It might have been fun while it lasted, but anti-ESG funds have lost their steam. With just $2.42 billion under management, anti-ESG assets are currently over 100 times smaller than funds that integrate ESG factors
Welcome back to the Climate Nexus finance newsletter – a regular update that looks at the big stories and players at the intersection of climate change, finance, regulation, and energy, with tips for the week ahead.
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Anti-ESG funds really just anti-profit
It might have been fun while it lasted, but anti-ESG funds have lost their steam. With just $2.42 billion under management, anti-ESG assets are currently over 100 times smaller than funds that integrate ESG factors, according to Morningstar. While the political gambit might work in the short run, investors lack transparency and many funds are simply too restrictive, leading to overexposure in sectors like fossil fuels, tobacco, or other industries that share their one-sided political views. Putting political motives ahead of sound investment strategies can lead to other risks as well, like now, when presidential candidate Vivek Ramaswamy's asset firm is being sued for violating securities laws. And despite Vivek’s efforts to distance himself, he still owned between 50%-75% of Strive’s shares as of mid-June.
Private capital snaps up Midwest gas
Private equity has developed more than 80% of the new methane gas capacity built in the MidAtlantic and Midwest electricity grid known as PJM, according to a report coming out tomorrow. The report, from the Institute for Energy Economics and Financial Analysis, is the first in a series of three charting the growing influx of private capital, which now owns roughly 60% of the fossil-fuel fired generation in the region. Till as recently as 2017, the five largest capacity owners were all regulated, publicly traded companies.
The report also takes a closer look at how financial risks now facing private equity and other private investment firms are significantly increasing—risks that contrast sharply with the previous strong, steady growth of the 2010s.
Climate-driven inflation: olive oil edition
Extreme weather is paving the way for more climate-driven inflation. Olive oil production in Spain—the world’s largest olive oil producer—was less than half of the five-year average following scorching temperatures and droughts across southern Europe, forewarning higher prices and potential shortages. Earlier this month, drought-induced low water levels prompted Panama to reduce the number of vessels that pass through the canal. And with around 90% of traded goods transported by sea, hardly any goods are immune to the costs of climate change.
Amid IRA celebrations, a bonanza for carbon capture
How much carbon can you capture for $6 billion? We’re about to find out after oil and gas giant Occidental purchased a leading Canadian carbon sequestration startup, which followed Exxon’s acquisition of CO2 pipeline operator Denbury Inc. for $4.9 billion last month. Big Oil’s favored climate venture is picking up steam after a year of record profits and the new generous tax incentives provided in the Inflation Reduction Act. Biden’s signature climate law’s tax incentives for new, unproven, and expensive carbon capture and storage projects that are now suddenly becoming profitable could spur an additional $160 billion in investment over the next decade.
Gabon debt for nature swap—a fair trade?
Gabon, an oil-rich African country and biodiversity hotspot, closed a deal with Bank of America last Tuesday to ease its sovereign debt, protect its coasts, and combat illegal fishing. This so-called $500 million “blue bond” was brokered by The Nature Conservancy, or TNC, and is the first of its kind on mainland Africa. The move represents a unique way that countries, banks, and nonprofits are working together to protect nature. Alone however, this tool is not sufficient to deliver the trillions of dollars needed for global climate resilience even as more banks become interested in these kinds of deals. According to Gabon’s minister of water, forests, sea, and environment, “Of the $163 million TNC says will flow into ocean conservation efforts in Gabon, only $4.5 million will be directly available each year through 2038.”
August 23-25: Global Research Alliance on Sustainable Finance and Investment 2023 Annual Conference. Register here.
August 24-26: The Federal Reserve Bank of Kansas City 2023 Economic Policy Symposium “Structural Shifts in the Global Economy” in Jackson Hole, Wyoming.
September 17-24: Climate Group Climate Week NYC. View list of events here.