledge further
<p>How many times have we followed a trend just to fit in with the “cool kids” even if meant being untrue to ourselves? The reality is, many of us have fallen prey to peer pressure at some point. But individuals aren’t the only ones who conform to a trend to stay relevant. Businesses do too, and because ESG (Environmental, Social, and Governance) and sustainability are the hot topics of today, many companies partake in something called “greenwashing.” </p>
<p> </p>
<h4><strong>Why greenwash?</strong></h4>
<p><a href="https://earth.org/what-is-greenwashing/">Greenwashing</a> is defined as the process of making misleading statements, in order to market a company or its products as being environmentally sustainable. <a href="https://corporatefinanceinstitute.com/resources/knowledge/other/greenwashing/">Some examples of greenwashing are</a>: </p>
<ul>
<li aria-level="1">Making vague or false environmental claims that are not backed up by hard evidence or third-party certifications </li>
<li aria-level="1">Placing emphasis on irrelevant issues (for example, saying a phone is “CFC-free” when CFCs are already banned by law) </li>
<li aria-level="1">Hiding “trade-offs” — essentially, highlighting small environmental victories in order to mask a larger, potentially more concerning issue (for example, banks advertising their issuing of sustainable bonds while financing companies that harm the environment) </li>
</ul>
<p>Greenwashing is <a href="https://www.nasdaq.com/articles/are-companies-as-green-as-theyd-have-you-believe-2021-06-21">on the rise</a> as companies that boast of high ESG scores and sustainable practices are gaining traction in both financial and non-financial aspects. We’ve seen the S&P 500 ESG Index beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance</a> of sustainable bonds in the year 2021, <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">studies</a> that show ESG factors drive consumer preference, and customers <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. As a result, many companies may try to emulate this success by exaggerating how environmentally sustainable they really are.</p>
<p>Some companies resort to greenwashing as they come under pressure to comply with environmental industry standards or regulatory requirements. One such example is when <a href="https://www.bbc.com/news/business-34324772">Volkswagen admitted to cheating</a> government-required emissions tests by fitting various vehicles with “defeat devices.”</p>
<p> </p>
<h4><strong>The rewards of being truly sustainable are sustainable</strong></h4>
<p>What companies sometimes forget is that greenwashing is not sustainable (pun unintended). Those who greenwash risk getting exposed by an informed consumer or a gatekeeping group, which can backfire on the company’s reputation. A recent example would be when <a href="https://www.dezeen.com/2019/08/02/hm-norway-greenwashing-conscious-fashion-collection-news/">H&M launched its “green” clothing line called Conscious</a>. In this instance, the retailer claimed to use organic cotton and recycled polyester, but didn’t provide enough evidence to back up its marketing. The company then faced criticism for misleading claims</p>
<p>In the case that the truth behind an organization’s greenwashing claims goes uncovered, it is still at a loss as it only enjoys the superficial benefits of being a “responsible” business. It doesn’t reap the added value that actual sustainable business can receive — like <a href="https://www.bain.com/insights/sustainability-your-brands-next-cost-saving-weapon/">lower operational costs</a>, <a href="https://www.globenewswire.com/news-release/2019/01/10/1686144/0/en/CGS-Survey-Reveals-Sustainability-Is-Driving-Demand-and-Customer-Loyalty.html">loyal customers</a>, or <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">positive shareholder returns</a>.</p>
<p> </p>
<h4><strong>Greenwashing faces legal implications in the future</strong></h4>
<p>Most importantly, responsible ESG practices minimize regulatory and legal interventions, which in turn means less negative publicity and fines. This is exemplified in Volkswagen’s case, wherein the car manufacturer was fined $125 million for its emissions scandal, and saw further losses as a result of having to recall close to 12 million of its cars worldwide. The spiral translated into <a href="https://fortune.com/2020/10/06/volkswagen-vw-emissions-scandal-damages/">business losses</a> and <a href="https://fortune.com/2015/09/23/volkswagen-stock-drop/">negative shareholder returns</a>.</p>
<p>The greenwashing crackdown will continue with new environmental laws being written. The <a href="https://research.hktdc.com/en/article/MTAzNDU1OTc0Nw">EU has decided to amend its new consumer rules</a> to address greenwashing concerns, requiring producers to provide greater transparency on product information to avoid misleading claims. The UK is also targeting greenwashing with the Competition and Markets Authority’s <a href="https://www.whitecase.com/publications/alert/uk-clampdown-greenwashing">Green Claims Code</a>.</p>
<p>Organizations are driven towards greenwashing because of peer, consumer, or legal pressures. However, by doing so these businesses miss out on the true benefits of being sustainable.They also might expose themselves to the threat of legal action as more legislation is being drafted against greenwashing. As a result, these companies risk reputational damage, financial losses, and negative returns for stakeholders. Until regulators catch up to all the companies engaging in greenwashing, it’s up to us to be on the lookout for common greenwashing tactics, and stay fully informed about the purchases and investments we make.</p>
<p> </p>
<p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p>
<p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a href="https://www.finra.org/"><em>FINRA</em></a><em> </em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Environmental
What Is Greenwashing?
Greenwashing is a superficial and sometimes misleading way companies claim sustainability.
15 Aug, 2022
3 min read
<p id="44d3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">I arrived at Harvard as a first-year student in the fall of 2018. I was passionate about climate justice even as an incoming freshman. So you can imagine my surprise when I found out that my own university was also a corporation actively investing in the destruction of the homes of me and my peers, and the future of our society.</p>
<p id="1cd3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">This is not hyperbole. Harvard is governed by the <a class="au li" href="https://www.harvard.edu/about/leadership-and-governance/harvard-corporation/" target="_blank" rel="noopener ugc nofollow">Harvard Corporation</a>, which manages a $52 billion endowment fund that up until recently included holdings in the fossil fuel companies driving the climate crisis.</p>
<p id="966c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Like me, many students enter college with little to no idea of what endowments are or just how vast a social and political impact universities have through them. Endowments are large pots of money that universities invest to generate income. They are <a class="au li" href="https://www.insidephilanthropy.com/explainers/what-is-an-endowment" target="_blank" rel="noopener ugc nofollow">set up to ensure the financial future of a university</a> and enable it to provide for generations of students, faculty, and community members to come. But when invested in fossil fuel companies, the only futures these funds safeguard effectively are those of the extractive industries wrecking our planet, as well as the vested interests behind them.</p>
<p id="3149" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Divestment, or the act of removing one’s investment, <a class="au li" href="https://www.theguardian.com/environment/2015/jun/23/a-beginners-guide-to-fossil-fuel-divestment" target="_blank" rel="noopener ugc nofollow">works</a> to change that paradigm. It helps transform endowments from instruments of corporate finance into reflections of the needs, interests, and concerns of the university and broader community. Simply put, an institution of higher education cannot realize its espoused commitments to climate action, social justice, and preparing young people to be tomorrow’s leaders while investing in a status quo that prevents this from happening.</p>
<p id="911d" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Prestigious and wealthy universities have a unique responsibility to be leaders in divestment, and some have taken steps towards doing so. Harvard finally <a class="au li" href="https://www.thenation.com/article/activism/harvard-fossil-fuel-divestment-won/" target="_blank" rel="noopener ugc nofollow">moved</a> to divest in fall 2021 after years of tireless student organizing and massive public pressure. But other well-known universities, <a class="au li" href="https://www.washingtonpost.com/education/2022/02/16/college-fossil-fuel-divest-legal-action/" target="_blank" rel="noopener ugc nofollow">like Stanford</a>, have yet to divest.</p>
<p id="b58c" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Fossil fuel investments and other ties to the fossil fuel industry also <a class="au li" href="https://www.teenvogue.com/story/fossil-fuel-divest-harvard-complaint" target="_blank" rel="noopener ugc nofollow">create</a> an inherent conflict of interest that <a class="au li" href="https://www.project-syndicate.org/commentary/institutional-investors-must-divest-from-fossil-fuels-by-bevis-longstreth-1-and-connor-chung-2021-11" target="_blank" rel="noopener ugc nofollow">jeopardizes</a> universities’ core academic and <a class="au li" href="https://fossilfreeresearch.com/" target="_blank" rel="noopener ugc nofollow">research missions</a>. Consider, for instance, how many universities continue to <a class="au li" href="http://www.unkochmycampus.org/rsc-report" target="_blank" rel="noopener ugc nofollow">accept</a> <a class="au li" href="https://www.theguardian.com/education/2021/dec/11/uk-universities-took-89m-from-oil-firms-in-last-four-years" target="_blank" rel="noopener ugc nofollow">vast sums</a> of fossil fuel <a class="au li" href="https://tinyurl.com/fossilfuelties" target="_blank" rel="noopener ugc nofollow">funding</a> for climate change-related research, despite a <a class="au li" href="https://pubmed.ncbi.nlm.nih.gov/9605902/" target="_blank" rel="noopener ugc nofollow">well-documented</a> <a class="au li" href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6187765/" target="_blank" rel="noopener ugc nofollow">pattern</a> of <a class="au li" href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1360-0443.1997.tb02863.x#references-section" target="_blank" rel="noopener ugc nofollow">distorted</a> research outcomes resulting from funding by companies with an oppositional agenda. <a class="au li" href="https://www.ft.com/content/16091645-98b3-4041-9ca2-053fb60181ba" target="_blank" rel="noopener ugc nofollow">No</a> major fossil fuel company is <a class="au li" href="https://priceofoil.org/2020/09/23/big-oil-reality-check/" target="_blank" rel="noopener ugc nofollow">truly aligned</a> with the demands of climate science or justice. Many continue to launch concerted campaigns <a class="au li" href="https://www.climatechangecommunication.org/america-misled/" target="_blank" rel="noopener ugc nofollow">spreading</a> climate misinformation and <a class="au li" href="https://unearthed.greenpeace.org/2021/06/30/exxon-climate-change-undercover/" target="_blank" rel="noopener ugc nofollow">opposing</a> climate action. So it is clear that the industry cannot be a trustworthy partner in the production of public knowledge and ultimately, policy, on climate. By <a class="au li" href="https://www.latimes.com/opinion/story/2022-04-03/climate-change-research-funding-fossil-fuels" target="_blank" rel="noopener ugc nofollow">allowing</a> fossil fuel companies to use their credibility — whether through investments that sustain these companies’ core business model or research partnerships that <a class="au li" href="https://www.thenation.com/article/environment/university-climate-research-fossil-fuels/" target="_blank" rel="noopener ugc nofollow">bolster</a> their <a class="au li" href="https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes" target="_blank" rel="noopener ugc nofollow">greenwashing</a> — universities make themselves complicit in climate breakdown and <a class="au li" href="https://www.timeshighereducation.com/blog/fossil-fuel-research-ties-undermine-universities-climate-change-response" target="_blank" rel="noopener ugc nofollow">undermine</a> their own potential for urgently-needed climate leadership.</p>
<p id="3b5a" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Already, asset managers controlling nearly <a class="au li" href="https://www.stand.earth/advisory/divestment-40-trillion" target="_blank" rel="noopener ugc nofollow">$40 trillion</a> worth of funds have pledged to divest from fossil fuels because they recognize the need to align their financial practices with their principles. They also recognize the overwhelming <a class="au li" href="https://ieefa.org/major-investment-advisors-blackrock-and-meketa-provide-a-fiduciary-path-through-the-energy-transition/" target="_blank" rel="noopener ugc nofollow">evidence</a> that divestment <a class="au li" href="https://www.nytimes.com/2021/10/26/opinion/climate-change-divestment-fossil-fuels.html" target="_blank" rel="noopener ugc nofollow">works</a>. And they know that without taking a bold stance against fossil fuels and other industries undermining our sustainable future, they’ll lose the chance to have young people like myself as potential customers, employees, supporters, and so on. Regardless of the reason, the choice to divest must be applauded. But to truly lead on climate, institutions like Harvard must take the next step of severing remaining fossil fuel industry ties, by doing things like banning fossil fuel research money and recruitment on campus, or <a class="au li" href="https://www.thenation.com/article/environment/harvard-yale-fossil-fuel-divestment/" target="_blank" rel="noopener ugc nofollow">reinvesting</a> in community-based and renewable energy solutions.</p>
<p id="0bbe" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Still, some asset managers and fund trustees (unsurprisingly, some with <a class="au li" href="https://yaledailynews.com/blog/2022/02/24/four-yale-trustees-accused-of-conflict-of-interest-for-fossil-fuel-ties/" target="_blank" rel="noopener ugc nofollow">personal</a> <a class="au li" href="http://harvardcorplovesfossilfuels.divestharvard.com/" target="_blank" rel="noopener ugc nofollow">ties</a> to the fossil fuel industry) continue to make the same tired and bad faith arguments about the value of engaging with the fossil fuel industry as shareholders. We know that such engagement <a class="au li" href="https://impakter.com/harvard-from-apartheid-to-the-climate-crisis-the-limits-of-shareholder-engagement/" target="_blank" rel="noopener ugc nofollow">does not</a> <a class="au li" href="https://www.commondreams.org/views/2021/11/22/shareholder-engagement-fossil-fuel-companies-failure-climate-change" target="_blank" rel="noopener ugc nofollow">work</a> when the core business model is the problem. And it cannot work when the fossil fuel industry makes it <a class="au li" href="https://www.newsweek.com/fossil-fuel-companies-are-undermining-our-future-opinion-1609813" target="_blank" rel="noopener ugc nofollow">abundantly clear</a> that it’s unwilling to let this model go so long as any potential profit remains — no matter the cost to the environment or human life. That is why young people must continue leading the way in calling for total divestment. It is not <em class="lh">an option</em> but the <em class="lh">only option</em> for moneyed institutions to play a positive role in combating climate change.</p>
<p id="02bd" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph="">Actions and dollars, too, speak louder than words. Ending fossil fuel finance and other forms of social license-giving to the fossil fuel industry is vital for remaking our energy and economic systems in favor of people and the planet. The case is as strong as ever: with Russia’s war on Ukraine <a class="au li" href="https://www.newyorker.com/news/daily-comment/this-earth-day-we-could-be-helping-the-environment-and-ukraine" target="_blank" rel="noopener ugc nofollow">making</a> the instability of a global fossil fuel economy uniquely clear, we need to push our institutions to be champions of this remaking, instead of dragging their heels.</p>
<p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""> </p>
<p class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" style="padding-left: 440px;" data-selectable-paragraph=""><strong>∙ ∙ ∙</strong></p>
<div class="ir is it iu iv">
<p id="48f3" class="pw-post-body-paragraph kj kk iy kl b km kn ko kp kq kr ks kt ku kv kw kx ky kz la lb lc ld le lf lg ir ga" data-selectable-paragraph=""><em class="lh">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a class="au li" href="https://www.finra.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">FINRA</em></a><em class="lh"> </em><a class="au li" href="https://www.sipc.org/" target="_blank" rel="noopener ugc nofollow"><em class="lh">SIPC</em></a><em class="lh">.</em></p>
</div>
Environmental
Investing
Why Are Students Pushing Universities To Divest?
Some universities are using endowment funds to invest in the oil industry.
06 Sep, 2022
5 min read
<p><span style="font-weight: 400;">There is a growing number of investors who aren’t satisfied with </span><em><span style="font-weight: 400;">just</span></em><span style="font-weight: 400;"> financial returns, they want to know that their investments are creating a better world. This desire to make change is at the core of impact investing.</span></p>
<p><a href="https://fennel.com/blog/esg-vs-sri-what-do-all-the-terms-mean"><span style="font-weight: 400;">Impact investing</span></a><span style="font-weight: 400;"> refers to when investments are made with the intention of generating positive and measurable social or environmental impacts. Typically, an investor will have an idea of what impact they want to have, and then seek out investments to create that impact. This could mean investing in renewable energy companies to promote decarbonization, investing in minority-led companies to promote the work of underrepresented groups, and so on.</span></p>
<p><span style="font-weight: 400;">But what does this look like in practice? Here are a handful of impact investing examples for interested investors</span></p>
<p> </p>
<h4><strong>Example #1: Impact investing in diverse founders</strong></h4>
<p><span style="font-weight: 400;">So many startups rely on venture capital funding in order to get up and running. But where that VC cash flows isn’t always equitable.</span></p>
<p><span style="font-weight: 400;">One study found that </span><a href="https://www.forbes.com/sites/forbesbusinesscouncil/2022/05/26/diversity-the-holy-grail-of-venture-capital/?sh=5b51cec34178"><span style="font-weight: 400;">77% of VC dollars</span></a><span style="font-weight: 400;"> go to startups led by white founders. In 2021, a record year for VC funding, </span><a href="https://news.crunchbase.com/diversity/vc-funding-black-founded-startups/"><span style="font-weight: 400;">only 1.3%</span></a><span style="font-weight: 400;"> of all U.S. venture and growth equity financing went to companies led by Black founders. Harlem Capital hopes to close that funding gap.</span></p>
<p><span style="font-weight: 400;">Harlem Capital started in 2015 as a syndicate of angel investors, and evolved over the years into a fully-fledged VC firm. The company debuted with </span><a href="https://techcrunch.com/2019/12/02/diversity-focused-vc-fund-harlem-capital-debuts-with-40m/"><span style="font-weight: 400;">its inaugural $40 million fund</span></a><span style="font-weight: 400;"> in 2019 and plans to invest in 1,000 diverse founders over the course of 20 years. After using that $40M fund to invest in 23 companies, Harlem Capital raised </span><a href="https://harlem.capital/harlem-capital-134-million-fund/"><span style="font-weight: 400;">a $134 million fund</span></a><span style="font-weight: 400;"> to invest in even more diverse founders.</span></p>
<p><span style="font-weight: 400;">These diverse founders are building an array of diverse solutions, from </span><a href="https://harlem.capital/portfolio/curu"><span style="font-weight: 400;">credit platforms that provide wider access to loans</span></a><span style="font-weight: 400;">, to a </span><a href="https://harlem.capital/portfolio/agape"><span style="font-weight: 400;">relationship wellness app for couples</span></a><span style="font-weight: 400;">, </span><a href="https://harlem.capital/portfolio/jobble"><span style="font-weight: 400;">gig marketplace for independent workers</span></a><span style="font-weight: 400;">, and more. </span></p>
<p><span style="font-weight: 400;">“We fundamentally believe we are a venture fund with impact, not an impact fund. The way we generate impact is to give women and minority entrepreneurs ownership,” Harlem Capital managing partner Henri Pierre-Jacques told TechCrunch.</span></p>
<p> </p>
<h4><strong>Example #2: Impact investing in the oil industry</strong></h4>
<p><span style="font-weight: 400;">In late 2020, a small activist hedge fund called Engine No. 1 </span><a href="https://hbr.org/2021/01/can-a-tiny-hedge-fund-push-exxonmobile-towards-sustainability"><span style="font-weight: 400;">acquired a $40 million stake</span></a><span style="font-weight: 400;"> in oil giant ExxonMobil, worth about 0.02% of the company’s shares. The hedge fund then wrote </span><a href="https://reenergizexom.com/materials/letter-to-the-board-of-directors/"><span style="font-weight: 400;">an open letter</span></a><span style="font-weight: 400;"> to Exxon’s board of directors to explain why.</span></p>
<p><span style="font-weight: 400;">In that letter, Engine No. 1 pointed out the ways that Exxon had been struggling and failed to deliver shareholder returns. It also pointed out a four-part strategy for fixing this: 1) refresh the board of directors with people who has experience in the energy industry 2) become more disciplined in managing long-term capital allocation 3) implement a plan for the business to thrive in a world pushing away from fossil fuels, and 4) realign management incentives with creating shareholder value.</span></p>
<p><span style="font-weight: 400;">Engine No. 1 then nominated four new directors for Exxon’s board, and campaigned for them during proxy season. After gaining the support of some of Exxon’s largest shareholders, three out of four of those directors won seats on the board. After that, Exxon started </span><a href="https://engine1.com/transforming/articles/exxon-mobil-one-year-later/"><span style="font-weight: 400;">making measurable advancements</span></a><span style="font-weight: 400;"> towards its new goals. For example, the company committed $15B towards investing in low-carbon solutions over a six year span, announced new scope 1 and scope 2 greenhouse gas targets for 2030, added a low-carbon solutions business unit and got the former head of General Motors’ Cruise to lead it.</span></p>
<p> </p>
<h4><strong>Example #3: Impact investing in response to apartheid</strong><span style="font-weight: 400;"> </span></h4>
<p><span style="font-weight: 400;">Word about the injustices committed in apartheid-era South Africa spread across the world. While many South African groups fought for their rights, international organizations also joined in to show support in their own way. </span></p>
<p><span style="font-weight: 400;">By the 1970s and 80s, students at American universities </span><a href="https://www.universityofcalifornia.edu/news/how-students-helped-end-apartheid"><span style="font-weight: 400;">were protesting in solidarity</span></a><span style="font-weight: 400;"> with South African students. Although these American students were thousands of miles away, they thought they could help by pressuring their universities </span><a href="https://nvdatabase.swarthmore.edu/content/columbia-university-students-win-divestment-apartheid-south-africa-united-states-1985"><span style="font-weight: 400;">to divest</span></a><span style="font-weight: 400;"> from companies that supported the apartheid regime.</span></p>
<p><span style="font-weight: 400;">By 1988, </span><a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp"><span style="font-weight: 400;">155 colleges</span></a><span style="font-weight: 400;"> across the US and Canada had divested from South Africa. And soon this movement spread beyond universities. By the end of 1989, 26 states, 22 counties, and over 90 cities </span><a href="http://richardknight.homestead.com/files/uscorporations.htm"><span style="font-weight: 400;">had also created policies</span></a><span style="font-weight: 400;"> against companies doing business in South Africa.</span></p>
<p><span style="font-weight: 400;">This pressure caused many US businesses to pull out of South Africa. From 1985 to 1990, over 200 US companies collectively pulled out of South Africa, resulting in </span><a href="https://www.investopedia.com/articles/economics/08/protest-divestment-south-africa.asp"><span style="font-weight: 400;">a loss of $1 billion</span></a><span style="font-weight: 400;"> in direct investment dollars. Other countries put pressure on their companies to pull out of South Africa too, and by the early 1990s, the South African economy was </span><a href="http://richardknight.homestead.com/files/uscorporations.htm"><span style="font-weight: 400;">feeling the effects of capital flight</span></a><span style="font-weight: 400;">.</span></p>
<p> </p>
<h4><strong>Example #4: Impact investing in Chicago</strong></h4>
<p><span style="font-weight: 400;">Sometimes impact investing is most felt at the local level. The Chicago Community Trust is a foundation that connects philanthropic donors, local organizations, and generous individuals who want to use their money to create a positive impact within the Chicago community.</span></p>
<p><span style="font-weight: 400;">In 2020, the foundation </span><a href="https://www.cct.org/press-releases/the-chicago-community-trust-launches-impact-investing-platform/"><span style="font-weight: 400;">launched</span></a><span style="font-weight: 400;"> an impact investing platform to help facilitate impact-driven investments. The platform also helps investors measure the impact of their contributions by showing if they help low-income neighborhoods, go to businesses run by minority or women owners, help provide affordable housing, or if they provide capital to sustainable energy initiatives.</span></p>
<p> </p>
<h4><strong>Example #5: Impact investing in agricultural development</strong></h4>
<p><span style="font-weight: 400;">Lots of people talk about ending world hunger, what are some ways to actually do that? According to Root Capital, by investing in agricultural enterprises in the developing world.</span></p>
<p><span style="font-weight: 400;">Since 1999, Root Capital has been investing in agriculture businesses in Latin America, sub-Saharan Africa, and Southeast Asia. Not only does the organization supply capital, it also provides training to help these companies grow.</span></p>
<p><span style="font-weight: 400;">In addition to creating more steady sources of food, Root Capital also aims to use its investments to help alleviate local poverty, protect the planet, and advance gender inclusion.</span></p>
<p><span style="font-weight: 400;">To date, the organization has </span><a href="https://rootcapital.org/about-us/"><span style="font-weight: 400;">distributed</span></a><span style="font-weight: 400;"> $1.6 billion to over 750 clients, representing 2.3 million farmers and $4.6 billion in economic activity.</span></p>
<p><br /><br /></p>
<p><em>Risks:</em></p>
<p><em><span style="font-weight: 400;"> Employing ESG strategies may not result in favorable investment performance. The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware, diversity equity and inclusion (DEI), impact investing, or faith-based investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.</span></em></p>
<p style="padding-left: 400px;"><strong>∙ ∙ ∙</strong></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">. </span></em></p>
Shareholder Activism
ESG
Environmental
Social
Governance
Investing
5 Impact Investing Examples: How Investors Push for Change
What does impact investing look like in practice?
21 Dec, 2022
5 min read
<p class="p1">Want to invest in bonds while having a positive impact on the world? It may be time to get familiar with green bonds, social impact bonds, and sustainability bonds.</p>
<p class="p1">As a quick recap, <a href="https://www.investopedia.com/terms/b/bond.asp"><span class="s1">bonds</span></a> are essentially loans or IOUs that provide the borrower (such as governments or corporations) with external funds to finance long-term goals. When a person invests in a bond, they’re basically loaning money to that borrower, who will pay back the principal amount plus interest over time. An example of this would be municipal bonds, which local governments issue to finance essential services such as infrastructure projects.</p>
<p class="p1">Similar to how <a href="https://fennel.com/fennel101/esg"><span class="s1">environmental, social, and governance (ESG)</span></a> has taken over the stock market, impact investors are looking for ways to promote environmental or social good with their investments into the debt market (i.e. bonds). This has led to new asset classes like green, social, and sustainability bonds.</p>
<p class="p1">Let’s look into these three types of bonds.</p>
<p class="p2"> </p>
<p class="p1"><strong>Green Bonds</strong></p>
<p class="p1">A green bond is a type of financial instrument that lends money to finance projects that are meant to help the environment.</p>
<p class="p1"><span class="s1"><a href="https://www.eib.org/attachments/fi/eib-cab-sab-presentation.pdf">The first AAA-rated green bonds</a></span> were issued in 2007 by the European Investment Bank and World Bank. This capital funded both renewable energy and energy efficiency projects with the goal of climate change mitigation.</p>
<p class="p1">Since market inception, the green-labeled bond market has ballooned to over $1 trillion cumulative issuance with an average <a href="https://www.climatebonds.net/market/explaining-green-bonds"><span class="s1">annual growth rate of 95%</span></a>. Green bonds are wildly popular and robust, channeling funding towards things like electric transportation infrastructure, research & development of low-carbon technologies, water supply management, wastewater collection and treatment, pollution prevention and control, protection and restoration of biodiversity and ecosystems, and sustainable forest management. There’s even a subcategory of green bonds called “blue bonds” that focuses on clean water and ocean ecosystem preservation/restoration.</p>
<p class="p1">In one of the first green bond issuances of 2023, <a href="https://www.reuters.com/markets/rates-bonds/hong-kong-raises-58-bln-green-bonds-term-sheets-2023-01-05/"><span class="s1">Hong Kong</span></a> announced that it raised $5.8 billion in green bonds, which is intended to fund the sustainable economic development of the region. Not a bad start to the year.</p>
<p class="p2"> </p>
<p class="p1"><strong>Social Impact Bonds</strong></p>
<p class="p1">Social impact bonds are like green bonds, except instead of providing funding to environmental initiatives, they are meant to finance social services and drive positive social outcomes.</p>
<p class="p1">Geoff Mulgan, then CEO of Young Foundation, is credited with coining the term “<a href="https://efinancemanagement.com/investment-decisions/social-impact-bonds"><span class="s1">social impact bond</span></a>.” The<a href="https://www.oecd.org/cfe/leed/UnderstandingSIBsLux-WorkingPaper.pdf"><span class="s1"> first social impact bond</span></a> launched in 2010 by United Kingdom-based Social Finance Ltd. with the goal of reducing recidivism (which is when someone who served prison time commits another crime). Since then, the market has <a href="https://www.pimco.com/en-us/resources/education/understanding-green-social-and-sustainability-bonds/"><span class="s1">expanded the range of possibilities for social impact bonds</span></a>, addressing issues facing low-income people and the unemployed, migrants, women and/or marginalized genders, people with disabilities, displaced persons, and other communities in need. Social impact bonds finance actions such as improving food security and sustainable food systems, piloting programs around socioeconomic advancement, building affordable housing, increasing access to essential services, and building affordable basic infrastructure.</p>
<p class="p1">While not as prevalent as green bonds, the market for social impact bonds is still rapidly growing. <a href="https://www.brookings.edu/wp-content/uploads/2020/09/Impact_Bonds-Brief_1-FINAL.pdf"><span class="s1">Brookings reported</span></a> that as of July 2020, at least 194 social impact bonds have been contracted in 33 different countries, representing over $421 Million in upfront investment and over $460 Million in total outcome funding committed.</p>
<p class="p2"> </p>
<p class="p1"><strong>Sustainability Bonds</strong></p>
<p class="p1">You can think of sustainability bonds as a combination of green and social impact bonds.</p>
<p class="p1">Sustainability bonds finance projects that have both positive environmental and social outcomes. The United Nations <a href="https://sdgs.un.org/goals%23history"><span class="s1">17 Sustainable Development Goals</span></a>, adopted by member states in 2015, takes a systems-approach to conceptualizing the interlinking social and environmental themes we need to collectively address in order to achieve peace and prosperity for people and the planet. Sustainable bonds support projects in multiple SDG areas. From <a href="https://www.environmental-finance.com/content/the-green-bond-hub/the-2020s-the-decade-of-sustainable-bonds.html"><span class="s1">2017 to 2023</span></a>, we saw a massive increase in sustainable bond issuance from $200 billion to nearly $1.5 trillion.</p>
<p class="p1">The green, social, and sustainability bond markets are experiencing rapid growth, and thus have to deal with some growing pains, grappling with finding standardized policies and procedures around transparency, impact measurement, and reporting. But the growth of these bonds are exciting, as they potentially offer a new asset class for impact investors to look into.</p>
<p class="p2"> </p>
<p class="p2"> </p>
<p class="p1"><span class="s2"><em>Risk Considerations:</em></span></p>
<p class="p1"><em>There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline and that the value of Portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. Fixed income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.</em></p>
<p class="p2"> </p>
<p class="p3" style="text-align: center;"><strong>∙ ∙ ∙</strong></p>
<p class="p4"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Employing ESG strategies may not result in favorable investment performance. Securities offered through Fennel Financials, LLC. Member </em><a href="http://finra.org/"><span class="s1"><em>FINRA</em></span></a><em> </em><a href="https://www.sipc.org/"><span class="s1"><em>SIPC</em></span></a><em>. </em></p>
ESG
Environmental
Social
Investing
Green, Social Impact, and Sustainability Bonds are Financing Public Benefit
Want to invest in bonds while having a positive impact on the world?
30 Mar, 2023
4 min read
<p class="p1">MBA programs are a breeding ground for future business leaders, so analyzing the trends that pop up in business schools across the country can give us a window into the direction the corporate world is heading.</p>
<p class="p1">So what’s one growing trend we see? Sustainability.<br /><br />As the demand for sustainable business practices continues to grow, business schools are increasingly incorporating sustainability into their curricula. Teaching sustainable business in higher education equips students with the skills to address environmental and social challenges in their future careers and drive the transition to a more sustainable economy.</p>
<p class="p1">It is difficult to determine which business school was the first to offer courses in sustainability as many schools have been incorporating sustainability into their curricula for several decades. One of the earliest programs to offer courses in sustainability was the <a href="https://erb.umich.edu/about/"><span class="s1">Erb Institute for Global Sustainable Enterprise at the University of Michigan</span></a>. The Erb Institute was founded in 1996 through a partnership between the School of Natural Resources and Environment and the Ross School of Business. The program offers a dual-degree MBA/MS in Natural Resources and Environment, with a focus on sustainable business practices.</p>
<p class="p1">Another early program was the <a href="https://aces.kenaninstitute.unc.edu/about-us/"><span class="s1">Center for Sustainable Enterprise at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill</span></a>. The center was established in 1999 and offers courses and programs that focus on sustainability, corporate social responsibility, and environmental management. <a href="https://www.presidio.edu/about/"><span class="s1">Presidio Graduate School in San Francisco</span></a><span class="Apple-converted-space"> </span>was also an early pioneer in sustainability education and today is recognized as one of the most prestigious institutions cultivating the next generation of changemakers. Presidio Graduate School was founded in the early 2000s and offers MBA programs with a focus on sustainability and social entrepreneurship.</p>
<p class="p1">Since then, many other business schools have followed suit and incorporated sustainability into their curricula. And in recent years, business schools have seen <a href="https://www.nytimes.com/2021/11/13/business/dealbook/business-schools-esg.html"><span class="s1">a growing interest in ESG</span></a> from students.</p>
<p class="p1"> </p>
<h4 class="p1"><strong>Why teach sustainability in business schools?</strong></h4>
<p class="p1">Today's consumers are increasingly aware of the environmental and social impacts of the products and services they buy, and they are demanding more sustainable options. So a business school degree that emphasizes sustainability can help companies appeal to these consumers.</p>
<p class="p1">The <a href="https://www2.deloitte.com/content/dam/Deloitte/mk/Documents/about-deloitte/2021-deloitte-global-millennial-survey-report.pdf"><span class="s1">2021 Deloitte Global Millennial and Gen Z Survey</span></a> found that over a quarter of respondents consider a company's environmental and social impact when making purchasing decisions and <a href="https://www.firstinsight.com/white-papers-posts/gen-z-shoppers-demand-sustainability"><span class="s1">First Insight’s annual surveys</span></a> uncovered a rising trend that consumers across all generations—from Baby Boomers to Gen Z—are willing to pay more for sustainable products.</p>
<p class="p1">Investors are also increasingly looking for companies that have strong environmental and social performance, as some believe that this can be an indicator of long-term financial success. The <a href="https://thegiin.org/research/publication/impinv-survey-2020/"><span class="s1">Global Impact Investing Network's Annual Impact Investor Survey</span></a> found that assets under management in the impact investing industry grew to $715 billion in 2020.</p>
<p class="p1">On top of that, regulators are tightening environmental and social regulations, which can create new opportunities and challenges for businesses. The <a href="https://www.greenbiz.com/report/2021-state-green-business-report"><span class="s1">2021 State of Green Business report by GreenBiz</span></a> found that 58% of companies surveyed believed that regulation was a driver of their sustainability initiatives. By incorporating sustainability into the curriculum, business schools can prepare students to meet these regulatory demands and help businesses navigate this rapidly evolving landscape.</p>
<p class="p1">Teaching sustainable business practices can also help business schools differentiate themselves from their peers and <a href="https://www.uab.edu/reporter/campus/sustainability/item/9853-faculty-student-interest-drives-expansion-of-sustainability-curriculum"><span class="s1">attract students who are passionate about sustainability as well as faculty who are passionate about teaching it</span></a>. Additionally, employers are increasingly looking for candidates who have sustainability knowledge and skills, as this can be a competitive advantage in today's job market. In fact, green job postings have increased by <a href="https://www.fastcompany.com/90831379/green-jobs-are-up-237-in-the-last-5-years-here-are-4-ways-to-boost-your-skills-and-get-hired"><span class="s1">237% in the last 5 years</span></a>.</p>
<p class="p1">To effectively teach sustainable business practices, business schools must take a comprehensive approach that includes both core courses and electives. Core courses should cover the fundamental concepts and principles of sustainability, including environmental science, social and ethical issues, and sustainability frameworks. Electives should provide students with opportunities to explore sustainability in greater depth and develop skills in specific areas, such as sustainable operations, social entrepreneurship, or sustainability reporting.</p>
<p class="p1">Often, business schools engage with external stakeholders, such as industry partners and community organizations, to build partnerships and collaborative initiatives such as internships and capstone projects. And sometimes those initiatives help partners develop sustainability goals.</p>
<p class="p1">An example of a group that does this is the Global Engagement Committee of the <a href="https://bacademics.org/"><span class="s1">Global B Corp Academic Community</span></a> (B Academics). This organization works to advance the state of academic study into business as a force for good. The committee recently released a <a href="https://bacademics.org/wp-content/uploads/2023/03/White-paper-B-Academics-2-1.pdf"><span class="s1">white paper</span></a> which presents academic initiatives aimed at accelerating the transition to a new economy, specifically through promoting teaching and research on B Corporations and sustainable business.</p>
<p class="p1">The aim of the white paper is to share how these efforts have emerged and evolved and their different models, challenges and learning processes. Global initiatives such as B Academics and the <a href="https://www.unprme.org/"><span class="s1">United Nations’ Principles for Responsible Management Education</span></a> are standardizing and legitimizing the way we teach sustainable business in higher education across the world, indicating that business schools will continue to be catalysts for a new class of professionals.</p>
<p class="p2"> </p>
<p class="p2"> </p>
<p class="p3" style="text-align: center;"><strong>∙</strong><span class="s2"><strong><em> </em></strong></span><strong>∙</strong><span class="s2"><strong><em> </em></strong></span><strong>∙</strong></p>
<p class="p4"><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.</em></p>
ESG
Environmental
Social
Governance
Business Schools Are Ushering In a New Era of Sustainability
A growing number of future business leaders are learning about sustainability in their MBA programs.
08 Jun, 2023
5 min
<p><span style="font-weight: 400;">You may have heard the terms Sustainable Development Goals (SDGs) and environmental, social, and governance (ESG) mentioned together by responsible businesses or socially-conscious investors, but what are they actually and how do they relate to each other?</span></p>
<p><span style="font-weight: 400;">Besides ESG and SDG both being three-letter acronyms and both originating from the United Nations, the two terms relate to entirely different concepts. However, there are some parallels between the two.</span></p>
<p><span style="font-weight: 400;">So let’s dive into the terms ESG and SDG, what they mean, and what they have in common.</span></p>
<p> </p>
<h4><strong>What are the sustainable development goals (SDGs)?</strong></h4>
<p><span style="font-weight: 400;">In 2015, the United Nations General Assembly put together the sustainable development goals (SDGs) as a list of objectives to aim to accomplish by 2030. The 17 SDGs represent aspirational goals that span a range of economic and societal issues, with the intention of providing a better future for all.</span></p>
<p><span style="font-weight: 400;">Here are the 17 SDGs:</span></p>
<p><strong>1. No Poverty:</strong><span style="font-weight: 400;"> This goal seeks to end poverty in all forms across the world, providing help to the most vulnerable populations.</span></p>
<p><strong>2. Zero Hunger:</strong><span style="font-weight: 400;"> Seeks to end hunger and malnutrition, while promoting access to sustainable agriculture.</span></p>
<p><strong>3. Good Health and Well-being:</strong><span style="font-weight: 400;"> Seeks to address the prevalence of certain diseases, as well as provide better and more equitable healthcare.</span></p>
<p><strong>4. Quality Education:</strong><span style="font-weight: 400;"> Achieve equitable and quality education, including free primary and secondary schooling for children.</span></p>
<p><strong>5. Gender Equality:</strong><span style="font-weight: 400;"> End discrimination against women and girls, which also means increasing access to education, jobs, reproductive health, and more. Also encourages more women to be leaders.</span></p>
<p><strong>6. Clean Water and Sanitation:</strong><span style="font-weight: 400;"> Address water scarcity, relieve water stress, and provide safe and clean drinking water to people who lack access to it.</span></p>
<p><strong>7. Affordable and Clean Energy:</strong><span style="font-weight: 400;"> Provide access to affordable renewable energy sources, especially as developing nations industrialize.</span></p>
<p><strong>8. Decent Work and Economic Growth:</strong><span style="font-weight: 400;"> Promote economic growth, access to well-paying jobs, end forced labor, and decrease economic inequality.</span></p>
<p><strong>9. Industry, Innovation, and Infrastructure:</strong><span style="font-weight: 400;"> Build resilient infrastructure, promote sustainable industrialization, and foster innovation.</span></p>
<p><strong>10. Reduced Inequalities:</strong><span style="font-weight: 400;"> Reduce global income inequality.</span></p>
<p><strong>11. Sustainable Cities and Communities:</strong><span style="font-weight: 400;"> Make cities and urban communities more sustainable, through things like providing access to affordable housing, business opportunities, public transportation and green spaces, and so on.</span></p>
<p><strong>12. Responsible Consumption and Production:</strong><span style="font-weight: 400;"> Promote sustainable consumption and production through increasing efficiency and minimizing waste.</span></p>
<p><strong>13. Climate Action:</strong><span style="font-weight: 400;"> Take urgent action to combat climate change and its worst repercussions.</span></p>
<p><strong>14. Life Below Water:</strong><span style="font-weight: 400;"> Protect coastal and marine ecosystems from damaging human impacts like pollution and ocean acidification, while promoting conservation.</span></p>
<p><strong>15. Life on Land:</strong><span style="font-weight: 400;"> Protect terrestrial ecosystems and combat loss of biodiversity.</span></p>
<p><strong>16. Peace, Justice, and Strong Institutions:</strong><span style="font-weight: 400;"> Work with governments and communities to address cycles of conflict and violence, while aiming for peace and prosperity.</span></p>
<p><strong>17. Partnerships for the Goals:</strong><span style="font-weight: 400;"> Promote cooperation between all communities to achieve these sustainable development goals.</span></p>
<p> </p>
<p><span style="font-weight: 400;">As you can see, the 17 SDGs are quite ambitious. Aiming to eradicate poverty across the world by 2030 won’t be an easy task. But the point of the sustainable development goals isn’t to complete all of these things 100% by a certain deadline. Instead, the SDGs act as guiding principles to work towards in order to improve the well-being of humanity and the planet.</span></p>
<p><span style="font-weight: 400;">Anyone can take these SDGs and use them to inform their plans for the future — whether that’s a government looking to provide better access to jobs and healthcare, a business trying to monitor its impact on marine or terrestrial ecosystems, or an investor looking to promote the growth of renewable energy projects or access to educational resources. The SDGs are broad enough that they are applicable in many different scenarios.</span></p>
<p> </p>
<h4><strong>What is ESG?</strong></h4>
<p><a href="https://fennel.com/fennel101/6"><span style="font-weight: 400;">Environmental, social and governance (ESG)</span></a><span style="font-weight: 400;">, is a broad framework that is used to measure an organization’s environmental and social impacts, as well as its corporate governance structure. Measuring these things involves a lot of data, and under the broad umbrella of ESG there are many different ESG metrics that, when taken together, paint a picture of ESG performance.</span></p>
<p><span style="font-weight: 400;">For example, metrics like carbon emissions released, e-waste recycled, renewable energy used, and so on can help provide an understanding of an organization’s environmental performance. Meanwhile, the amount of charitable donations, employee diversity, and gender pay gaps can tell you more about social performance.</span></p>
<p><span style="font-weight: 400;">Although the metrics are attempts to quantify these impacts, it’s important to note that ESG performance isn’t always black or white. The large amount of things that affect E, S, or G mean that ESG performance will always involve gray areas. For example, a company can be really good about protecting the environment, but may mistreat its employees.</span></p>
<p><span style="font-weight: 400;">ESG scores are often used to quantify or make comparisons, but it may be more useful to think of ESG as a lens to analyze companies and get extra context, more so than it is a ranking system.</span></p>
<p><span style="font-weight: 400;">ESG has different uses. Companies may use ESG as a way to create policies to support their employees, create transparent corporate governance structures, or ensure a positive impact on the environment. Meanwhile, investors may use ESG to align their investments with their vision for the future, or to </span><a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management"><span style="font-weight: 400;">identify potential investment risks</span></a><span style="font-weight: 400;">.</span></p>
<p> </p>
<h4><strong>What do ESG and SDGs have in common? How are they different?</strong></h4>
<p><span style="font-weight: 400;">Coincidentally, both ESG and SDG have their origins tied to the UN.</span></p>
<p><span style="font-weight: 400;">The term ESG was first coined in 2004 by </span><a href="https://www.unepfi.org/fileadmin/events/2004/stocks/who_cares_wins_global_compact_2004.pdf"><span style="font-weight: 400;">a United Nations report</span></a><span style="font-weight: 400;"> titled “Who Cares Wins.” The report states, “in a more globalised, interconnected and competitive world the way that environmental, social and corporate governance issues are managed is part of companies’ overall management quality needed to compete successfully. Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action or accessing new markets, while at the same time contributing to the sustainable development of the societies in which they operate.”</span></p>
<p><span style="font-weight: 400;">This excerpt from the report shows you that the concept of ESG was created in order to give businesses the perspective they needed in order to position themselves for a globalized future, anticipate regulatory shifts, and work towards creating value for both company shareholders and the world as a whole. The quote above also mentions “contributing to the sustainable development of societies,” which is the exact same thing that the SDGs aim to achieve.</span></p>
<p><span style="font-weight: 400;">This commonality may have to do with the fact that ESG and SDG both come from the UN, and one of the goals of the UN is to create a platform for nations, organizations, and groups to work together to solve humanity’s biggest challenges.</span></p>
<p><span style="font-weight: 400;">However, SDGs and ESG are quite different. This has to do with the purpose of each. The SDGs are an ambitious set of goals that provide a northstar for groups to work together to solve specific problems. ESG is more of a measurement system that’s more specific to how a company impacts the world.</span></p>
<p><span style="font-weight: 400;">Another way to think about it is that SDGs primarily focus on the end goal. Meanwhile, ESG focuses on quantifying where an organization currently stands. SDGs focus more on </span><em><span style="font-weight: 400;">what</span></em><span style="font-weight: 400;"> an organization is trying to accomplish, while ESG focuses on </span><em><span style="font-weight: 400;">how</span></em><span style="font-weight: 400;"> it’s performing.</span></p>
<p><span style="font-weight: 400;">Still, businesses and other organizations can use both ESG and SDGs to figure out and measure how they want to impact the world. And investors can use ESG and SDGs to understand which organizations they want to support. If you care about working towards a sustainable future, both SDG and ESG can be useful.</span></p>
<p><br /><br /></p>
<p style="text-align: center;"><strong>∙ ∙ ∙</strong></p>
<p><em><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member FINRA SIPC.</span></em></p>
ESG
Environmental
Social
Governance
What Are the Sustainable Development Goals (SDGs) and What Do They Have in Common With ESG?
The 17 SDGs represent aspirational goals that span a range of economic and societal issues, with the intention of providing a better future for all.
11 Sep, 2023
5 min
<p><span style="font-weight: 400;">Today’s consumers care about </span><a href="https://www.businessnewsdaily.com/15087-consumers-want-sustainable-products.html"><span style="font-weight: 400;">buying environmentally friendly products</span></a><span style="font-weight: 400;">, but that doesn’t mean companies should market their products as such unless they can really back it up.</span></p>
<p><span style="font-weight: 400;">A </span><a href="https://www.europarl.europa.eu/news/en/press-room/20230918IPR05412/eu-to-ban-greenwashing-and-improve-consumer-information-on-product-durability"><span style="font-weight: 400;">proposed law</span></a><span style="font-weight: 400;"> by the European Union may be one of the strictest crackdowns to date on </span><a href="https://fennel.com/blog/what-is-greenwashing"><span style="font-weight: 400;">“greenwashing”</span></a><span style="font-weight: 400;">—which is using empty or vague claims about environmental sustainability as a form of marketing.</span></p>
<p><span style="font-weight: 400;">EU parliament members agreed to propose a ban on “generic environmental claims” like “environmentally friendly,” “natural,” “biodegradable,” “climate neutral,” and “eco” unless those claims can be backed up by scientific evidence.</span></p>
<p><span style="font-weight: 400;">In addition, the EU rule would ban using the term “carbon neutral” or “carbon negative” for marketing purposes if that company relied on carbon offsetting to reduce its carbon footprint.</span></p>
<p><span style="font-weight: 400;">Carbon offsets allow companies to finance projects that remove carbon from the atmosphere, like planting trees or restoring forests. However, the practice is </span><a href="https://www.bloomberg.com/news/articles/2023-08-30/are-carbon-offsets-a-good-solution-to-the-climate-change-crisis?utm_source=Iterable&utm_medium=email&utm_campaign=campaign_-12345"><span style="font-weight: 400;">somewhat controversial</span></a><span style="font-weight: 400;"> because it can be hard to verify their integrity, and because some see offsets as a band-aid solution that allows companies to get away with not reducing their actual carbon emissions.</span><span style="font-weight: 400;"><br /></span><span style="font-weight: 400;"><br /></span><span style="font-weight: 400;">Banning this type of “carbon neutral” marketing would be substantial because many companies rely on carbon offsetting to reduce their carbon footprint—from </span><a href="https://sustainability.aboutamazon.com/climate-solutions"><span style="font-weight: 400;">Amazon</span></a><span style="font-weight: 400;"> to </span><a href="https://apnews.com/article/delta-airlines-lawsuit-carbon-credits-carbon-neutral-469f2671010ba7f40c934cc23d62149a"><span style="font-weight: 400;">Delta Air Lines</span></a><span style="font-weight: 400;">, and </span><a href="https://www.benzinga.com/markets/esg/23/05/32547591/disney-shell-gucci-allegedly-used-worthless-carbon-credits-as-top-certifiers-ceo-resigns"><span style="font-weight: 400;">Disney</span></a><span style="font-weight: 400;">. While this rule doesn’t ban carbon offsetting itself, it would prevent offsetting from being used to justify “carbon neutral” claims.</span></p>
<p><span style="font-weight: 400;">“We are clearing the chaos of environmental claims, which will now have to be substantiated, and claims based on emissions offsetting will be banned,” EU lawmaker Biljana Borzan said in a statement.</span></p>
<p><span style="font-weight: 400;">On top of the rules that target greenwashing, the proposed law also has rules regarding product durability and planned obsolescence. These rules include a ban on prompting customers to replace a product earlier than strictly necessary, durability claims unless backed up with evidence, and presenting goods as repairable when they are not.</span></p>
<p><span style="font-weight: 400;">Members of European Parliament are expected to vote on this set of rules in November. If approved, member states will have 24 months to incorporate these rules into law (i.e. by 2026).</span></p>
<p><span style="font-weight: 400;"><br /></span><span style="font-weight: 400;"><br /></span><strong>Read more:</strong><span style="font-weight: 400;"> </span><a href="https://fennel.com/blog/what-is-greenwashing"><span style="font-weight: 400;">What Is Greenwashing?</span></a></p>
<p> </p>
<h4><strong>Questions for Retail Investors to Consider:</strong></h4>
<p><span style="font-weight: 400;">∙ How will these rules affect international companies that operate both in and outside of the EU?</span></p>
<p><span style="font-weight: 400;">∙ Do you think rules like these would work in the US?</span></p>
<p><span style="font-weight: 400;">∙ Will we see a dropoff in environmentally-focused marketing from big companies?</span></p>
<p><br /><br /><br /></p>
<p style="text-align: center;"><strong>∙ ∙ ∙</strong></p>
<p><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org/"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></p>
Environmental
ESG
EU Is Banning “Carbon Neutral” Marketing and Other Greenwashing Terms
The EU has recently unveiled some strict rules against greenwashing.
28 Sep, 2023
2 min
<p>How many times have we followed a trend just to fit in with the “cool kids” even if meant being untrue to ourselves? The reality is, many of us have fallen prey to peer pressure at some point. But individuals aren’t the only ones who conform to a trend to stay relevant. Businesses do too, and because ESG (Environmental, Social, and Governance) and sustainability are the hot topics of today, many companies partake in something called “greenwashing.” </p>
<p> </p>
<h4><strong>Why greenwash?</strong></h4>
<p><a href="https://earth.org/what-is-greenwashing/">Greenwashing</a> is defined as the process of making misleading statements, in order to market a company or its products as being environmentally sustainable. <a href="https://corporatefinanceinstitute.com/resources/knowledge/other/greenwashing/">Some examples of greenwashing are</a>: </p>
<ul>
<li aria-level="1">Making vague or false environmental claims that are not backed up by hard evidence or third-party certifications </li>
<li aria-level="1">Placing emphasis on irrelevant issues (for example, saying a phone is “CFC-free” when CFCs are already banned by law) </li>
<li aria-level="1">Hiding “trade-offs” — essentially, highlighting small environmental victories in order to mask a larger, potentially more concerning issue (for example, banks advertising their issuing of sustainable bonds while financing companies that harm the environment) </li>
</ul>
<p>Greenwashing is <a href="https://www.nasdaq.com/articles/are-companies-as-green-as-theyd-have-you-believe-2021-06-21">on the rise</a> as companies that boast of high ESG scores and sustainable practices are gaining traction in both financial and non-financial aspects. We’ve seen the S&P 500 ESG Index beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance</a> of sustainable bonds in the year 2021, <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">studies</a> that show ESG factors drive consumer preference, and customers <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. As a result, many companies may try to emulate this success by exaggerating how environmentally sustainable they really are.</p>
<p>Some companies resort to greenwashing as they come under pressure to comply with environmental industry standards or regulatory requirements. One such example is when <a href="https://www.bbc.com/news/business-34324772">Volkswagen admitted to cheating</a> government-required emissions tests by fitting various vehicles with “defeat devices.”</p>
<p> </p>
<h4><strong>The rewards of being truly sustainable are sustainable</strong></h4>
<p>What companies sometimes forget is that greenwashing is not sustainable (pun unintended). Those who greenwash risk getting exposed by an informed consumer or a gatekeeping group, which can backfire on the company’s reputation. A recent example would be when <a href="https://www.dezeen.com/2019/08/02/hm-norway-greenwashing-conscious-fashion-collection-news/">H&M launched its “green” clothing line called Conscious</a>. In this instance, the retailer claimed to use organic cotton and recycled polyester, but didn’t provide enough evidence to back up its marketing. The company then faced criticism for misleading claims</p>
<p>In the case that the truth behind an organization’s greenwashing claims goes uncovered, it is still at a loss as it only enjoys the superficial benefits of being a “responsible” business. It doesn’t reap the added value that actual sustainable business can receive — like <a href="https://www.bain.com/insights/sustainability-your-brands-next-cost-saving-weapon/">lower operational costs</a>, <a href="https://www.globenewswire.com/news-release/2019/01/10/1686144/0/en/CGS-Survey-Reveals-Sustainability-Is-Driving-Demand-and-Customer-Loyalty.html">loyal customers</a>, or <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">positive shareholder returns</a>.</p>
<p> </p>
<h4><strong>Greenwashing faces legal implications in the future</strong></h4>
<p>Most importantly, responsible ESG practices minimize regulatory and legal interventions, which in turn means less negative publicity and fines. This is exemplified in Volkswagen’s case, wherein the car manufacturer was fined $125 million for its emissions scandal, and saw further losses as a result of having to recall close to 12 million of its cars worldwide. The spiral translated into <a href="https://fortune.com/2020/10/06/volkswagen-vw-emissions-scandal-damages/">business losses</a> and <a href="https://fortune.com/2015/09/23/volkswagen-stock-drop/">negative shareholder returns</a>.</p>
<p>The greenwashing crackdown will continue with new environmental laws being written. The <a href="https://research.hktdc.com/en/article/MTAzNDU1OTc0Nw">EU has decided to amend its new consumer rules</a> to address greenwashing concerns, requiring producers to provide greater transparency on product information to avoid misleading claims. The UK is also targeting greenwashing with the Competition and Markets Authority’s <a href="https://www.whitecase.com/publications/alert/uk-clampdown-greenwashing">Green Claims Code</a>.</p>
<p>Organizations are driven towards greenwashing because of peer, consumer, or legal pressures. However, by doing so these businesses miss out on the true benefits of being sustainable.They also might expose themselves to the threat of legal action as more legislation is being drafted against greenwashing. As a result, these companies risk reputational damage, financial losses, and negative returns for stakeholders. Until regulators catch up to all the companies engaging in greenwashing, it’s up to us to be on the lookout for common greenwashing tactics, and stay fully informed about the purchases and investments we make.</p>
<p> </p>
<p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p>
<p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a href="https://www.finra.org/"><em>FINRA</em></a><em> </em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Environmental
What Is Greenwashing?
Greenwashing is a superficial and sometimes misleading way companies claim sustainability.
15 Aug, 2022
3 min read
<p><em>With financial markets around the world still reeling from muddled efforts to curb a global pandemic, one financial notion seems to be gaining fresh support: ESG. However, much about ESG remains unexplored. Are ESG and risk management practices related? How can ESG be used to benefit organizations and investors from a risk standpoint? Does one of the three ESG pillars play a bigger role in terms of generating financial returns, utility, and risk management?</em></p>
<p> </p>
<p>Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term, and this has been exemplified in the past couple of years. ESG investments, indices, and companies that keep considerations of the three factors at the forefront of their culture have bounced back higher than unbothered counterparts; for example, the S&P 500 ESG Index has beat the S&P 500 Index <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">since the first market slump in early 2020</a>, sustainable bonds have seen <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">record issuance in the year 2021</a>, and organizations with good ESG ratings <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">have displayed strong financial resilience</a> since the economic downturn.</p>
<p>How can this phenomenon be explained? The answer lies in the fact that <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">ESG can work as a risk management strategy</a>; not just in financial terms, but also in view of management conditions and meeting regulatory requirements.</p>
<p>A <a href="https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">report published by McKinsey</a> tells us that good ESG practices could potentially lead to positive cash flows, as well as hedge financial and reputational risks due to the following reasons:</p>
<ul>
<li>ESG drives consumer preference as some customers are <a href="https://www.forbes.com/sites/gregpetro/2022/03/11/consumers-demand-sustainable-products-and-shopping-formats/">willing to pay a premium to go green</a>. McKinsey also found that companies that use sustainable practices in their supply chain are able to cut costs.</li>
<li>Responsible reporting minimizes regulatory and legal interventions, which generates less negative publicity for an organization.</li>
<li>Having generous social policies in place helps motivate and retain staff, as well as increase employee productivity, which has been found to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">positively correlate with shareholder returns.</a></li>
<li>ESG practices help optimize investments and capital expenditures. One way to get ahead of the curve is to consider making investments into assets that take advantage of sustainability tailwinds. For example, China’s efforts to curb air pollution is estimated to create <a href="http://www.chinadaily.com.cn/a/201804/18/WS5ad69dc6a3105cdcf6518f2c.html">over $3 trillion in investment opportunities across various industries</a> through 2030.</li>
</ul>
<p> </p>
<h4><strong>Integrating ESG in business practices doubles as good risk management, which goes on to generate brand equity for companies and attract investors.</strong></h4>
<p>Research has <a href="https://www.mdpi.com/2071-1050/12/1/254">found a positive relationship</a> between ESG scores and brand equity value of S&P 500 companies. Good ESG incorporation mitigates reputational risks for an organization, and that is where investor confidence is built. In turn, investors manage financial risks by keeping exposures to ESG investments in their portfolios, which also helps them derive utility as they are inclined to feel that their investment decisions are part of a bigger movement to do better for the world.</p>
<p> </p>
<h4><strong>It's the Social and Governance factors that actually push away the risks.</strong></h4>
<p>We constantly hear a lot of buzz surrounding the Environmental aspect which dominates sustainable investment allocations, but the value of the Social and Governance aspects which have a determining impact on sustainable practices, and as a result, risk management within an organization, are rarely ever given recognition.</p>
<p>Taking a deep-dive into how the “S” and “G” areas are equally at play as the “E” in contributing to sound risk management within a company and yielding positive returns for investors, we delve into some research on how the three factors impact financial performance on an absolute basis.</p>
<p>A <a href="https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&ved=2ahUKEwi9kr_i48b3AhWTQc0KHfB2DUAQFnoECAYQAQ&url=https%3A%2F%2Fjournals.vgtu.lt%2Findex.php%2FJBEM%2Farticle%2Fdownload%2F12725%2F9980&usg=AOvVaw1dAd8rRWX31GFeB0IY3x9v">recent study</a> examined the overall and individual influences of corporate E, S, and G conduct on economic performance of S&P 500 firms. A breakdown of the scores for each aspect across companies from different industries and their correlation with the respective companies’ economic performances were looked at. The results may be surprising at first look: Corporate “E” conduct does not have any significant effect on firm economic performance, while conduct for “S” and “G” significantly influences firm economic performance.</p>
<p>The Social and Governance components are key to the general practices of risk management; aiming to do justice to these elements in the day-to-day course of running a business ensures responsible and skilled management structures, risk ownership, and compliance with regulatory requirements.</p>
<p>Here we covered reasons to explain these occurrences in the market — that ESG is an exceptional risk management tool for organizations internally, and also for investors in financial terms. More importantly, we saw that “S” and “G” are crucial to building optimal risk practices within a firm, which when combined with “E”, enhance the attractiveness of businesses and generate solid returns over the long term for investors.</p>
<p> </p>
<p><strong><u>References</u></strong></p>
<p>Ajour, E. et al. (2020). <em>The Role of Sustainability in Brand Equity Value in the Financial Sector. </em>MDPI. Retrieved April 29, 2022, from <a href="https://www.mdpi.com/2071-1050/12/1/254">https://www.mdpi.com/2071-1050/12/1/254</a></p>
<p>BNP Paribas SA Group (2021). <em>BNP Paribas recognized by EcoVadis and FTSE4Good extra-financial ratings. </em>BNP Paribas. Retrieved May 06, 2022, from https://group.bnpparibas/en/news/bnp-paribas-recognized-by-ecovadis-and-ftse4good-extra-financial-ratings</p>
<p>Cek, K. & Eyupoglu, S. (2020). <em>Does environmental, social and governance performance influence economic performance? </em>Scopus. Retrieved April 29, 2022, from <a href="https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1">https://www.scopus.com/record/display.uri?eid=2-s2.0-85087457813&origin=inward&txGid=4864f78cdc725470874f18fec147c309&featureToggles=FEATURE_NEW_DOC_DETAILS_EXPORT:1</a></p>
<p>Cheasty, G. (2019). <em>Asset Management: Integrating ESG Risk into a Risk Management Framework.</em> Deloitte. Retrieved April 22, 2022, from <a href="https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html">https://www2.deloitte.com/ie/en/pages/financial-services/articles/esg-risk-management-framework.html</a></p>
<p>Dorobantu, S., Henisz, W. & Nartey, L. (2022). <em>Spinning gold: The financial returns to stakeholder engagement. </em>Wiley Online Library. Retrieved May 09, 2022, from <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180">https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.2180</a></p>
<p>Edmans, A. (2011). <em>Does the stock market fully value intangibles? Employee satisfaction and equity prices. </em>ScienceDirect. Retrieved May 09, 2022, from <a href="https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869">https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000869</a><br /><br />Henisz, W., Koller, T., and Nuttall, R. (2019). <em>Five ways that ESG creates value. </em>McKinsey Quarterly. Retrieved May 09, 2022, from https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx</p>
<p>Lawrence, E., & Zlatkova, S. (2020). <em>Managing risk with ESG investing - CFA society chicago</em>. Northern Trust Asset Management. Retrieved April 26, 2022, from <a href="https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf">https://www.cfachicago.org/wp-content/uploads/2020/10/Blog_-Managing-Risk-with-ESG-Investing.pdf</a></p>
<p>Murugaboopathy, P., & Dogra, G. (2021). <em>Global sustainable bonds see record issuance in Jan-Sept 2021</em>. Reuters. Retrieved April 26, 2022, from <a href="https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/">https://www.reuters.com/business/sustainable-business/global-sustainable-bonds-see-record-issuance-jan-sept-2021-2021-10-12/</a></p>
<p>S&P Global. (2022). <em>S&P 500 ESG Index</em>. S&P Dow Jones Indices. Retrieved April 22, 2022, from <a href="https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview">https://www.spglobal.com/spdji/en/indices/esg/sp-500-esg-index/#overview</a></p>
<p> </p>
<p style="padding-left: 440px;"><strong>∙ ∙ ∙</strong></p>
<p><em>The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </em><a href="https://www.finra.org/"><em>FINRA</em></a><em> </em><a href="https://www.sipc.org/"><em>SIPC</em></a><em>.</em></p>
ESG
Investing
How Does ESG Relate to Risk Management?
Some investors have a hypothesis that ESG investments generate stronger, more sustainable returns over the long term.
25 Aug, 2022
4 min read
<p><span style="font-weight: 400;">Are you an investor who cares not only about the performance of your portfolio, but also how your investments affect the environment, society, or humanity as a whole?</span></p>
<p><span style="font-weight: 400;">If you do, you’re not alone. There are many investors who invest based on their own morals, what they think is ethical, or to achieve a certain social goal. In fact, this type of investing is so popular that there are a handful of different terms that refer to the practice of aligning your investments with your values.</span></p>
<p><span style="font-weight: 400;">You may have heard of impact investing, sustainable investing, socially-responsible investing, or ESG, but what do all these terms actually mean? And how do they differ?</span></p>
<p> </p>
<p><span style="font-weight: 400;">Let’s define some of the commonly used terms:</span></p>
<p> </p>
<p><strong>ESG — </strong><span style="font-weight: 400;">Stands for </span><a href="https://fennel.com/fennel101/esg"><span style="font-weight: 400;">Environmental, Social, and Governance</span></a><span style="font-weight: 400;">. A framework for assessing companies beyond solely financial data, by looking at that company’s impact on the environment, its impact on society, and how that company is organized. ESG is about better understanding a company by taking into account this information.</span></p>
<p> </p>
<p><strong>ESG investing — </strong><span style="font-weight: 400;">Involves incorporating ESG data in order to make investment decisions. Traditionally, ESG investing is </span><a href="https://fennel.com/blog/how-does-esg-relate-to-risk-management"><span style="font-weight: 400;">viewed as a form of risk management</span></a><span style="font-weight: 400;">, where ESG is used to identify companies that are managed sustainably and avoid those that could face regulatory scrutiny. However, ESG investing is often grouped together with socially responsible investing or sustainable investing — even though technically those refer to different strategies.</span></p>
<p> </p>
<p><strong>Ethical investing — </strong><span style="font-weight: 400;">Using your personal code of ethics to determine what to invest in. This differs from investor to investor. One person may think ethical investing involves divesting from companies that test on animals, while another person may not care about animal testing and instead focus on avoiding companies that benefit from child labor.</span></p>
<p> </p>
<p><strong>Impact investing —</strong><span style="font-weight: 400;"> According to the </span><a href="https://thegiin.org/impact-investing/need-to-know/#what-is-impact-investing"><span style="font-weight: 400;">Global Impact Investing Network</span></a><span style="font-weight: 400;">, impact investing refers to making investments “with the intention to generate positive, measurable social and environmental impact alongside a financial return.”</span></p>
<p><span style="font-weight: 400;">Impact investing is a broad term, but in order to qualify as impact investing the investor should have the desire to create a positive, the ability to measure that impact, the evidence to inform that investment decision, and the goal of also generating returns in the end.</span></p>
<p> </p>
<p><strong>Socially responsible investing (SRI) —</strong><span style="font-weight: 400;"> Involves investing in something based on how that investment impacts the environment, society, or the greater good. The concept of SRI has been around for decades (at least) and is sometimes used interchangeably with ethical investing and sustainable investing.</span></p>
<p> </p>
<p><strong>Sustainable investing —</strong><span style="font-weight: 400;"> According to </span><a href="https://online.hbs.edu/blog/post/sustainable-investing"><span style="font-weight: 400;">Harvard Business School</span></a><span style="font-weight: 400;">, sustainable investing refers to “a range of practices in which investors aim to achieve financial returns while promoting long-term environmental or social value” — emphasis on </span><em><span style="font-weight: 400;">long-term</span></em><span style="font-weight: 400;">.</span></p>
<p><span style="font-weight: 400;">Sustainable investing often is associated with investing in green energy or environmentally-friendly practices because the word “sustainable” is often used in that setting</span></p>
<p> </p>
<p><strong>Values-based investing —</strong><span style="font-weight: 400;"> Similar to ethical investing, values-based investing involves making investment decisions based on a person’s own set of values. Sometimes those values reflect a person’s morals or religion, and other times they reflect a more generalized set of beliefs. Regardless of what those beliefs are, a values-based approach depends on the individual investor. </span></p>
<p> </p>
<h4><strong>Which approach is best for you?</strong></h4>
<p><span style="font-weight: 400;">After going through all of these terms, you may have noticed that there are a lot of similarities. Sometimes the differences between these approaches depend on the intention or end goal, other times it just comes down to semantics.</span></p>
<p><span style="font-weight: 400;">Hopefully, next time you hear one of these terms get tossed around you’ll have a better understanding of what it means. This understanding may help you make your own investing decisions going forward.</span></p>
<p> </p>
<p style="padding-left: 440px;"><strong>* * *</strong></p>
<p><span style="font-weight: 400;">The views expressed are those of the author at the time of writing, are not necessarily those of the firm as a whole and may be subject to change. The information contained in this advertisement is for informational purposes and should not be regarded as an offer to sell or a solicitation of an offer to buy any. It does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of specific investors. Investing involves risk, including the loss of principal. Past performance is not indicative or a guarantee of future performance. We do not provide tax, accounting, or legal advice to our clients, and all investors are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. The information and any opinions contained in this advertisement have been obtained from sources that we consider reliable, but we do not represent such information and opinions are accurate or complete, and thus should not be relied upon as such. This is particularly true during periods of rapidly changing market conditions. Securities offered through Fennel Financials, LLC. Member </span><a href="http://finra.org"><span style="font-weight: 400;">FINRA</span></a><span style="font-weight: 400;"> </span><a href="https://www.sipc.org/"><span style="font-weight: 400;">SIPC</span></a><span style="font-weight: 400;">.</span></p>
ESG
Investing
ESG vs SRI: What Do All the Terms Mean?
There are a lot of terms used in the world of impact investing, what do they all mean?
01 Nov, 2022
2 min read
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