3 Things This Week - CFO’S Speak ESG, A Report is Not a Strategy; Carbon: Move over Bitcoin

ESG has broken through the corporate finance barrier

On Trend: CFO’s Speak ESG 
In the past, CFO’s have been known to resist ESG language, and even resist ESG as a value driving thesis. That seems to have changed. In the fourth quarter of 2020, the term ESG was mentioned 205 times by global CFOs during investor calls, as compared to 84 in the same period in 2019 and 34 in 2018. In the US, S&P 500 earnings calls between Oct-Dec 2020 mentioned ESG or sustainability 20 times, compared to only six times in 2017.

​Why?
​Because having and communicating ESG targets attracts new investors while lowering  borrowing costs and expenses. It seems that CFOs like this kind of thing and they really like to share these results with investors.  To put it straight: “It helps broaden our investor base,” said Schneider Electric CFO Hilary Maxson. “It…makes it easier for institutional equity investors to find Schneider and also to invest....”  Here’s the Wall Street Journal’s take on it. ​

The definitive study: ESG Drives $$$ (Rockefeller Asset Management) 
For those who still need more proof, another mega study of 1,141 peer-reviewed papers and 27 other meta-reviews of another ~1,400 studies published between 2015-2020, (basically a lot of qualified brains) concludes that ESG strategies do indeed deliver better financial performance. Findings include: 

• sustainability initiatives lead to improved risk management and more innovation, driving better financial performance  
• preparing for a low carbon economy improves financial performanc
• ESG disclosure is not a strategy, people. Without an accompanying strategy, disclosure alone will not improve financial performance ​

Frothy Carbon Credits? 
In today’s world of speculative trading, carbon may be the new play to watch. Hedge funds are threatening a smooth cap and trade transition in the EU by bidding up the cost of the carbon credits (permits) needed by energy-using facilities (emitters). EU emitters need these permits to meet cap and trade regulation, whereby they submit permits to cancel out their excess GHG emissions.  This incents the switch to lesser-polluting technologies rather than continually paying for permits. 

A smooth increase in carbon futures is critical to a successful cap-and-trade system, as the EU ramps up to carbon neutrality by 2050. Record prices are causing more hedge funds to dive in, driving carbon benchmark futures to hit 40 euros ($US 49/metric ton) for the first time ever, gaining 16% last week alone. Hedge funds are betting carbon will rise much faster, to as high as 100 euros this year or next. In response, the EU is considering measures to curb the speculatory hedge fund buying. Move over Bitcoin, you may have company in the ‘artificial commodity’ category.