Is “ESG Investing” just a hype?

Serena Mak, Green Finance Advisor of Friends of the Earth (HK)

As more and more investors and governments are recognizing the importance of ESG, we are seeing continuous increase of sustainable and green investments. For example, there were around 265-300bn USD of green bonds issuance in 2020 alone, and social bonds has also taken a serious foothold with over 730bn USD of issuance. The sustainable debt market has grew over 27 times (!) since 2013.

With the exponential growth and interest, different voices has started to emerge, and the effect of lack of ESG reporting standards is also taking its toll. Issuers are being accused of ‘green washing’ (unsubstantiated claim / false impression created for investors that a corporate’s products or services are environmentally friendly, or ‘green’), and even within the same institution we can see opposing views of ESG.

Earlier in 2020, Blackrock’s CEO has issued his annual ‘letter to the CEOs’, where climate change is named as one of the top priorities that he believed that CEOs need to be thinking about. And just a week or two ago, Blackrock’s former chief investment officer for Sustainable Investing has published an opinion piece in a newspaper where he claimed that sustainable investing is “…little more than marketing hype, PR spin and disingenuous promises from the investment community.” If even the investment officer responsible for sustainable investing is saying this is a marketing hype, how should the investment community / retail investors / general public think about it?

In my opinion, just like any new topic that emerges through the evolution of world views, there is meant to be different voices (think about how the topic of gender equality has evolved in the past century, as one example). However, the important part to keep in mind is that at least we have to start noticing and discussing these critical issues such as carbon emission and global warming, which is exactly what the sustainability investing trend is driving at right now.

Standards may take time and global consensus to develop, but one thing does not change – the earth is waiting for us to take prompt actions to save itself (and all lives and resources in it) and it needs to start now. Let’s keep a clear and balanced mind, to make right investment decisions for the environment, and not be derailed or discouraged by the opposing views.

References:

https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

https://www.usatoday.com/story/opinion/2021/03/16/wall-street-esg-sustainable-investing-greenwashing-column/6948923002/

https://www.climatebonds.net/2021/01/record-2695bn-green-issuance-2020-late-surge-sees-pandemic-year-pip-2019-total-3bn


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Bitcoin mining leads to huge consumption of electricity. Does it meet the ESG standard?

Green Finance Advisor of Friends of the Earth (HK)

Bitcoin’s energy use is “staggering” and becoming a worry for big investors as it conflicts with the new focus on environmental investing. In view of the above, we would like to take a high-level preliminary look on whether ESG and cryptocurrency are compatible investment strategies.

Environmental

The major environmental concerns of ESG relate to reducing the impact of climate change and ensuring sustainable development. It is a huge consumption of electricity for bitcoin mining and it is no secret that the process of validating transactions used by the leading cryptocurrencies such as Bitcoin, Ethereum and Litecoin is incredibly energy inefficient and generates vast amounts of carbon dioxide.

According to the Digiconomist website, Bitcoin mining alone generates as much CO2 as New Zealand, and uses as much electricity as Chile, even more electricity each year than Argentina and Ukraine due to the energy- intensive mining process.

According to Cambridge research, the inefficiency and waste look even worse compared to existing financial infrastructure. The CO2 produced processing one bitcoin transaction is the same as that generated processing 722,705 Visa card transactions.

Renewable Energy

The arguments used in favour of cryptocurrencies from an environmental perspective are that they mostly use renewable energy, and that their energy consumption acts as an incentive to develop more environmentally friendly forms of energy production. 

It is true that a significant proportion of Bitcoin mining is powered by renewables, according to research by the University of Cambridge, but the heavy concentration of Bitcoin mining in China demonstrates a great deal of mining is generated by burning coal and hence CO2 production. Others argue that bitcoin mining can be powered by renewable energy such as hydroelectric power or even wind power, however, the wind power will fluctuate from one minute to the next and may reduce the local bird population. In addition, there are also disadvantages of hydroelectric energy, causing environmental and social threats, such as damaged wildlife habitat, harmed water quality, obstructed fish migration, and diminished recreational benefits of rivers. In view of the above, there are major problems with reliance on renewable energy and hence it is not surprising that bitcoin miners would retreat to traditional sources of energy such as coal burning and shale oil.

In essence, investing in cryptocurrencies would impose challenges to the environment and create environmental concerns under the ESG framework.  Perhaps, more studies and research should be done in the near future as investing in cryptocurrencies has become increasingly popular in the financial world.


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Where Are We with ESG Regulations and Where Do We Need to Be?

Green Finance Advisor of Friends of the Earth (HK)

After a banner year for ESG investing in which flows into ESG related funds was at a record high, the heightened public awareness as a result of the pandemic and the election of a government serious about tackling climate change in the United States, it is perhaps prudent to take a look at where we are in terms of ESG regulation in different jurisdictions and what are the important areas remaining policymakers will need to legislate.

Exhibit 1: European Regulations – Current and Future Expected (Chetwode, S., Bingham, D., Tylenda, E., 2021)
Exhibit 2: Asian Regulations – Current and Future Expected (Chetwode, S., Bingham, D., Tylenda, E., 2021)
Exhibit 3: US Regulations – Current and Future Expected (Chetwode, S., Bingham, D., Tylenda, E., 2021)

Evident from the above summaries of the various regulations already in place and or are expected to be in place in the future in Europe, Asia, and the US, we can say that disclosure requirements are becoming the norm rather than the exception on the corporate side. For the investor, in the same vein, disclosure and some qualitative adherence to ESG compliance is required for the asset manager when choosing investments for large institutional investors. The net effect is such that those securities with appropriate ESG disclosure and are able to qualify compliance with the best practices enjoy more favorable investor scrutiny and which may even translate to lower funding costs.

However, all these capital markets reform may mean nothing in the fight against climate change if how we source our energy is not changed radically. Despite the seeming success in ESG investing, we are yet to see very concrete evidence that the world is moving away from the consumption of fossil fuels and towards renewable energy. This blogpost previously argued that the most effective way to push both producers and consumers away from carbon-based energy towards renewable energy is through the implementation of a cap-and-trade program, in which a price is attached to each ton of carbon produced in the energy production process, and thus allowing market forces of price and quantity, supply and demand drive the process of decarbonization.

In an interview with Michael Greenstone, Director of the Energy Policy Institute at the University of Chicago (EPIC), he highlights some of salient issues needing to be addressed in implementing a cap-and-trade program. The first issue is that the effective price on carbon in most parts of the United States and around the world today is basically zero, so the first and most important step is to raise the price of carbon towards the social cost of carbon. The second issue is that there is an exceptionally wide range of prices for carbon around the world, with Sweden’s price at around $125/ton to EU and California’s prices in the high-teens or low-20s/ton. The result is such that the average world price of carbon is around $2.50/ton, because most of the world has a price of zero. Thus, for any carbon pricing scheme to work in its drive towards decarbonization, the pressing issue is to have all of the governments around the world to commit to having a carbon price, instead of a price of zero, and the second even more difficult issue to resolve is to have a global price of carbon that can be agreed by all of the governments in the world. This second issue will obviously have detrimental implications for developing economies, since they have enormous energy demand but are at the same time less economically capable of paying for clean energy or a more expensive carbon adjusted fossil fuel energy. The success of any cap-and-trade scheme will hinge upon negotiations between developed and developing nations where subsidies in one form or another is made to the latter to participate in the global carbon pricing scheme, where it is understood that the future development of developing economies rather than stifling their growth feeds back to positive growth and economic development of developed economies. (Nathan, A., Galbraith, G., Grimberg, J., 2020.)

For policymakers, they should focus on (i) the enforcement of the carbon price on all economies; (ii) setting a standardized global carbon price; and (iii) negotiate with developing economies the appropriate carbon subsidy such that the global carbon price will not stifle their economic development, and achieve these economies’ buy-in into the carbon cap-and-trade scheme. The achievement of these goals should see a very tangible move in the effort towards decarbonisation of our energy supply chain.

REFERENCES

  • Chetwode, S., Bingham, D., Tylenda, E., (2021), “A look back at 2020 and outlook for 2021, in charts”, Goldman Sachs Global International Research
  • Nathan, A., Galbraith, G., Grimberg, J., (2020), “Investing in Climate Change”, Goldman Sachs Global International Research

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CO2 emission strategy; Review, Renew and Restart

Mostafa Monira Firdouse, Green Finance Advisor of Friends of the Earth (HK)

Pre-COVID 19

Ten years ago, the question was whether emerging market economies should engage in climate change mitigation or wait for the high-income countries to take the lead. A common argument made at that time in these countries was “grow now and clean up later.” However, things are dramatically changed after COP21 in 2015 and continued. The climate protests that took place all over the world in 2019 were a result of heightened public awareness and growing frustration over the lack of urgency shown by governments and businesses. Shell’s defeat in Nigerian oil pollution is a huge success of that, and it shows that ESG is not a choice anymore. At the same time, Climate and sustainable financing has increased significantly over the last decade.

Post COVID 19

However, the pandemic has paved the way for a fundamental change in human behavior.

The Millennial and Generation Z groups, defined as those born between 1980 and 1995 and 1996 and 2010 respectively, together make up a significant proportion of the global population: in emerging markets alone, they account for around 46% of the population. The Deloitte Global Millennial Survey 2019 found that both Millennials and Gen Z identified climate change as the biggest challenge currently facing society.

Also, the extreme weather is a continuous reminder. The Australian wildfires of late 2019 highlighted the impact that this weather can have on habitats.

One of the few positives to come out of the COVID-19 pandemic has been the immediate impact on greenhouse gas (GHG) emissions. Nationwide lockdowns have led to a reduction in harmful emissions drop of nearly 8% in global CO2.

However, the question now is: will we revert to historic norms after the pandemic, or will it bring about some long-lasting changes? Do we know yet?

What’s Next

In light of the current COVID-19 pandemic there are now two schools of thought for the trajectory of climate action.

(i) Pandemic could lead to fundamental changes in human behaviour which may act as a tailwind for the climate change theme;

(ii) The shock to the global economy coupled with lower oil prices could result in policy measures being directed elsewhere resulting in the cost trajectories for renewables and electric vehicles becoming less favourable. 

Different analytics showed that; green recovery post Covid-19 will be sustained by three trends:

— The technological landscape has evolved rapidly in favour of clean alternatives, reducing the attractiveness of fossil fuels. Markets will continue to move towards clean technologies given their risk / return characteristics.

— Climate change negotiations have made progress in only a few years and pressure has been growing for more countries to act on climate change.

— Financial innovation to support green alternatives has been increasing rapidly and is leading to ever cheaper green technologies.

FLAGGING my urge

Wind of change is blowing; it is clear that economic empowerment and profitability does not mean everything and will not last long. Besides, technological advancement needs money, reach and continuous improvement to be beneficial. And all these economic and technology will be meaningful if there is social benefit. Vertical skills have been developed and refined, but now is the time to connect the dots and build horizontally to bring SOLIDARITY. This is the time economics, social, science, technology etc. all GURUs should work together forgetting their own personal/institutional/regional gain. Doesn’t mean that it’s not happening, but the end product in none.

Perhaps, this is the time to think about viability of ‘Shared Socioeconomic Pathways (SSP)’.

Take a closure look on climate change and green growth strategy.


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人造肉

香港地球之友綠色金融顧問

近年出現不少人造肉產品, 不少朋友問在下, 人造肉是否健康? 是否環保? 又有基金經理問在下, 人造肉是否值得投資? 在下將在這篇文章嘗試解釋。

食素多年的朋友都知道, 香港的齋舖, 一向以來都有素肉供應。傳統素肉的制作,是以腐皮豆粉制作,但這些素肉往往經油炸精制及加入大量添加劑, 多食對身體絕對有害無益。新一代的所謂植物基肉, 如Beyond Meat 及Omnipork 等的產品, 他們的造肉方法, 首先是向上游供應商買入植物基蛋白質, 再經加工達到仿真效果。而他們的上游供應商, 是以高科技將豆類內的絲質植物蛋白質從原豆分解出來, 不單保留豆內蛋白質, 還可以較容易造出肉的口感。

在下認識的素食朋友大致分為兩類, 就是環保人和佛教徒, 一般來說, 這兩類人都不是”齋心唔齋口”的類別, 對肉的味道與質感沒有太大追求, 但每人都會追求健康。若純以健康角度來說, 這類人造肉與傳統素肉相比, 確有很大的突破, 一方面這類製成品含有比例頗高的蛋白質和氨基酸, 另一方面在工業化的分解過程基本沒有添加, 所以純以健康角度來說, 能提供不錯的身體所需營養, 可以說是一個不錯的選擇, 但要注意的, 是如果大家有去過麥當奴嘗試Omnipork 的產品, 就會知道他們的產品口味很重, 含鈉量當然非常高, 對身體當然有壞影響, 一般素食朋友, 不會喜歡吃午餐肉, 這類肉吃起來比質素高的午餐肉還差很遠, 很難吸引素食者。不過在下認為, 他們的”難食”與上游的植物基蛋白質供應商無關, 是他們自己的加工方法仍離不開重口味的午餐肉思維。Green Common 若不改變高鈉問題, 在下也很難會成為他們的客人。

植物基肉是否更環保? 與植物相比,它加了兩重加工過程, 但與真肉相比, 它們確能大量減少使用資源, 包括能源, 食水等, 所以是否更環保, 就視乎閣下與植物相比還是與動物相比, 當中還要考慮這類產品所能提供的蛋白質與氨基酸, 是一般素食難以達到的。

另一種近年開始受關注的人造肉, 是培植肉, 意思是生產商抽取動物幹細胞, 再進行人工培育。到現在為止, 全球只有新加坡政府批出了牌照給一家培植肉公司, 生產雞肉。現時這所餐廳供應的雞肉, 是植物基雞肉與培植雞肉各一半的混合。是否好味, 由於疫情關係, 在下沒有機會到新加坡試試, 希望將來有機會。

培植肉的技術發展現時仍在初階, 要簡單地造成細胞分裂成長並不困難, 但要培育出肌肉組織, 血管, 脂肪等, 實在非常困難, 如要培育出不同動物部位的肌肉味道質感, 更可能永遠辦不到, 我們需要知道, 動物的肌肉是與身體各個內臟、包括肝、肺、腎、腦等各個部位有不同互動而產生, 在未來數十年, 很難有機會看到一塊真的培植靚牛扒。 所以我們很難在這階段分析這些肉是否比天然肉健康, 或是否環保, 畜牧業雖然排出大量溫室效應極高的甲烷, 但甲烷停留在大氣中的時間, 遠比工業化排出的二氧化碳為短, 所以在技術成熟前, 要下定論是否更環保, 仍十分困難。但明顯地, 培植肉可以完全改變傳統肉食的極端殘酷生產過程, 應會符合宗教的要求。

人類面對氣候問題, 人口問題。 人類人口高峰相信約到2065年才出現, 高峰時會達到一百億人, 所以面對食物可能因氣候而減產, 但人口增加的威脅, 生產人造蛋白質及氨基酸以維持生命確是刻不容緩, 不管你喜不喜歡現時那些討厭的生產商生產的討厭植物午餐肉, 我們仍一定要面對這問題。大家都很清楚, 如果所有民族都如白人一樣喜歡吃牛扒, 人類可生存下去的時間絕對不會很長。

近一兩年, 在下碰見過一兩個特別的植物基肉項目, 他們的技術與以上所說的純將蛋白質從豆內分解有很大分別, 他們是以特殊發酵技術培植微海藻, 以豆渣等副產品作為養份供應, 令微海藻高速製造植物基或半海產蛋白質, 由於是海產品, 它們的氨基酸與各種營養含量更高, 又因為只用食物渣滓, 它們的厡材料要求很低, 所以理論上, 這種技術生產的蛋白質, 所需的能源, 食水, 原料等, 不單止遠比肉類低, 也遠比一般植物低, 比吃疏菜更環保, 還不需要擔心各種農藥化肥土壤污染等問題 (當然下游生產商生產成甚麼樣的製成品, 又是另一回事), 可惜到現在為止, 在下仍未見到有技術成熟的供應者。各基金經理們, 如果碰到這類項目而又技術成熟, 相信會是未來最有前途的投資之一, 大家努力了。


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