Alpha-Centric ESG Research

Kyle Rudden

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:<ul>
<li>Affects firms doing business with U.K. asset managers/owners not just the managers/owners.</li>
<li>Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.</li>
<li>Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).</li>
</ul>This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

Two days ago the U.K. Financial Reporting Council announced 125 successful signatories (aka "not greenwashers") to the revised U.K. Stewardship Code. Signatories are integrating stewardship and ESG (Environmental, Social, Governance) factors into investment decisions, to high standards.Whilst this is ostensibly limited to U.K. pension assets, ramifications are more far-reaching than it might at first appear (one indication is the number of North American and Asia Pacific signatories, in addition to the expected European names). More specifically, the broad relevance is because it:
Affects firms doing business with U.K. asset managers/owners not just the managers/owners.
Is a quasi-blueprint for similar anti-greenwashing initiatives taking root in the U.S. and Asia.
Greenwashing is having an increasing impact on stocks prices (e.g., DWS Group last month).
This is one battle in an emerging global war on greenwashing. The U.S. SEC has its own agenda to fight greenwashing and Asia isn't far behind (e.g., regulators in Japan stepping up scrutiny). There is more to come, and a lot to learn from this including who is (and is not) on the signatory list.

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

Here it comes, the David-and-Goliath metaphor. Cliché is an understatement, but who cares – it is a most fitting allegory for the epic proxy battle between a diminutive activist investor you've never heard of and a "Big Oil" Behemoth that you know all too well... <a href="https://www.smartkarma.com/entities/exxon-mobil-corp" target="_blank" data-smartkarma-citation="entities:811:1" rel="noopener">Exxon Mobil (XOM US)</a>.Guess who won?Well, that depends on perspective. The activist hedge fund (Engine No. 1) gained three Board seats so one could certainly say that Engine won. As did the shareholders that backed Engine in its proxy (BlackRock, Vanguard, State Street, CalPERS, CalSTRS). But the biggest winner of all?Planet Earth.Engine's improbable win – in conjunction with similar (albeit less spectacular) shareholder actions at other supermajors – appears to signify a seismic shift in how Big Oil's shareholders view climate change, and could portend real change (e.g., accelerated decarbonisation and better reporting).

Here it comes, the David-and-Goliath metaphor. Cliché is an understatement, but who cares – it is a most fitting allegory for the epic proxy battle between a diminutive activist investor you've never heard of and a "Big Oil" Behemoth that you know all too well... Exxon Mobil (XOM US).Guess who won?Well, that depends on perspective. The activist hedge fund (Engine No. 1) gained three Board seats so one could certainly say that Engine won. As did the shareholders that backed Engine in its proxy (BlackRock, Vanguard, State Street, CalPERS, CalSTRS). But the biggest winner of all?Planet Earth.Engine's improbable win – in conjunction with similar (albeit less spectacular) shareholder actions at other supermajors – appears to signify a seismic shift in how Big Oil's shareholders view climate change, and could portend real change (e.g., accelerated decarbonisation and better reporting).

Engine Versus Exxon: Activist Hedge Fund's Proxy Fight Win Reverberates Through "Big Oil" Boardrooms

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in <a href="https://www.smartkarma.com/insights/bitcoin-on-balance-sheets-indirect-crypto-exposure-considerations-for-crypto-leery-esg-investors" target="_blank" data-smartkarma-citation="insights:52207" rel="noopener">Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors</a>. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates <a href="https://www.smartkarma.com/entities/bitcoin-usd" target="_blank" data-smartkarma-citation="entities:25895:1" rel="noopener">Bitcoin (XBT)</a>'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.<h2>WHAT'S ORIGINAL?</h2>Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.

We see those big numbers in the press, almost daily it seems. About ESG assets under management (AUM) reaching US$40 trillion, expected to hit US$53 trillion by 2025. Or about quarterly ESG fund flows nearing US$100 billion, and the seismic shift in ESG AUM to passively-managed funds.Recent growth in SRI (sustainable and responsible investing) and ESG (Environmental, Social, and Governance) assets and investment products would not be possible without the growing ecosystem of index providers, and the SRI/ESG indices and benchmarks that they create.The ongoing boom in SRI/ESG indexing, which shows no signs of slowing, creates new opportunies for investors – and I do not mean investing in indexed mutual funds or ETFs. Too obvious, and too retail. I am referring to emergent opportunities associated with SRI/ESG index arbitrage.Index rebalancing/reconstitution events often create windows of abnormal returns for constituents being re-weighted, added, or dropped. That much is obvious, and the effects of broad market index changes are well-known. For SRI/ESG indices, this is uncharted territory with huge potential.This Smartkarma Original looks at the evolving SRI/ESG indexing landscape, and more importantly the emergent investing (e.g., stocks of listed indexers) and trading (e.g., arbitraging index changes) strategies arising from this global boom in SRI/ESG indices... from an Original perspective.WHAT'S ORIGINAL?Typically, discussions about SRI/ESG indices focus on their performance and in the context of that age-old "ESG-Alpha" debate – i.e., whether incorporating ESG factors into the investment process is worth the effort. To be clear, that is an important debate to have (and win). However, this report takes a different angle on SRI/ESG indices by focusing on investing and trading and strategies that capitalise on the boom in SRI/ESG indices. Theory (and a little speculation) backed by analysis.

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

There are vast differences in provisioning done for US banks during 1Q20. There are some banks that indicate a similar high level of provisions during 2Q20. Where this likely marks the worst in terms of unemployment, economic distress, and the reopening of economies, we wonder if credit costs can come way in during 2H20? Where the current crisis is self-inflicted from flipping a switch, wholly unlike drivers of the Asian Financial Crisis and the Global Financial Crisis, the profile of provisioning can be vastly different. This is further the case against a backdrop strong recovery metrics, unprecedented fiscal stimulus and historically low rates.

There are vast differences in provisioning done for US banks during 1Q20. There are some banks that indicate a similar high level of provisions during 2Q20. Where this likely marks the worst in terms of unemployment, economic distress, and the reopening of economies, we wonder if credit costs can come way in during 2H20? Where the current crisis is self-inflicted from flipping a switch, wholly unlike drivers of the Asian Financial Crisis and the Global Financial Crisis, the profile of provisioning can be vastly different. This is further the case against a backdrop strong recovery metrics, unprecedented fiscal stimulus and historically low rates.

United States

State Street Corporation services institutional investors and manages financial assets worldwide.  The Company's products and services include custody, accounting, administration, daily pricing, international exchange services, cash management, financial asset management, securities lending, and investment advisory services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

State Street (STT US)

The War on Greenwashing: UK Stewardship Code "Successful Signatories" Has Broader Implications

Telegraph from European front in global war on greenwashing. U.K. names stewardship victors ("not greenwashers"). Many notable casualties. Anti...

Kyle Rudden

Engine Versus Exxon: Activist Hedge Fund's Proxy Fight Win Reverberates Through "Big Oil" Boardrooms

May 26, 2021. Black Wednesday. A day that changed Big Oil forever. From Exxon's proxy fight loss to an activist fund you've never heard of, to...

Kyle Rudden

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Bitcoin holdings by issuers and investors is driving crypto custody demand. Big banks are stepping. A big opportunity, but some ESG investors might...

Kyle Rudden

Sustainability and ESG Indices: A Booming Ecosystem and New Investing and Trading Opportunities

Index rebalancing and reconstitution often creates a window of abnormal returns (and opportunity). For broad market indices, these effects are well...

Kyle Rudden

US Banks – Provisions To Halve?

There are vast differences in provisioning done for US banks during 1Q20. There are some banks that indicate a similar high level of provisions...

Daniel Tabbush

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)