The US defense establishment publishes ahead of COP.
Hello from Impact Delta.
Enjoy our periodic newsletter, containing insights and news related to ESG and impact investing. In this edition, we prepare for COP26 in Glasgow next week, and look at who is driving progress in diversity, equity and inclusion.
COP-ing a ride to Glasgow - The annual climate conference starts in early November, after taking a pandemic-related break in 2020. In advance of that, the UN has been releasing its latest research on the climate. It is dismal reading. Despite the rash of net zero commitments recently, "updated NDCs [nationally determined contribution] and announced pledges for 2030 have only limited impact on global emissions and the emissions gap in 2030, reducing projected 2030 emissions by only 7.5 per cent.... whereas 30 per cent is needed to limit warming to 2°C and 55 percent reduction is needed for 1.5°C." And more immediately, "the COVID-19 pandemic led to a drop in global CO2 emissions of 5.4% in 2020. However, CO2 and non-CO2 emissions in 2021 are expected to rise again to a level only slightly lower than the record high in 2019. Fingers crossed for progress in Glasgow.
The U.S. Defense establishment publishes a flurry of reports – Not coincidentally, last week the Biden administration published several reports about climate changes risks to national security. They came from the director of national intelligence, the National Security Council, as well as departments of Homeland Security and Defense. Here’s and excerpt from the introduction to the Department of Defense Climate Risk Analysis: “The risks of climate change to Department of Defense (DoD) strategies, plans, capabilities, missions, and equipment, as well as those of U.S. allies and partners, are growing. Global efforts to address climate change – including actions to address the causes as well as the effects – will influence DoD strategic interests, relationships, competition, and priorities. To train, fight, and win in this increasingly complex environment, DoD will consider the effects of climate change at every level of the DoD enterprise.”
The lack of diversity of investors driving diversity - Morgan Stanley has surveyed dozens of institutional investors regarding their attitudes to diversity, equity and inclusion. "Somewhat unsurprisingly, and despite acknowledging the importance of incorporating diversity into their investment decisions, a majority of asset owners (56%) say that doing so comes at the expense of returns." This was especially pronounced among white male investors. The silver lining to this study was with public pension plans. "Three-quarters of public pension fund asset owners (75%) say that investment teams with sufficient women representation significantly improve the performance of their investments, compared to 15% of other asset owners. Similarly, 63% of public pension fund asset owners say the same of investment teams with sufficient multicultural representation, compared to 13% of other asset owners." It will be telling to watch the performance of public pension funds relative to other institutional investors in the coming years.
No divisions on ESG – In common with almost no other topics, a consensus view on ESG (of which diversity is a subset) is becoming well established across political ideologies. A Penn State/ROKK survey of Americans across the political spectrum found that there was a majority of support for ESG. 76% of respondents felt that companies should be held accountable for making a positive impact on the communities in which they operate (79% Democrats and 71% Republicans). Even more encouragingly, climate change was listed as a top priority by 79% of Democrats and 54% of Republicans. Let's hope our legislators and delegation to COP 26 in Glasgow got this message....
DeFi-ing comprehension: With VC fundraising approaching $100 billion in 2021, the dispersion of investments has shifted from past years. Financial technology (fintech) is taking nearly one-fourth of the capital invested to date, with 94 funding rounds exceeding $100mm (out of 409 such megarounds across all global venture). The breadth of opportunities to alter how finance works in society has captured the imagination of investors, with Decentralized Finance (DeFi) showing particularly strong growth in the past few quarters. These investments often score extremely highly on an ESG or impact measurement framework. Core VC recently released their impact report that looks at the positive impact of their portfolio of fintech investments over the past decade. Who knew a cryptocurrency could be such a threat to Western Union?
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About Impact Delta
A secular shift towards a more responsible capitalism is underway. Impact Delta is a specialist consultancy founded to help investment firms capitalize on this shift. We believe good environmental and social thinking helps investment firms raise capital and earn better returns. More about us here.