Displaying items by tag: sustainability
Insurers Leave UN Climate Alliance Following ESG Backlash
In an article for Forbes, Jon McGowan discusses how five out of the eight insurance companies, who were among the early signers of the agreement, are leaving the United Nations’ Net-Zero Insurance Alliance due to antitrust concerns and a backlash regarding ESG.
The alliance was formed in 2021 to encourage the insurance industry to proactively work on solutions towards climate change. The goal was to get to net-zero emissions by 2050 by promoting change of internal practices and to use investment decisions to encourage other stakeholders to reduce their emissions as well. It also mandates disclosures of decisions related to climate change and is modeled on financial disclosures that are required by the SEC.
This has raised antitrust concerns given the coordination of companies within an industry. It also has led to opposition due to the recent, heated pushback against ESG investing which has intensified with Republicans taking over Congress. At the statehouse level, Republicans have also mobilized to ban use of state funds from using ESG factors in investment decisions.
Finsum: Insurers are leaving the UN Net-Zero Insurance Alliance due to antitrust concerns and the backlash over ESG investing.
ESG Fails to Catch On With Public
Over the last decade, ESG investing has grown increasingly popular among asset managers as a way to evaluate investments and reward corporations for considering environmental, social, and governance factors when making decisions.
Like any trend, there has been a backlash as many conservatives believe that corporations should focus on financial metrics. And, there has been a wave of legislation from Republican governors and state legislatures banning the use of ESG factors by asset managers, managing state funds, when making investment decisions.
Given its prevalence in institutions and rising salience as a political issue, it’s interesting to look at recent Gallup polling which shows that the issue has had little impact on most Americans regardless of their political affiliation.
Even though the issue has entered the political arena in the last couple of years, only 38% of Americans are familiar with the term which is unchanged from 2021, the last time that Gallup conducted a poll on the issue. In addition, 40% of Americans were not aware of ESG at all, while 22% were somewhat familiar with the concept.
Clearly, ESG investing is a big deal for institutions and politicians, it’s failed to break through to the public.
Finsum: ESG investing has grown in prominence among investors and politicians. However, Gallup polling shows that it’s not on the radar of most Americans.
Is ESG Smart Business or Liberal Overreach?
In an article for USA Today, Jessica Guynn summarized the current debate between those who advocate for ESG investing and those who see it as a disguise for ‘woke capitalism’. In contrast, supporters of ESG see these factors as being critical to their investing process. For instance, they see preparations for climate change as part of a managers’ fiduciary duty given its potential impact on asset values.
These tensions came up at the House Oversight Committee meeting last week as Representative Rankin was critical of anti-ESG attacks which he said were coming at the behest of the fossil fuel industry. In turn, Republicans were equally harsh as they countered that asset managers should only consider financial information and that by considering non-financial factors, they were risking the retirement savings of American workers.
At the state level, 17 Republican Attorney Generals jointly filed a motion to block Blackrock from advocating for ESG principles for utility companies.
Many of those opposed to ESG see it as preventing energy companies from making sufficient long-term investments that are necessary to continue fossil fuel production and blame it, in part, for the inflation and oil spike during 2021.
Finsum: ESG investing continues to be a source of political conflict. These tensions came to a head at a contentious House Oversight Committee meeting.
Growth Strategies for Financial Advisors
In an article for Investopedia, Justin Kuepper shared some strategies for financial advisors to grow their practices. This type of planning is important to ensure that daily activities are aligned with your long-term financial goals as well as your client’s. Without consistently investing in these efforts, it’s likely that your practice will start to erode as clients who leave are not replaced.
Instead, advisors should focus on carving out a specific niche such as focusing on a particular community, industry, or demographic. This will lend more expertise and credibility and lead to more curiosity and comfort from clients and prospects. You will also have less competition and be able to develop a brand which can be difficult given that financial advisors offer many of the same services.
The next growth strategy is to provide exceptional service to your clients as it can lead to referrals which is the most effective form of marketing. Some advisors make the mistake of focusing too much on new business and see high rates of attrition when existing clients don’t feel valued. Putting these strategies in place also means that advisors don’t need to compromise on price as they will be offering a premium, differentiated service.
Finsum: Growing a financial advisory business takes planning and strategic thinking. Here are some tips to ensure success.
Alternative Investments Reduce Portfolio Volatility
In an article for Vettafi’s AdvisorPerspectives, Nestor Hernandez discussed some ways that investing in alternative asset classes can help reduce portfolio volatility. Due to the poor performance of stocks and bonds in 2022, interest in the category has exploded in 2023. Another contributing factor is that technology and regulatory changes have made these investments available to a much wider audience.
Based on research, it’s clear that investing in alternatives leads to lower volatility due to increased diversification. These tend to be private, non-public traded funds in different asset classes such as real estate, private credit, private equity, hedge funds, venture capital, etc. In contrast to public markets, private markets tend to have less liquidity, transparency, and minimums when it comes to investment amounts.
Until recently, these investments were only available to institutional or high net-worth investors. But, these can play an important role for investors especially given that we are seeing the number of companies shrink on the public markets, while opportunities increase on private markets. Additionally, companies are going public at much later stages, meaning private investors have more opportunities to see their investments appreciate.
Finsum: CalPERS CEO Marcie Frost is facing competing pressures from liberals and conservatives over ESG investing.