Panelists:
Pilita Clark. Pilita Clark is an associate editor and business columnist at the Financial Times. She writes a weekly column on modern corporate life, as well as features and other articles. She has worked for the FT since 2003, covering aviation and the environment, and was previously a Washington correspondent for Australian newspapers and a Nieman Fellow at Harvard University.
Reto Ringger. Reto Ringger is founder & CEO of Globalance Bank. In 1995 he founded SAM Group, which focuses it efforts on impact-oriented investments. Globalance Bank enables private clients to invest in forward-looking companies and related financial products. He has worked at Swiss Re, UBS and Bank Vontobel, and received numerous awards such as the Global Green Award from Green Cross International (www.gcint.org) for the launch of the Dow Jones Sustainability Index – and the Cleantech Pioneer Award (www.cleantech.com) for the successful establishment of the world’s first globally positioned cleantech private equity fund.
Moderator:
Peter Lorange, Chairman, Lorange Network
Also Attending:
Michael Skarpinker – Senior Associate Editor, FT
Karin Mugnaini, President/COO, Lorange Network
Question 1: How are companies doing now during COVID-19?
Some companies are doing well, particularly when the bulk of their main business models are based on virtuality, such as virtual distribution. And some companies, perhaps above all is the tech sector, or pharmaceutical firms, are drawing on advantages they might have from being rather unique in their fields – one might say, benefitting from a monopolistic advantage or have sustainable forms of business. However most companies seem to be suffering. For many firms, it might be a matter of being able to continue to operate or not. Particularly for smaller firms, typically with relatively less-liquid reserves, the option to close down might be near.
In parallel with this, stock markets seem, in general, to be holding firm. Tech stocks, in particular, seem to be thriving. And, stocks with more or less realistic future earnings prospects seem to do better than typical growth stocks.
Question 2: What are the roles of governments in this context, i.e. given COVID-19 regulations?
Although legislation is different in each sector, one can see a rise in regulations in general. It should be pointed out that some companies benefit clearly from this, such as major electric car manufacturers, for example Tesla, who are benefitting from regulations effectively giving electric cars a break, relative to conventional automobiles. This advantage, initiated before the advent of COVID-19, has continued.
Banking regulations are still reeling from what was mandated for the financial sector from governments during the aftermath of the 2008 financial crisis, with heavy focus on liquidity reserves. This may have become a “monster” of over-regulation now during COVID-19, with inability of many financial institutions to meet current needs for liquidity from its customers.
New customer demands seem to be calling for more liberal lending regulations. This might be particularly so when it comes to so-called “green” investment project financing. Many banks may simply not be sufficiently ready for this, not only because of restrictive government-imposed lending regulations, but, perhaps even more because of lack of in-house competences to properly evaluate such projects in many banks.
Reporting on key environmental concerns has become a clear trend. The Governor of the Bank of England, Mark Carney, proposed this some five years ago. And New Zealand has recently become the first country to make such corporate reporting on sustainability mandatory.
In general, environmentally driven projects, based on “green thinking” are rapidly becoming the new reality for most firms. The focus now seems to be much more squarely on “zero emission”, as well as on preserving our soil and nature.
Question three: What are corporations’ investment portfolios today?
There seems to be a fair amount of confusion today, not only when it comes to regulations but also to definitions/uses of various terms. Reto Ringger recommends an evolutionary path, with four stages, as potentially ameliorating confusion:
Happiness
Denial (such as denying that there seems to be a climate crisis)
Confusion (how do we put sustainability and related reforms into practice?; this is the stage we are mostly in now)
Renewal (you are now open to novel solutions)
But corporations, in general, do not seem to be here yet. There is a wide array of opinions regarding what sustainability actually means, for instance. EU’s recent taxonomy may help, in the sense that it attempts to define to investors what is sustainable or not. Furthermore, with all the acronyms, jargon and terminology, navigating sustainability is difficult.
How sustainable can a portfolio be? What is sustainability? How can we measure this? In one area, there seems to have been a “wake-up call”, namely when it comes to concerns over climate and global warming; but it is perhaps discouraging that only a small fraction of firms (5%) seem to be below their global warming targets today.
Question four: Do we see potentially significant changes in corporations’ portfolios?
One example might be the Danish firm DONG/now Ørsted, initially set up to be a key handler of Denmark’s offshore oil production outputs, and then, government owned. Now privatized, it has become the world’s largest operator of offshore installed windmills for electricity generation and positions itself as a wind farm development company.
But, in general, it seems to be hard to significantly change one’s portfolio’s composition to become “greener”. In particular, it may be difficult for many firms, especially the larger, to find such projects, and thus to shift away from so far proven, established businesses.
Question five: How to measure sustainability?
The Dow Jones Sustainability IIndex led to more systematic measures regarding progress on measuring sustainability from 1995 onwards, and rankings of corporations were developed. Regrettably however, good operating data from most corporations may be hard to obtain, especially standardized data. “Old data” may not necessarily point towards the present or future situations.
In general, there seems to be a heightened pressure to show tangible results, beyond what seems to be revealed through the initial efforts to measure. The leading Wall Street banks, for instance, seem to be steering their portfolios away from fossil fuel, and more towards focusing on firms with low carbon emissions. There seems to be a call for fundamental revisions of client firms’ business models.
There no longer appear to be so-called activists only that are concerned when it comes to sustainability. There is a large movement, for instance, to legislate the use of plastics, involving not only firms, but also governments and investors. There seem to be at least five specific concerns when it comes to the expected evolution of sustainability:
Technology. This may be leading to rapid change. Example: Rio Tinto, where its CEO had to leave, perhaps more due to pressure on G-factors, rather than on the ES factors in this firm’s ESG.
China/India. China has decreed that it shall be carbon neutral by 2060. India shall now face increased pressure to come up with a similar type of commitment. Yet in democratic systems it may perhaps often be harder to come up with lasting commitments. Witness the US withdrawal from the Paris agreement, and the citizens of Zurich’s resistance to implement the so-called “2000-watt energy usage society” that they voted for in 2018!
The oil/metal extraction corporations. There seems to be a clear trend towards electric and/or hybrid cars, as well as several other conventional fossil fuels conserving measures, thus making the future for traditional oil companies rather bleak. Similar arguments might be made when it comes to extraction of metals, but a counter argument might be that this change process might perhaps be too expensive, calling for dramatic new investments and entailing significant job losses.
Food. Ecological food is coming along fast including plant-based meat alternatives (burgers) and vertical farming. However, the evolutionary patterns here may be hard to predict.
Financial institutions. As already discussed, will our traditional banks be able to build up sufficient new in-house competences to adapt? Regulation may be key here! Change of established culture may be slow and we may need more big market shifts to accelerate change. Smaller institutions in this sector, as well as others, may be better and faster at achieving sustainability.
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