Oxford advances impact investing amid heat from environmentalists

Greetings from New York, where one issue being discussed in the mainstream financial world is the Federal Reserve’s latest bank stress tests. But if Huw van Steenis, former adviser to Mark Carney and an adviser to UBS is correct, investors should also now watch another regulatory development: preparations for green stress tests.

A recent meeting of central bank governors discussed this and van Steenis writes in the Financial Times that “I think the Fed may look to explore climate scenarios as early as 2022 or 2023. They are likely to become standard for pension funds too.” Indeed, France has already done trial runs, delivering surprises for insurance companies and banks.

Van Steenis might be over-optimistic with his timetable, since he is a fan of these green tests. Or maybe not: a central theme of a Credit Suisse investor conference this week is that change is moving faster in markets than most eco-warriors expected a year ago. Read on for news this week about how this shift is having an impact on universities, activism — and food. — Gillian Tett

UK universities team up on impact investing

Universities have become juicy targets for environmentalists. The schools have faced mounting criticism, especially from their own students, for their fossil fuel holdings.

School endowment funds also have been slower than many other investors to join the sustainable investing surge. Last year, UK university endowments, which oversee about £15bn in assets, faced a student-led pressure campaign to allocate more funds to renewable energy and social projects such as housing. 

Feeling the heat, the schools are springing into action. On Tuesday, 12 UK universities announced they were partnering on a new impact investing fund. The Impact 12 fund will be managed by the venture arm of Edinburgh-based Social Investment Scotland. Its goal will be to provide early-stage financing for university social ventures, which the schools said often lacked the financial support that traditional university spinouts or start-ups enjoyed.

The fund is aiming to raise £8m by later this year with a total size of £20m, said Mark Mann, who works for Oxford university’s venture division and is leading the impact investing collaboration.

The fund will be investing in 15 businesses that have been fostered at the 12 universities’ social venture programmes, such as Oxford University Innovation. Potential targets could include Sophia Oxford, a poverty alleviation non-profit, or OxVent, which is building ventilators to combat Covid-19, Mann said.

Impact measurement will be reviewed annually and will be pegged to at least one UN sustainable development goal, Mann said.

Could this be a model to scale up sustainable businesses, or something of little importance? Universities love to fund start-ups in-house and hopefully profit off school-owned intellectual property if the idea becomes attractive to outside investors. But it remains to be seen whether the academic, profit-seeking strategy can actually fund solutions to the world’s environmental and social problems. (Patrick Temple-West)

Korean conglomerate backs recycler targeted by short seller

A Canadian recycling company that has come under fire from short seller Hindenburg Research just received a $56m vote of confidence from one of Asia’s largest conglomerates.

SK Global Chemical, a subsidiary of SK Group, today announced it was taking a 10 per cent stake in Loop Industries and setting up a new joint venture that would “accelerate the commercialisation” of Loop’s recycling technology.

Loop, which says it can recycle plastic that would otherwise be rubbish such as “plastic bottles and packaging, carpets and polyester textiles of any colour, transparency or condition and even ocean plastics that have been degraded by the sun and salt” will use the money from SK’s investment to build a new recycling plant in Quebec.

Hindenburg, which makes money by betting that share prices will fall, said last October that Loop’s claims about its recycling technology were “technically and industrially impossible”. In December 2020, it released a follow-up report reaffirming its short position in Loop. 

“We remain short Loop’s stock with a price target of $0 and continue to strongly believe that Loop’s claimed technological advancements do not exist,” it wrote.

Loop’s chief executive Daniel Solomita disputed Hindenburg’s accusations.

He acknowledged that the company had not produced recycled plastic at a large scale, but was adamant that the technology worked.

“We have never, ever said that we are in commercial production,” he told Moral Money. “We are pre-revenue. We are building our first commercial facilities to fulfil contracts with different customers.”

The investment from SK, alongside numerous other joint ventures Loop has announced, should be enough to relieve any doubts about the company, Solomita said. 

“Do you know how much due diligence these companies do? I can tell you the SK transaction . . . We went through about 10 months of very detailed due diligence . . . We started talking to SK before [Hindenburg’s report] came out.”

SK said it “thoroughly verified the issues raised in the market” and conducted an on-site visit before investing in Loop.

According to Solomita, Loop will hit commercial scale by 2023.

“All of the technology is set. Now it’s all about just finalising the engineering package to get that ready to break ground on construction,” he said. (Billy Nauman)

Food technology companies attract record funding in 2020

Large environmental, social and governance [ESG] investors including sovereign wealth funds, family offices and pensions, pumped more money than ever into agriculture and food technology in 2020, according to data compiled by PitchBook and Finistere Ventures. 

More than $22bn flowed into the sector, with a significant portion going to foodtech “darlings,” such as Beyond Meat and Oatly. But these investments are more than just a play to capitalise on the global shift toward plant-based diets that Credit Suisse has deemed “inevitable.”

There is also an opportunity to develop new technologies that will be crucial in making the food system more sustainable and equitable, Eugène Klerk, head of global ESG & thematic research at Credit Suisse said.

Arama Kukutai, co-founder and Partners at Finistere Ventures, said investors were also drawn to companies promising to improve food supply chains.

“ESG efforts — from sustainability to carbon — have dominated the agrifood investment dialogue in 2020”, Kukutai said. (Kristen Talman)

Tips from Tamami

Nikkei’s Tamami Shimizuishi helps you stay up to date on stories you may have missed from the eastern hemisphere.

As the action-packed annual meeting season winds down in the US, investors are shifting their focus to Japan Inc, demanding changes on issues from climate change to corporate governance.

One of the first major votes occurred last Friday when Sumitomo Corporation faced a climate resolution filed by Market Forces, an Australian-based environmental finance group. The resolution was the first of its kind against one of the country’s trading houses, which have long supported coal power projects overseas.

The resolution was rejected by Sumitomo’s shareholders — only 20 per cent voted in support. But Market Forces is not taking that as a defeat. The firm says a fifth of the shareholders’ support is “significant”.

“Faced with a shareholder resolution, Sumitomo was forced to update its climate policy last month,” Market Forces campaigner Megu Fukuzawa said.

Last year, Mizuho Financial Group shareholders rejected a similar resolution, which obtained 35 per cent support.

Investors have already filed more resolutions than last year and more are on the way, according to IR Japan Holdings, a Tokyo-based consulting company. The rise of activist and ESG investors has contributed to the increase, IR Japan said.

Plus there are more shareholder battles to come:

• Toshiba will face its shareholders on June 25, just days after an independent investigation revealed that the company’s executives colluded with Japan’s trade ministry to pressure shareholders over last year’s annual meeting. Board chair Osamu Nagayama is facing calls to resign to improve governance.

• Also on June 25, the shareholders of Kansai Electric Power, the country’s second-largest electricity provider, will vote on a resolution demanding that it cuts coal and reduces reliance on nuclear power.

• On June 29, Mitsubishi UFJ Financial Group’s shareholders will vote on climate resolution filed by a group of environmental organizations, led by Kiko Network.

Chart of the day

A new study from Fidelity found that women tended to be more charitable than men, but men were much more likely to exploit the tax breaks that come with philanthropic giving in the US.

Is this because women are more altruistic? Not necessarily. Fidelity thinks it is more likely to be a sign of a gender-based “knowledge gap” about tax planning.

Grit in the oyster

Troubled UK fast-fashion retailer Boohoo faced angry investors on Friday at the company’s annual meeting. Vanguard said it voted against Boohoo co-founder Carol Kane’s re-election to the board, and although she ultimately survived the attempted coup, the asset manager added that it had “strong reservations about the leadership and culture of a company that delayed action once issues were made known to directors”. Vanguard also voted against Boohoo’s executive pay plans.

Smart reads

Australia’s conservative government has scrapped plans to build the world’s biggest renewable energy project. The decision represents a U-turn by Canberra, which last year supported fast-tracking construction of the Asian Renewable Energy Hub on a 6,500 sq km site in a remote region in Western Australia. The country was also on the defensive this week concerning the Great Barrier Reef, which the UN’s World Heritage Committee is considering labelling as “in danger” as a result of global warming. 

Further Reading

• New climate reporting rules to be extended by UK financial regulator (FT)

• Ikea and Rockefeller foundations in $10bn clean energy push (FT)

• Engine No 1 rolls out $100 million ETF after Exxon board victory (Reuters)

• Your face is the next frontier in ESG investing (Bloomberg)

• Greenpeace condemns ‘misleading’ marketing of sustainable funds (Ignites Europe)

• South Korea’s SK accused of greenwashing after LNG U-turn (FT)