The week in investor relations: Engagement over divestment on ESG, Himalayan yogi scandal at India bourse and JPMorgan moves into the metaverse
– ‘We believe active involvement and engagement with the companies in the portfolio, as opposed to taking a divestment strategy or avoiding the asset class, actually leads to better returns in terms of investor protection,’ John Galloway, global head of investment stewardship at Vanguard Group, told S&P Global Market Intelligence this week. ‘We see the value of ongoing engagement in terms of the progress companies make over time in response to us and other investors.’ Talking about the green transition, Galloway said the complexities of shifting to a low-carbon economy ‘make us confident that our approach of staying invested and actively engaged with these companies will lead to better outcomes’.
– Reuters reported a case of ‘bizarre misconduct’ that was a ‘glaring breach’ of regulations at India’s National Stock Exchange. Chitra Ramkrishna, the former head of India’s largest stock exchange, shared confidential information with a yogi and sought his advice on crucial decisions, a probe by the market regulator has found, ahead of the bourse’s much-awaited public listing. Ramkrishna shared information – including the bourse’s financial projections, business plans and board agenda – with a purported spiritual guru in the Himalayas, the Securities and Exchange Board of India said.
– Coindesk reported that JPMorgan, the largest bank in the US, became the first lender to arrive in the metaverse, having opened a lounge in Decentraland, a virtual world based on blockchain technology. As well as the unveiling of the Onyx lounge (Coinbase said the name refers to the bank’s suite of permissioned Ethereum-based services), JPMorgan released a paper exploring how businesses can find opportunities in the metaverse.
– In other metaverse news, CNBC reported that ‘metaverse ETFs are booming’ in South Korea with retail investors ‘piling in’, buying into funds focused on tech’s new frontier. South Korea’s first four metaverse ETFs launched in October and drew inflows of $100 mn in just under two weeks, according to Rahul Sen Sharma, managing partner of index provider Indxx. As of January 19, there were eight metaverse ETFs listed in South Korea, drawing more than $1 bn in inflows, according to data from Samsung Asset Management, which launched two of the ETFs. CNBC said that of that amount, more than $800 mn has gone into four ETFs focused on South Korean metaverse-related stocks, while more than $338 mn has been funneled into more global metaverse ETFs, the data showed.
– According to the Financial Times (paywall), Tesla accused the SEC of going ‘beyond the pale’ and harassing its chief executive Elon Musk over his compliance with a 2018 agreement on his use of social media – what the paper describes as ‘the latest salvo in a lengthy dispute between Musk and the US stock market regulator’. Earlier this month the electric carmaker revealed it had been subpoenaed by the SEC in relation to its compliance with the settlement, part of which required a company lawyer to preapprove any tweet of Musk’s that contained ‘material’ information’. The SEC had requested information on ‘governance processes around compliance’ with the order.
– The Wall Street Journal (paywall) noted that most public companies report the value of their property, accounts receivable and inventory but not human capital, while investors want employers to consistently report specific data points using standardized measurements so they can compare one company with another. A growing number of large companies include some workforce statistics in annual sustainability reports, but the data isn’t standardized. Almost none quantify such information in quarterly or annual financial statements.
Some fund managers are using big data, looking through websites such as Glassdoor and LinkedIn to estimate workforce trends in the companies they cover. Others are repeating long-standing calls for regulation that would require companies to report employee data, including pay, training, job satisfaction, demographics and hiring and promotion rates.
CalPERS is a leader of the campaign for mandatory reporting. The pandemic has highlighted how critical human-capital risks are to companies and their investors, a CalPERS spokesperson said. The SEC is expected to unveil a rule in the coming months that would require disclosure of standardized human-capital data.
– Institutional Investor reported that about half of US allocators plan to increase their investments in hedge funds in 2022, according to the latest report by the Alternative Investment Management Association (Aima). In December the group surveyed 224 allocators across the country, with 49 percent working at foundations and endowments, 15 percent at public pensions and 11 percent at family offices. While private equity remains the top choice of investors, Aima found that hedge funds have begun to attract some attention again.
– CNN said that according to a report by a group of 28 non-government organizations, financial institutions channeled more than $1.5 tn into the coal industry in loans and underwriting from January 2019 to November 2021, even as many have made net-zero pledges. Reducing coal use is a key part of efforts to cut greenhouse gases and bring emissions down to net-zero by the middle of the century, and governments, companies and financial institutions have pledged to take action. But the research found that banks continue to fund 1,032 firms involved in the mining, trading, transportation and utilization of coal. The study said banks from six countries – China, the US, Japan, India, the UK and Canada – were responsible for 86 percent of global coal financing over the period.
– The Financial Stability Board (FSB) said policymakers must act quickly in crafting rules covering the digital asset market, given its tightening link with the traditional financial system, the FT reported. ‘There is clearly a higher degree of urgency,’ said Klaas Knot, the Dutch central bank governor who became chair of the FSB in December, describing how the board had previously been ‘comfortable’ saying there was no material risk from crypto because of its size and lack of connectivity to traditional financial markets.
So far, global regulators have greeted crypto with a patchwork of measures, including a severe crackdown in China, and the UK’s efforts to restrict crypto advertisements and register crypto companies for money laundering and counter-terrorism compliance. The FSB also warned that big banks and other systemically important financial institutions were ‘increasingly willing’ to gain exposure to crypto and pointed to global stablecoins as causing particular risks to financial stability.
– Rules that require Chinese companies handling data from more than 1 mn users to go through a cyber-security review if they want to list overseas also apply to Hong Kong, according to an assessment endorsed by China’s cyberspace regulator and reported by South China Morning Post. The conclusion, included in the ‘expert views’ that the Cyberspace Administration of China published on its website, shows how the regulator is empowering itself to be a key gatekeeper of overseas listings even though the new law, which came into effect this week, does not specifically mention Hong Kong, said the paper.
Questions remain over whether or not mainland companies looking to list in Hong Kong must file for a cyber-security review. The paper points out that Hong Kong is not a ‘foreign market’ but is run as a separate legal system under the ‘one country, two systems’ framework.