A handful of snacks for the sustainable investor.
Last week in the US, the Democratic party won the two senate run-off elections in Georgia, which were previously undecided back in November. This gives the Democrats control of the Senate, having already won control of the House and Presidency.
A ‘Democratic clean sweep’ has previously been touted as making it more likely that Biden’s green agenda can be made a reality. Combined with the fact that government spending overall will likely be higher (less constrained by the need for negotiation between the parties), that suggests we could see significant green spending over the coming years. On the flipside, a Democratic government in the US usually means higher taxes, but that might be pushed back a bit given the economic uncertainty coming out of the recent pandemic-induced recession.
Germany approved a new law that would force large public companies to have at least one woman on their management board. The significance of this is subtle. The management board of a public company – though it is known by different terms at different companies – is the executive decision-making body. The supervisory board – often just called the board – carries mostly oversight and governance responsibilities. A large portion of the board is often non-executive or ‘independent’.
The headline statistics on gender diversity usually refer to the supervisory board, so it is possible that even with 30-50% female representation on the board, there could be no senior female decision-makers on the executive leadership. This is something we discuss in another article.
The issue of using quotas at all is controversial. Ideally the organic rise of diverse talent to the top ranks of companies would be encouraged, but at To the pound we think that a quota is better than no action at all. In any case, a quota can often be an interim measure that leads to the later development of organic diversity.
Last week the American Bankers Association (ABA) asked the Trump administration to withdraw a proposed new rule that would prevent banks from denying loans based on broad characteristics or categorisations of borrowers. Some major banks have been refusing to finance Arctic drilling and other environmentally unfriendly activities, but the new rule would require banks to consider each application for borrowing individually, rather than turning them all down on environmental grounds.
This is important because it suggests three positive things might be happening: 1) banks are actively trying to make their lending book more sustainable, 2) banks are willing to speak up publicly about it and lobby government, and 3) banks may be starting to compete on sustainability grounds. Although the latter point is commercially motivated, competition is an effective motivator and it’s encouraging that banks think sustainability is good for business as opposed to just for compliance.
However, Arctic drilling has not been a particularly profitable endeavour in any case, so it may be the case that banks are using sustainability marketing as a convenient reason not to engage in business that they wouldn’t have anyway. But the new rule would be broader than the single issue of Arctic drilling, so the ABA’s lobbying against it is promising for future examples too.
We’re not letting banks off the hook yet, though. A new report by portfolio.earth published last week showed that between January 2015 and September 2019, banks globally lent $1.7 trillion to companies in the plastics supply chain without imposing any restrictions, exclusions or requirements on companies to limit the impact the companies have on global biodiversity. Bank of America, Citigroup and JP Morgan were the worst offenders globally, while in Europe, Barclays and HSBC were the largest financiers of plastic.
Banks’ financing of plastics is evidence that their reluctance to finance Arctic drilling is more about the lack of potential profit than it is about sustainability, as we hint at above. For more information on what portfolio.earth thinks banks could do differently, see the full report on their website.
Sustainability digest is a weekly newsletter highlighting a handful of interesting issues facing the sustainable investor.
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