ESG investing making a real impact?

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Tingting1013
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ESG investing making a real impact?

Post by Tingting1013 »

Came across this excerpt in a WSJ article about the decline of coal:
Mean­while the rise of “ESG” or en­vi­ron­mental, so­cial and gov­er­nance in­vest­ing is con­strict­ing the in­dus­try’s abil­ity to ob­tain cap­i­tal, cur­rent and for­mer ex­ec­u­tives say.

As ma­jor in­vestors such as JP­Mor­gan Chase & Co. and Black­Rock Inc., the world’s largest as­set man­ager, turn away from coal over con­cerns about cli­mate change, coal com­pa­nies are strug­gling to se­cure the in­sur­ance they need to op­er­ate. That hurts not only com­pa­nies that mine the ther­mal coal used to gen­er­ate elec­tric­ity, but also those that mine met­al­lur­gi­cal coal to make steel.

Con­tura En­ergy Inc., one of the na­tion’s largest pro­duc­ers of coal for steel­mak­ing, has seen in­sur­ers and bond­ing providers flee the in­dus­try over the past two years.

“If they can cut off your fi­nanc­ing, they cut off your abil­ity to func­tion as a com­pany,” said David Stet­son, the Ten­nessee-based com­pa­ny’s chief ex­ec­u­tive.

...

“There is a shrink­ing pool of can­di­dates to own stock in pub­lic coal com­pa­nies,” said Mr. Stet­son, whose com­pany is pub­licly traded.
First time I’ve read about something like this. I thought ESG investing was just virtue-signaling but maybe not?

A smaller universe of investors means a higher cost of capital and lower profitability for the firm. Pushed to the extreme it might make the whole industry unprofitable?
DJN
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Re: ESG investing making a real impact?

Post by DJN »

Hi,
having listened to Larry Fink peddling ESG funds from Blackrock with no reference at all to the full range of Blackrock products I can only assume that this is a clear effort to catch a wave in front of the crowd still on the beach. I would have thought that market forces would eventually or quite quickly reflect any real movement to ESG products. So maybe what you have quoted is correct? By the way, the costs for ESG products are greater than that of the usual passive index funds, so that is not an incentive.
DJN
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z3r0c00l
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Re: ESG investing making a real impact?

Post by z3r0c00l »

Just by coincidence, this has been a good stretch of time to stay away from coal, oil, and casinos.
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JoMoney
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Re: ESG investing making a real impact?

Post by JoMoney »

archive of article https://archive.is/Z6H2p

From the article, it seems like there's a whole lot more going on in that industry impacting it beyond ESG investing. Hard to make the case from that article that it's the ESG investing that's "making a real impact".
Frankly, my expectation is that if activist "investors" want to refuse to service some of it's potential customers, it just creates an opportunity for other investors that want to make money, so while it might create some temporary difficulties and frictions, if it is a profitable market to be in, I don't think it's the ESG "investing" making the difference to the industry.
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aristotelian
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Re: ESG investing making a real impact?

Post by aristotelian »

Why would insurers care whether Blackrock funds own coal or not? I would say rise of ESG funds and insurance companies awareness of climate are both caused by political pressure and consciousness raising from the environmental movement, not that one is causing the other.
Valuethinker
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Re: ESG investing making a real impact?

Post by Valuethinker »

Tingting1013 wrote: Thu Sep 17, 2020 5:19 am Came across this excerpt in a WSJ article about the decline of coal:
Mean­while the rise of “ESG” or en­vi­ron­mental, so­cial and gov­er­nance in­vest­ing is con­strict­ing the in­dus­try’s abil­ity to ob­tain cap­i­tal, cur­rent and for­mer ex­ec­u­tives say.

As ma­jor in­vestors such as JP­Mor­gan Chase & Co. and Black­Rock Inc., the world’s largest as­set man­ager, turn away from coal over con­cerns about cli­mate change, coal com­pa­nies are strug­gling to se­cure the in­sur­ance they need to op­er­ate. That hurts not only com­pa­nies that mine the ther­mal coal used to gen­er­ate elec­tric­ity, but also those that mine met­al­lur­gi­cal coal to make steel.

Con­tura En­ergy Inc., one of the na­tion’s largest pro­duc­ers of coal for steel­mak­ing, has seen in­sur­ers and bond­ing providers flee the in­dus­try over the past two years.

“If they can cut off your fi­nanc­ing, they cut off your abil­ity to func­tion as a com­pany,” said David Stet­son, the Ten­nessee-based com­pa­ny’s chief ex­ec­u­tive.

...

“There is a shrink­ing pool of can­di­dates to own stock in pub­lic coal com­pa­nies,” said Mr. Stet­son, whose com­pany is pub­licly traded.
First time I’ve read about something like this. I thought ESG investing was just virtue-signaling but maybe not?

A smaller universe of investors means a higher cost of capital and lower profitability for the firm. Pushed to the extreme it might make the whole industry unprofitable?
The effect on cost of capital is likely to be small. The tobacco industry, after all, has remained publicly listed & highly profitable. It might be that ethical considerations cost you 1-2x on the PE ratio say or 100 bps (1.0%) on your bank facility (working capital line of credit) or bond issue.

It may reduce the attractiveness of being a public company. If your stock is only going to trade at 10 times earnings ie PE of 10 why bother to be quoted? Many private pools of capital are less scrupulous and as long as there is demand for the end product they will stay in business.

The other area is in bank Project Finance. If banks won't lend, new projects in an industry such as power stations or mines just won't get built.
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JoMoney
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Re: ESG investing making a real impact?

Post by JoMoney »

aristotelian wrote: Thu Sep 17, 2020 7:16 am Why would insurers care whether Blackrock funds own coal or not? I would say rise of ESG funds and insurance companies awareness of climate are both caused by political pressure and consciousness raising from the environmental movement, not that one is causing the other.
The article didn't make the connection very well, but I think the "ESG" movement is more than just Blackrock, and includes things like some activist pensions (CalPERS notably) as well as consumer ESG mutual funds, that not only actively pick which stocks/bonds/securities they want to own, but use their vote to control the boards and management of companies (like insurance companies) to discriminate against businesses/industries they don't like.
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Valuethinker
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Re: ESG investing making a real impact?

Post by Valuethinker »

aristotelian wrote: Thu Sep 17, 2020 7:16 am Why would insurers care whether Blackrock funds own coal or not? I would say rise of ESG funds and insurance companies awareness of climate are both caused by political pressure and consciousness raising from the environmental movement, not that one is causing the other.
Axa in particular (so several hundred billions of assets, maybe over 1 trillion) has divested from all tobacco companies because of the health implications and the effect on its insured populations.

It is now targeting carbon emitters. Rising sea levels, more violent and frequent storms, wildfires & droughts all affect Axa's claims experience.

(The Norwegian state sovereign wealth fund, over USD 1 trillion, is targeting for example utilities which source more than 30% of their electricity from coal. Coal producers. Tar sands oil producers. Since the fund comes from state oil revenues this makes sense in terms of portfolio diversification).
Valuethinker
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Re: ESG investing making a real impact?

Post by Valuethinker »

JoMoney wrote: Thu Sep 17, 2020 7:27 am
aristotelian wrote: Thu Sep 17, 2020 7:16 am Why would insurers care whether Blackrock funds own coal or not? I would say rise of ESG funds and insurance companies awareness of climate are both caused by political pressure and consciousness raising from the environmental movement, not that one is causing the other.
The article didn't make the connection very well, but I think the "ESG" movement is more than just Blackrock, and includes things like some activist pensions (CalPERS notably) as well as consumer ESG mutual funds, that not only actively pick which stocks/bonds/securities they want to own, but use their vote to control the boards and management of companies (like insurance companies) to discriminate against businesses/industries they don't like.
Yes. Although most of such votes by shareholders are non binding resolutions on the Board. Like votes on executive pay.

Public investors generally don't control boards. Private equity funds do and some of them incorporate ESG goals into their funds.
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firebirdparts
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Re: ESG investing making a real impact?

Post by firebirdparts »

I think stock “enthusiasts” like TSLA holders are having a much bigger effect. In theory, ESG effects should distort the market. Companies will respond to this, but the truth is that’s really all the CEO does anyway, whether there is ESG demand or not. His main job is to convince investors the stock deserves to be admired more next quarter than last quarter. If you work for the company, then you’d see the response translated into what the company wants to actually do to be more admired.
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