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Oct 14, 2022

The week in investor relations: ESG investments in demand, Elon Musk’s costly Twitter woes and Bank of England ends its bid to stabilize market

This week’s other IR-related stories that we didn’t cover on IRmagazine.com

– Demand for ESG investments has outstripped supply, reported the Financial Times (paywall) quoting a PwC study, in contrast to reports of a growing backlash against investing according to ESG principles. The study found nearly nine in 10 institutional investors believed asset managers should be more proactive in developing new ESG products but less than half of asset managers (45 percent) were planning to launch new ESG funds.

Enthusiasm for ESG, PwC found, is high in every region of the world. For example, 81 percent of institutional investors in the US plan to increase their allocations to ESG products over the next two years, almost on par with global ESG investment leader Europe, where 84 percent said they planned to do so.

– After a few years trying to catch up on global ESG practices, Japanese companies are still not where they should be, according to Energy Monitor. 2022 has witnessed broader and bolder moves from investors and NGOs and 2023 will most likely bring to Japan another, stronger wave of shareholder climate activism.

Japanese financial regulations may further facilitate such initiatives, thanks to two significant changes introduced this year. First, the disclosure of climate-related risks is now mandatory for the 4,000 companies listed on Tokyo Stock Exchange’s Prime Market. Second, the same 4,000 companies now have to publish their reports for investors in English, something that has so far been done only by those Japanese companies most exposed to international markets.

– As the COP27 summit in Egypt next month approaches, BlackRock CEOs won’t be attending, Bloomberg (paywall) reported. BlackRock CEO Larry Fink won’t attend the COP27 summit, instead joining a meeting of the firm’s board of directors, according to people familiar with his plans. Citigroup CEO Jane Fraser will also stay away, as will Bill Winters of Standard Chartered, spokespeople for the banks said. Bloomberg noted that all three made a point of attending in 2021.

They lead a long list of top-level executives giving this year’s summit a lower priority, according to responses gathered by Bloomberg News based on current plans. BlackRock and others will instead be sending delegations consisting of lower-tier representatives, according to spokespeople for the firms. Standard Chartered will send its chief sustainability officer, Marisa Drew. Citi will send a team that includes Jay Collins, vice chairman of the firm’s banking, capital markets and advisory division, as well as Julie Monaco, head of the global public sector group inside its investment banking division.

– According to pionline.com, the SEC endorsed investment advisers using factors relating to diversity, equity and inclusion when selecting or recommending other investment advisers in staff guidance published this week. An investment adviser, under its fiduciary duty, can consider diversity, equity and inclusion factors, ‘provided that the use of such factors is consistent with a client’s objectives, the scope of the relationship and the adviser’s disclosures,’ the guidance said. ‘Further, the adviser’s fiduciary duty does not mandate restricting such a recommendation or selection to investment advisers with certain specified characteristics, such as a minimum amount of assets under management or a minimum length of track record.’

– Investor relations is the lifeblood of funds, Delano reported. IR professionals are no longer ‘second class citizens’ and that could be a good thing for Luxembourg’s private market fund sector. The comments came during the LPEA Insights 2022 conference this week. Gilles Dusemon, LPEA executive board member and partner at the law firm Arendt & Medernach, said the IR function has traditionally been undervalued, but has been taking on greater importance globally since the 2007/2008 financial crisis and particularly in Luxembourg since the 2016 Brexit vote.

Elon Musk’s Twitter buyout gambit gets costlier by the day, reported Bloomberg. If Musk goes through with his acquisition, the social media giant will face an annual interest burden of nearly more than $1 bn on its debt. Roughly half of the $13 bn debt Musk is loading onto Twitter is floating rate, meaning interest costs will increase as the Federal Reserve continues to raise rates. The Fed is expected to hike rates again next month, possibly by as much as 75 basis points, in a fight to tame inflation. Twitter now faces an annual interest burden of nearly $1.2 bn, up from an estimated $900 mn in May, said Jordan Chalfin, a senior analyst at credit research firm CreditSights. 

– Turmoil hit the UK bond market again, noted The New York Times (paywall). Despite the Bank of England starting a bond-buying program last month to stabilize financial markets, its plan to end the program this Friday is only making investors more nervous.

British financial markets plunged into turmoil this week following mixed messages over whether the Bank of England would continue to provide support to pension funds and other investors, introduced after a bungled policy announcement by the new government last month shocked investors.

Reuters (paywall) reported that activist investor group Macellum Advisors, according to a letter from the hedge fund firm, is again pushing for board seats at department store chain Kohl’s Corp and the removal of its chair. Macellum wants its candidates to replace some long-tenured directors, including members of the executive committee. Earlier this year, the hedge fund firm had pushed to replace 10 directors when the retailer first tried to sell itself, but the move was rejected by investors in May. Kohl’s decided against a sale and chose to remain independent in July.

Kohl’s said it was disappointed that Macellum had launched another ‘disruptive public campaign’ five months after shareholders rejected its candidates. The company said the interactions with Macellum over the past two years have been ‘unproductive and a distraction from running the business’.

­– The Wall Street Journal (paywall) reported that many companies are delaying acquisitions because a combination of economic factors such as high inflation, rising interest rates and market volatility is lowering the confidence of buyers and sellers. During the first nine months of 2022, the value of global M&A deals announced by companies dropped 34 percent to $2.81 tn, according to Refinitiv. That’s the largest year-over-year decline since 2009, when M&A declined amid the global financial crisis by 42 percent compared with 2008 levels, Refinitiv said.

Many companies and their CFOs are putting expansion plans on hold, taking a wait-and-see approach until they have a better sense of where the economy is headed, advisers and executives said. That is despite valuations falling and the strength of the dollar against most major currencies giving US buyers more purchasing power abroad. ‘All signs are pointing to this resetting stage, where companies have taken a pause on what their M&A playbook might look like,’ said Matt Toole, director of deals intelligence at Refinitiv.

– The manager of a $184 bn pension fund for Texas public education employees is halving its target allocation to Chinese stocks, potentially cutting billions of dollars of such holdings over months, Bloomberg reported. The Teacher Retirement System of Texas (TRS) is switching to a new tailored emerging markets stock benchmark to reduce China’s ‘outsized weight’ in the MSCI Emerging Markets Index it once relied upon. That’s according to a previously unreported proposal approved at a mid-September meeting, Bloomberg said.

The move will essentially see China’s long-term target weight in the TRS portfolio cut to about 1.5 percent, similar to the weighting for Taiwan. The new benchmark, which took effect September 19, is an equal mix of the MSCI emerging markets indexes with and without China, according to a document submitted to the meeting.