In the Industry: Q1 2023 Impact Digest

The calls for action on greenwashing and transparency within impact investing that have only grown over the past months are seemingly coming to a head. While that does signal some continued upheaval in the short-term, the outcomes are likely to be good for investors and stakeholders over the long-term. Requests for more accurate, more specific data from regulators, investors and industry groups alike have caused managers to remove environmental, social and governance (ESG) labeling from some funds that they were concerned would not pass stricter scrutiny and to a decrease in the size of the industry, at least on paper. This weeding out of less truly impact committed investments and the availability of more meaningful data should ultimately make it easier for investors to feel confident in their choices when incorporating impact into their portfolios. In the long run, this change will likely be a net positive and leave the industry on a surer footing.

In the News

Bloomberg

New Yorkers Back $4.2 Billion Bond to Fight Climate Change

New York state voters approved a $4.2 billion environmental bond in November, a significant step in the growing municipal bond market within impact investing. The ballot measure, which would fund green-building projects and projects focused on water quality improvement and shoreline restoration, was backed by 59% of voters. Notably, at least 35% of the $4.2 billion is to be spent in under-resourced communities disproportionately impacted by climate change.

Wall Street Journal

Labor Department Clears Path for 401(k) Plans to Offer ESG Funds

The Labor Department issued final regulations in November that officially reverse rules put in place in 2020 that hampered the ability of 401(k) plans to offer ESG investments to their investors. The Biden administration began working on the change in 2021. The new rule allows employers to include climate change and other ESG considerations when selecting investments to offer and in their proxy voting activity.

Wall Street Journal

Goldman Sachs to Pay $4 Million to Settle Investigation Over ESG Funds

Goldman Sachs agreed to a settlement in a Securities and Exchange Commission investigation into the management of the firm’s ESG funds which claimed that Goldman marketed ESG funds without following a consistent framework laid out in compliance plans. The crux of the allegations is that the firm’s investment analysts were not completing and recording the required ESG evaluations before adding investments to portfolios.

New York Times

Europe Reaches Deal for Carbon Tax Law on Imports

The European Union agreed to a groundbreaking carbon tax that would impose import tariffs on goods from countries that have not taken steps to curb their greenhouse gas emissions. Called the Carbon Border Adjustment Mechanism, the law serves a dual purpose of supporting E.U. companies that are subject to stricter regulations, and thus higher costs, and encouraging other countries to adopt more stringent emissions. There is some reason for concern, however, that these regulations could end up hampering the ability of developing countries, many already disproportionately impacted by climate change while responsible for only a fraction of carbon emissions, to further industrialize.

Bloomberg

ESG Market in U.S. Significantly Smaller Than Earlier Thought

According to The Forum for Sustainable and Responsible Investment (US SIF) Foundation, the impact investing market may truthfully be much smaller than previous estimates indicated. In a bid for more accurate data, US SIF required institutions it polls for its research to provide more “granular information” about their incorporation of ESG considerations. This change resulted in their estimate of sustainable assets dropping from $17.1 trillion in 2020 to $8.4 trillion in late 2022. The adjustment in methodology comes amid growing demand for more accurate, specific and comprehensive data by both regulators and investors.

Research & Reports

Morningstar

How Devoted Is Your Fund Manager to Sustainable Investing?

According to Morningstar’s research, just eight out of 94 asset managers included in their ESG Commitment Level measurements qualified for their highest level, Leader, including Parnassus, Calvert and Stewart Investors. Seventeen managers qualified for Morningstar’s second level, Advanced. Smaller, more focused managers tended to outperform their larger counterparts like BlackRock, Vanguard and State Street, in part because such a large percentage of their assets track non-ESG indexes.

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