Welcome to Moral Money.

One thing to start . . . since it’s Friday and UNGA week, you may want a drink. So check out the piece by the FT’s wine supremo Jancis Robinson about the recent explosion in sustainable winemaking. There are apparently so many green winemakers today, in places ranging from Venezuela and New Zealand to Germany that, when she staged a competition to spotlight ESG-friendly vineyards, she was inundated with entries. There are remarkable tales of recycled packaged bottles distributed via canoes and creative composting. If nothing else, it shows how sustainability is spreading. Cheers.

This week we have:

  • A recap of this year’s UN general assembly

  • An apparel company’s sustainability is the perfect fit

  • A $1bn pledge to fight racial inequality

  • Trump’s SEC snubs nuns for big companies

Virtual meetings, vital promises, vapid results?

From in-person to online, this UN’s general assembly played out similarly to last year’s big gathering. Last year, we heard grave warnings about the climate from Emmanuel Macron and António Guterres. Greta Thunberg castigated participants on their climate progress.

Again this year, big promises were unveiled, but with many questions about how the proposals action will be paid for and by whom (please read our colleague Leslie Hook’s full recap here).

President Xi Jinping’s pledge to make China carbon-neutral by 2060 marks an extremely important shift. Beijing had previously declined to set a date for carbon neutrality, though it remains unclear how China will make this transition and whether it will apply to its Belt and Road Initiative. This global soft-power investment has been associated with coal power plants in developing countries.

Still, world leaders praised Mr Xi’s commitment while making climate pledges of their own. UK prime minister Boris Johnson said his country aspired to be the “Saudi Arabia of wind power” — a metaphor oilman T Boone Pickens and other Americans have used in the past.

© AP

One of the more ambitious pledges of the week came from California governor Gavin Newsom, pictured, who announced his state would require all new passenger vehicles to be emissions-free by 2035. But it is unclear how much weight Mr Newsom’s executive order carries, and if his successors will adhere to it.

For all their goodwill, the politicians’ climate pledges have done little to subdue Ms Thunberg and young people infuriated by all the talk. Today, Ms Thunberg is planning to galvanise more protest; she says that people have signed up to demonstrate in 2,500 places around the world, in a variety of “safe” real world and cyber forums.

And as usual, the US wants no part of the global co-operation for climate change prevention. The US is planning to officially withdraw from the Paris climate agreement in November. 

With this year’s meetings coming to an end, the long-term questions for the climate persist. How much longer can we withstand record-breaking temperatures? And when will global leaders put their reputations on the line by pairing climate pledges with accountability? (Patrick Temple-West)

Patagonia’s new CEO sets sustainability agenda

If Wall Street bankers and Silicon Valley tech-bros were hoping Patagonia’s new chief executive would bring back their beloved branded fleece vests, Ryan Gellert has some bad news right off the bat.

“Right now I don’t think we anticipate a change in direction with that,” he told Moral Money with a chuckle.

Mr Gellert this week took the reins of the outdoor apparel company, which has been a mainstay in the world of corporate do-goodery for decades. He intends to pick up right where his predecessor Rose Marcario left off, and hopes that the work Patagonia does on sustainability can help other companies in its sector move in the right direction.

“We operate from within the bowels of a pretty dirty space,” he said, noting that the apparel industry is one of the biggest contributors to climate change and is responsible for myriad other environmental problems.

One way of achieving this is to increase the life of its products. “Designed obsolescence” is going to be a big problem for fast fashion, he said.

Patagonia already offers repair services, but Mr Gellert intends to make that a “central feature” of the business, even if it means selling fewer new items. He also wants to ramp up Patagonia’s repurchase programme and make it easier for customers to sell back their used items — which can then be resold or recycled depending on how much life they have left.

This raises two important questions. First, can this be a profitable example for other fashion retailers to follow? It seems unlikely that many fast-fashion retailers will shift their business models unless they are forced to do so. But Mr Gellert thinks they may soon have no choice.

“We’re heading toward a world of less discrete resources. So I think companies are going to be forced into this direction — whether they find religion for the right reasons or if they find religion to future proof their business.”

And question two (most importantly): will the repurchase programme create a bubble in the rare Wall Street fleece market? (Billy Nauman)

US SEC snubs the nuns to bail out the Business Roundtable

© Bloomberg

Shareholders will have less power to challenge companies on executive compensation, climate change or other issues management does not support after rule changes the US Securities and Exchange Commission adopted on Wednesday.

A divided SEC approved the long-awaited rule changes, which were quickly condemned by socially conscious investors. The changes will raise the shareholder submission thresholds to make it harder for corporate petitions to be filed. An investor will need to hold $25,000 of a company’s securities for at least one year to file a petition, or $2,000 if stock is held for at least three years.

For a resolution to be resubmitted at a company, it will need to win 5 per cent support in its first year on the ballot and up to 25 per cent support in its third year. These thresholds were increased from 3 per cent and 10 per cent respectively.

The Business Roundtable and other corporate lobbying groups have argued the resubmission thresholds had been left too low for decades. But pension funds, religious organisations and asset managers balked at the SEC’s proposed changes. The agency’s Democrats on Wednesday agreed that the adopted rule would stifle investors.

“The final rules severely restrict smaller shareholders,” said Allison Lee, pictured, one of the SEC’s two Democratic commissioners. “The rules include a huge, unprecedented hike in the eligibility thresholds.”

But it is possible the rule changes could backfire on businesses. Law firm Wachtell Lipton speculated the SEC’s changes could prompt institutional investors and shareholder advisory firms to err “more on the side of voting in favour of a proposal so as not to foreclose future resubmissions of that proposal”.

The new shareholder submission thresholds will start in January 2022, but shareholders meeting certain requirements can continue to rely on the $2,000 stake threshold for proposals submitted through the end of 2022. (Patrick Temple-West)

Citi joins BofA pledging $1bn to fight racial inequality

Racial inequality has been a hot topic for US banks since protests erupted over the summer after the police killing of George Floyd in Minnesota.

Moral Money readers will remember that Bank of America announced a plan to dedicate $1bn to help close the racial wealth gap a few weeks ago. And now Citigroup has come out with a $1bn pledge of its own.

Citi is planning to dedicate $250m from its procurement budget to be spent on hiring black-owned vendors, such as broker dealers. And more than $500m will be allocated to “support home ownership for people of colour and affordable housing by minority developers”.

The company is also dedicating investment capital to support Minority Depository Institutions and waiving ATM fees for some of their customers.

It also intends to hire more diverse candidates and promote them to senior roles. Wall Street banks have come under fire for their poor diversity numbers, especially among senior executives.

The key to fixing the problem is to hire more diverse candidates early in their careers and make sure they are retained and promoted, said Paco Ybarra, chief executive of Citi’s institutional clients group.

“I think what you’re seeing [is Wall Street] paying the price now [because of] the fact that we didn’t do that,” he said. (Billy Nauman)

Chart of the day

VC investment in bio-engineered foods*

Investors are craving sustainable food businesses. Thanks to the successes of Beyond Meat and Impossible Foods, investors are directing more money to bioengineered food start-ups in the six months to June than they did in all of 2019, according to the data provider PitchBook. The pace of fundraising puts the sector on track to raise more than $3bn this year.

Please read the FT’s new special report on the sustainable food and agriculture sector — including an article by Billy Nauman — here.

Smart reads

Oxford’s Saïd Business School professor Bob Eccles delved into a report this week that scrutinised the Business Roundtable’s big stakeholder shift from last year. Mr Eccles said he was “perplexed about the fact that almost none of these CEOs got board approval for signing the BRT’s statement”. A simple corporate statement of purpose — just two or three pages — should help mitigate concerns about the companies’ sincerity for stakeholders, he added.

Further reading

  • Florida Braces for a Storm of Homeowners Insurance Rate Hikes (Bloomberg)

  • Food proves hard for ESG investors to digest (FT)

  • Ocean Heatwaves Are Directly Linked to Climate Change (NY Times)

  • There Are No Excuses Left for Leaving Climate Change Out of the Debates (Wired)

Get alerts on ESG investing when a new story is published

Copyright The Financial Times Limited 2020. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article