The week in investor relations: ESG ratings scrutiny, anti-woke campaigns against Apple and Disney, and Hong Kong finally ditches quarantine policy
– According to CNBC, firms that assign ESG ratings to companies face scrutiny in the US Senate. Retiring Senator Pat Toomey, R-Pennsylvania, the ranking member of the Senate Committee on Banking, Housing and Urban Affairs, sent letters to more than a dozen ratings firms requesting transparency in the methods used to assign ESG ratings, according to a statement. In it, Toomey says ESG ratings firms have a unique ability to influence valuable global ESG assets and requests copies of non-proprietary methodologies used by the firms to assess ratings. He also asks for descriptions of compliance burdens on rated companies, data collection methods, possible political biases and conflicts of interest.
– The New York Times (paywall) reported that Vivek Ramaswamy, a conservative investor, has two new targets in his anti-ESG campaign – reportedly with backing from Peter Thiel and Bill Ackman. Ramaswamy has sent letters to the CEOs of Apple and Disney, urging them to refrain from making political statements on behalf of their companies, or hiring decisions based on race, sex or political beliefs.
Ramaswamy has emerged as ‘one of Wall Street’s most prominent critics of the ESG investing movement,’ said the paper, having launched Strive Asset Management earlier this year – a vehicle he says will combat pressure on companies to consider liberal politics before bottom lines. Its first ETF, which is focused on energy, launched last month and already has roughly $320 mn in assets. Strive’s second fund, the Strive 500 ETF, which invests in large public companies, launched this week. The NYT said Ramaswamy’s plan ‘is to use the power of shareholder votes to refocus large companies on maximizing profit, a goal from which Ramaswamy says boardrooms have strayed’.
– Hong Kong will ditch its stringent hotel quarantine for incoming travelers that has ‘eroded the city’s status as a financial hub, hammered its economy and sparked an exodus of residents,’ reported the Financial Times (paywall). The policy, which at one point required visitors and residents to quarantine in a hotel for as long as three weeks, had been in place for two and a half years, essentially cutting the city off from the rest of the world as well as from mainland China. John Lee, the region’s chief executive, said the quarantine requirement would be eliminated from Monday, but travelers would still be subject to testing and monitoring for three days after landing, added the paper.
– Reuters (paywall) reported that Norway’s $1.2 tn sovereign wealth fund said it would push the companies in its portfolio to cut their greenhouse gas emissions to net-zero by 2050, in line with the Paris Agreement. The fund owns on average 1.3 percent of all listed global stocks. Under the new plan, it will prioritize dialogue with the 174 companies that are the biggest emitters of greenhouse gases and account for 70 percent of the fund’s emissions via its shareholdings.
‘They will be the priority,’ said fund CEO Nicolai Tangen. ‘So more frequent follow-ups, and more specific follow-ups. They will see more pressure from us than other companies.’ Still, the fund reiterated it would not divest from big emitters to achieve these targets. Instead, it said it will be an ‘active shareholder’ to effect change.
– UN Secretary General Antonio Guterres said developed economies should impose an extra tax on the profits of fossil-fuel companies, with the funds forwarded to countries affected by climate change and households struggling with the cost-of-living crisis, CNBC reported. In an address to the UN General Assembly in New York, Guterres described the fossil fuel industry as ‘feasting on hundreds of billions of dollars in subsidies and windfall profits while households’ budgets shrink and our planet burns.’
Fossil-fuel companies and their ‘enablers’ needed to be held to account, he added: ‘That includes the banks, private equity, asset managers and other financial institutions that continue to invest in and underwrite carbon pollution.’
– The FT reported that many new thematic equity funds in Europe are struggling to attract significant client inflows, ‘despite booming demand for thematic products in general,’ research suggests. Thematic investing is the fastest-growing equity fund segment, with assets under management in the narrowly focused investment vehicles having grown 200 percent over the past three years to reach €300 bn ($293 bn) at the end of June 2022, Broadridge data shows. But less than a quarter (24 percent) of thematic equity funds launched over the past five years have gathered assets of €300 mn or more – Broadridge’s benchmark for a commercially successful launch.
– The FT also reported that Ark Investment Management chief executive Cathie Wood stepped down as portfolio manager of the company’s two index funds, in what it described as ‘the third shake-up of the firm’s portfolio management roster in as many months’. Will Scherer, until now a trading manager at the firm, has been appointed portfolio manager of the $192 mn 3D Printing and $110 mn Israel Innovative Technology ETFs, the firm disclosed.
Wood remains Ark’s chief investment officer, as well as portfolio manager of the actively managed funds. In June, Sam Korus and Nicholas Grous were appointed associate portfolio managers. Until then, Wood was the firm’s only portfolio manager. This month, Korus was reassigned as a research director, while Dan White, formerly a client portfolio specialist, was elevated to associate portfolio manager. The paper noted that ‘Ark has drawn criticism for potential key-person risk because of Wood’s centrality to the firm’s fund management operations’.
– HSBC Holdings will stop financing the expansion of thermal coal from funds it manages actively with immediate effect, marking an acceleration of a broader commitment it made last year, according to Reuters. Thermal coal, a cheap energy source used widely across Asian markets where many of HSBC’s clients are based, is one of the fossil fuels most responsible for climate-damaging emissions. HSBC said last December that it would cut exposure to thermal coal financing, across all its businesses including asset management, by at least 25 percent by 2025 and 50 percent by 2030, though clients with thermal coal assets in non-EU and non-OECD markets could be funded until a global phase-out by 2040.
– The Wall Street Journal (paywall) reported that, according to people familiar with the matter, Instacart doesn’t intend to raise much capital in its IPO and instead plans to have most of the listing come from the sale of employees’ shares. In meetings with potential investors, Instacart executives said they didn’t plan to issue many new shares in the IPO, the people said. The sale of mostly employee shares could help Instacart retain talent. Listed shares could also make Instacart more attractive to new employees than start-ups that have decided to wait for a better market to list.
The IPO market is heading for its worst year in decades, leaving some start-up companies with few options but to spend their cash reserves while they wait for the stock market to calm.
– According to The Guardian, the fast-food industry wants to overturn one of the most significant labor successes in recent US history by trying to end a new law in California that will establish an industry council for the sector to deal with wage standards and other regulations such as safety. The Fast Food Accountability and Standards Recovery Act was signed into law by California Governor Gavin Newsom on September 5 in what is seen as a major boost to a US labor movement looking to build on a wave of unionization drives. The law paves the way for a council that includes workers, state regulators, franchises and their parent companies.
The industry is mobilizing to try to overturn the law, claiming it will harm businesses and lead to a 20 percent increase in menu prices due to the possibility wages may increase to up to $22 an hour next year. The industry also claims the law will not bolster worker protections.
– A ‘crypto shakeout’ is engulfing C-suites as CEOs start stepping down, according to Bloomberg (paywall). The industry’s ‘epic shakeout, having cost thousands of jobs and set off a round of consolidation, is reaching the corner office,’ said the news agency, adding that crypto exchange Kraken announced on Wednesday that co-founder Jesse Powell will step down as CEO, to be replaced by chief operating officer David Ripley. The reshuffle comes shortly after Genesis’ Michael Moro and Bitcoin evangelist Michael Saylor, along with Sam Trabucco of Alameda Research, all relinquished top positions.