tag:theconversation.com,2011:/us/topics/investing-1273/articlesInvesting – The Conversation2024-03-13T12:28:20Ztag:theconversation.com,2011:article/2240442024-03-13T12:28:20Z2024-03-13T12:28:20ZRobo-advisers are here – the pros and cons of using AI in investing<figure><img src="https://images.theconversation.com/files/580679/original/file-20240308-28-55toe3.jpg?ixlib=rb-1.1.0&rect=59%2C0%2C7951%2C4345&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/smart-businessman-hand-close-nft-financial-2074315681">thinkhubstudio/Shutterstock</a></span></figcaption></figure><p>Artificial intelligence (AI) is <a href="https://www.ft.com/content/6766a3bd-1cec-4e88-9f51-5ed93b39528c">shaking up</a> the way we invest our money. Gone are the days when complex tools were reserved for the wealthy or financial institutions. </p>
<p>AI-powered <a href="https://www.investopedia.com/best-robo-advisors-4693125">robo-advisers</a>, such as <a href="https://www.betterment.com/">Betterment</a> and <a href="https://investor.vanguard.com/advice/robo-advisor">Vanguard</a> in the US, and finance app <a href="https://www.revolut.com/en-HU/news/revolut_launches_robo_advisor_in_eea_to_automate_investing/">Revolut</a> in Europe, are now democratising investment. These tools are making professional financial insight and portfolio management available to everyone. But although there are plenty of advantages to using robo-advisers, there are downsides too. </p>
<p>Since the 1990s, <a href="https://arxiv.org/pdf/2104.05413.pdf">AI’s role</a> in this sector was typically confined to algorithmic trading and quantitative strategies. These rely on advanced mathematical models to predict stock market movements and trade at lightning speed, far exceeding the capabilities of human traders. </p>
<p>But that laid the groundwork for more advanced applications. And AI has now <a href="https://www.weforum.org/agenda/2017/09/robots-could-plan-your-retirement-financial-advice/">evolved</a> to handle data analysis, predict trends and personalise investment strategies. Unlike traditional investment tools, robo-advisers are more <a href="https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-predictions/2023/democratize-financial-services.html">accessible</a>, making them ideal for a new generation of investors. </p>
<p>A survey published in 2023 showed that there has been a particular <a href="https://www.investopedia.com/study-affluent-millennials-are-warming-up-to-robo-advisors-4770577">surge</a> in young people using robo-advisers. Some 31% of gen Zs (born after 2000) and 20% of millennials (born between 1980 and 2000) are using robo-advisers. </p>
<p>Another <a href="https://www.magnifymoney.com/news/robo-advisor-survey/">survey</a> from 2022 found that 63% of US consumers were open to using a robo-adviser to manage their investments. In fact, projections indicate that assets managed by robo-advisers will reach <a href="https://www.statista.com/outlook/fmo/wealth-management/digital-investment/robo-advisors/worldwide">US$1.8 trillion</a> (£1.4 trillion) globally in 2024. </p>
<p>This trend reflects not only changing investor preferences but also how the financial industry is adapting to technology.</p>
<h2>Tailored advice</h2>
<p>AI can <a href="https://www.ftadviser.com/your-industry/2023/07/17/can-generative-ai-truly-replace-a-financial-adviser/">tailor</a> investment advice to a person’s preferences. For example, for investors who want to prioritise ethical investing in environmental, social and governance stocks, AI can tailor a strategy without the need to pay for a financial adviser. </p>
<p>AI can <a href="https://www.sciencedirect.com/science/article/pii/S0275531923000077">analyse</a> news and social media to understand market trends and predict potential movements, offering insights into potential market movements. Portfolios built by robo-advisers may also be <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/poms.14029">more resilient during market downturns</a>, effectively managing risk and protecting investments.</p>
<p>Robo-advisers can offer certain <a href="https://www.ft.com/content/6694bb4a-a585-496a-b7f3-d1841984f9b3">features</a> like reduced investment account minimums and lower fees, which make services more accessible than in the past. Other features such as <a href="https://corporatefinanceinstitute.com/resources/wealth-management/robo-advisors/">tax-loss harvesting</a>, a strategy of selling assets at a loss to reduce taxes, and <a href="https://corporatefinanceinstitute.com/resources/wealth-management/robo-advisors/">periodic rebalancing</a>, which involves adjusting the proportions of different types of investments, make professional investment advice accessible to a wider audience.</p>
<p>These types of innovations are particularly beneficial for people in underserved communities or with limited financial resources. This has the <a href="https://www.brookings.edu/articles/robo-advice-an-effective-tool-to-reduce-inequalities/">potential</a> to improve financial literacy through empowering people to make better financial decisions. </p>
<h2>AI’s multifaced role</h2>
<p>AI’s impact on investment fund management goes way beyond robo-advisers, however. Fund managers are using AI algorithms in a variety of ways. </p>
<p>In terms of data analysis, AI can sift through vast amounts of market data and historical trends to identify <a href="https://doi.org/10.1016/j.frl.2022.102941">ideal assets</a> and adjust portfolios in real time as markets fluctuate. AI is also used to <a href="https://www.sciencedirect.com/science/article/pii/S0378426621002466">improve risk management</a> by analysing complex data and making sophisticated decisions. </p>
<p>By using AI in this way, <a href="https://doi.org/10.1016/j.jedc.2022.104438">traders</a> can react and make faster decisions, which maximises efficiency. Other mundane tasks like <a href="https://ieeexplore.ieee.org/document/9315986">compliance monitoring</a> are increasingly automated by AI. This frees fund managers up to focus on more strategic decisions. </p>
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<img alt="A close up of a pair of hands holding a mobile phone with pound coins superimposed onto the foreground." src="https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/580727/original/file-20240308-24-xg6lqw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">While AI is democratising investing, that comes with challenges.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/double-exposure-uk-stock-graphic-close-792232471">Loch Earn/Shutterstock</a></span>
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<h2>What are the disadvantages?</h2>
<p>One of the biggest concerns regarding AI in this sector is based on how having easy access to advanced investment tools may lead some people to overestimate their abilities and take too many financial risks. The sophisticated algorithms used by robo-investors can be opaque, which makes it <a href="https://www.lseg.com/en/insights/data-analytics/how-might-ai-impact-investment-management">difficult</a> for some investors to fully understand the potential risks involved. </p>
<p>Another concern is how the evolution of robo-advisers has outpaced the implementation of <a href="https://fastercapital.com/content/Regulatory-Compliance-in-B2B-Robo-Advisors--Navigating-the-Legal-Landscape.html#Challenges-and-Opportunities">laws and regulations</a>. That could expose investors to financial risks and a lack of legal protection. This is an issue yet to be adequately addressed by financial authorities. </p>
<p>Looking ahead, the future of investment probably lies in a hybrid model. Combining the precision and efficiency of AI with the experience and oversight of human investors is vital.</p>
<p>Ensuring that information is accessible and transparent will be crucial for <a href="https://www.turing.ac.uk/sites/default/files/2021-06/ati_ai_in_financial_services_lores.pdf">fostering</a> a more informed and responsible investment landscape. By harnessing the power of AI responsibly, we can create a financial future that benefits everyone.</p><img src="https://counter.theconversation.com/content/224044/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Robo-advisers and AI are making investing accessible to everyone, but there are also risks to consider.Laurence Jones, Lecturer in Finance, Bangor UniversityHeather He, Lecturer in Data Science/Analytics, Bangor UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2238612024-03-13T01:26:38Z2024-03-13T01:26:38ZBe wary of the ‘vibes’: positive investor sentiment doesn’t necessarily match the true value of stocks<p>Global stock prices dropped across the board late last year, by between <a href="https://www.nasdaq.com/articles/monthly-market-wrap-september-2023#:%7E:text=September%202023%20Market%20Summary,the%20NASDAQ%20ended%205.8%25%20lower">10% and 15% in a matter of weeks</a>. </p>
<p>Fears of a recession took hold after a series of interest rate increases, stubborn inflation and geopolitical tensions in Europe and the Middle East. Uncertainty gripped the market and eroded investor sentiment, only for markets to <a href="https://fortune.com/2023/12/29/stocks-2023-sp-nasdaq-soaring-economy/">bounce back</a> and finish the year on a high. </p>
<p>Stockmarket history is full of similar periods characterised by either extreme levels or dramatic changes in stock prices. This creates patterns that are difficult to reconcile with asset-pricing models. These models are based on the assumption that prices always reflect reasonable expectations about future cash flows determined by rational investors. </p>
<p>But investors are not always rational. Rather, a <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1986.tb04513.x">large body</a> of <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/261703">academic literature</a> shows market-wide sentiment can cause prices to depart from their true values. </p>
<p>In an ongoing collaboration between the University of Canterbury and the New Zealand Shareholder Association (NZSA), we have developed the <a href="https://www.nzshareholders.co.nz/nz-retail-investor-sentiment-index/">NZ Retail Investor Sentiment Index</a> as a representative survey of retail investors in New Zealand. </p>
<p>The goal is to understand the behaviour of New Zealand’s investors and how they compare with their overseas colleagues when predicting the patterns of the stockmarket. </p>
<h2>Measuring market sentiment</h2>
<p>Market sentiment refers to the overall attitude of investors. It is commonly summarised as bullish (expecting increasing prices), bearish (expecting decreasing prices), or neutral (expecting no or only little changes in price). Such sentiment is not always based on fundamentals such as revenue, profitability and growth opportunities. </p>
<p>Several studies show investor sentiment predicts stock returns and <a href="https://www.aeaweb.org/articles?id=10.1257/jep.21.2.129">can be used as a contrarian signal</a> since subsequent returns tend to be relatively high when sentiment is low and vice versa. Therefore, a contrarian investor would buy stocks when sentiment is low and sell stocks when sentiment is high.</p>
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<p>Every week since January 2020, we asked registered members of the NZSA whether they expected the stockmarket to increase (bullish), decrease (bearish) or stay the same (neutral) over the next six months. The NZSA has about 1,200 members, a quarter of whom receive email invitations to participate in the survey. </p>
<p>Our index is constructed similarly to those in the <a href="https://www.aaii.com/sentimentsurvey">United States</a> and Europe, which are often cited in the <a href="https://www.nasdaq.com/articles/the-rollercoaster-of-investor-sentiment">media</a> and widely used in <a href="https://doi.org/10.1016/j.jempfin.2002.12.001">research</a>. All these benchmarks provide insights into the mood of investors and shed light on the short-term outlook for the local equity market. </p>
<h2>2024 forecast for the NZ equity market</h2>
<p>During the first four weeks of this year, expectations that stock prices will rise over the next six months remained elevated at 40%. In other words, 40% of the surveyed investors believe the NZ equity market will increase in the first six months of 2024. At the same time, bearish sentiment, expectations that stock prices will fall over the next six months, fluctuated around 16%. </p>
<p>So, despite the mounting global and local uncertainties, retail investors are optimistic about the equity market. Bullish sentiment is stronger and bearish sentiment weaker than the historical average levels of 28% and 36%, respectively. </p>
<p>On the back of last year’s strong market performance and a better-than-expected economy, investor optimism carries forward.</p>
<p>However, since sentiment is known to be a contrarian indicator, informed investors should be cautious going further into the new year. </p>
<h2>Why investor sentiment matters</h2>
<p>In general, investor sentiment affects the demand (buying) and supply (selling) of stocks. At the aggregate level, this can affect stock prices and volatility. </p>
<p>Understanding the level and changes in the overall attitude or mood of investors therefore has important implications for investors to make better investment decisions. </p>
<p>At the same time, policymakers should monitor and include investor sentiment in their decision-making to reduce undue market volatility. <a href="https://doi.org/10.1016/j.irfa.2007.04.001">Research has shown</a> sentiment as a determinant of stock prices is driven by rational factors, such as inflation, overall market return and dividend yield, and less rational factors.</p>
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Read more:
<a href="https://theconversation.com/its-the-vibe-of-the-thing-the-critical-art-of-measuring-business-and-consumer-confidence-37166">It's the 'vibe' of the thing: the critical art of measuring business and consumer confidence</a>
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<p>Regulators typically focus on the former, which by extension contributes to maintaining stability in sentiment and associated price volatility induced by fundamentals. </p>
<p>But <a href="https://doi.org/10.1016/j.irfa.2016.10.003">changes in sentiment unrelated to fundamentals</a> are just as important. They can occur without warning and spread widely through the market. This has been found to play an important role for price run-ups and corresponding corrections that can have negative impacts on the <a href="https://www.sec.gov/investor/locinvestorbehaviorreport.pdf">functioning of the financial market</a> and <a href="https://www.federalreserve.gov/boarddocs/speeches/2002/20021015/default.htm">asset price bubbles and monetary policy</a>. </p>
<p>Considering the importance of investor behaviour for the wider economy, the patterns identified by our index give us a road map to better understand the ups and downs of the New Zealand stock exchange.</p><img src="https://counter.theconversation.com/content/223861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Prof Jedrzej Bialkowski is a member of the American Finance Association (AFA), European Finance Association (EFA), Financial Management Association (FMA), Western Finance Association (WFA) and Institute of Finance Professionals New Zealand (INFINZ).
</span></em></p><p class="fine-print"><em><span>Moritz Wagner is a member of the American Finance Association (AFA), European Finance Association (EFA), Financial Management Association (FMA), Institute of Finance Professionals New Zealand (INFINZ) and the Nez Zealand Shareholder Association (NZSA).</span></em></p>A new index gives us insight into how sentiment impacts investor behaviour in New Zealand. How investors feel about the market does not always match the mounting global and local uncertainties.Jedrzej Bialkowski, Professor and Head of Department, Economics and Finance, University of CanterburyMoritz Wagner, Senior Lecturer, Department of Economics and Finance, University of CanterburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2181142024-01-25T20:45:23Z2024-01-25T20:45:23ZWhat do I need to know before investing in ETFs and what are the risks?<p>Exchange-traded funds (ETFs) are tradeable units that have different types of investments all bundled by a professional fund manager into a single investment. In the “bundle” you might have shares, bonds, property investment and other types of investments. </p>
<p>That means people who hold ETFs are investing in a diverse collection of assets across various sectors, markets, companies and regions. With a single ETF you can own a piece of multiple companies or bonds.</p>
<p>They are issued by financial services companies, such as Blackrock, Vanguard, and State Street, and managed by professional fund managers. You can buy and sell units in an ETF fund through a stockbroker; many people use an online broker such as CommSec, CMC Markets, eToro or others.</p>
<p>ETFs can be traded on the Australian Securities Exchange (ASX), or another exchange. The market price of an ETF, which is disclosed daily, will typically follow other benchmarks in the market such as the ASX200 or the S&P500.</p>
<p>ETFs have grown very <a href="https://www.investordaily.com.au/markets/54140-how-australia-s-etf-industry-grew-from-100k-to-over-150b">popular</a> over the last two decades, especially among <a href="https://www.asx.com.au/investors/learn-about-our-investment-solutions/etfs-and-other-etps/20-years-of-etfs-on-asx">younger investors</a>. But what are the potential <a href="https://www.asx.com.au/investors/learn-about-our-investment-solutions/etfs-and-other-etps/benefits-and-risks">benefits and risks</a> of ETFs?</p>
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Read more:
<a href="https://theconversation.com/what-is-an-etf-and-why-is-it-driving-bitcoin-back-to-record-high-prices-170095">What is an ETF? And why is it driving Bitcoin back to record high prices?</a>
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<h2>What are the potential benefits?</h2>
<p>In traditional shares investing, you might research one company and if you believe it will do better, you buy shares in it in the hope its share price rises.</p>
<p>With ETFs, you buy a “bundle” (a number of units) of shares and other securities, that is put together and managed by a professional fund manager. If the market goes up, the value of the ETF should too. </p>
<p>This means investing in ETFs can allow you to spread your risk across a lot of different regions and different markets (such as shares, bonds, property, companies and so on). You aren’t putting all your eggs in one basket. And you can let a professional fund manager worry about selecting the various investments and managing them. You don’t need to be an expert on one particular company or industry.</p>
<p>ETFs also offer flexibility to respond to market trends. They are usually easier to sell quickly than many other types of investments, such as property. This offers freedom to adjust your investment portfolio often and as you like.</p>
<p>Many ETFs that distribute dividends allow the investor to reinvest these dividends automatically to benefit from compound growth over time. </p>
<p>ETFs can also be cost-effective, because the administration is handled by the exchange (such as the ASX).</p>
<h2>What are the risks?</h2>
<p>Like any investment, ETFs carry risk.</p>
<p>A lot depends on the type of ETF and underlying assets in the “bundle”.</p>
<p>If you aren’t careful, you can end up buying a higher-risk ETF without realising it. So it pays to know what types of investments and in what proportions are in your “bundle” (which is known as your asset allocation).</p>
<p>Asset allocation should be aligned with your risk tolerance. Investors have different tolerances for risk depending on their age, financial goals, investment time horizon, preferences and personal comfort with market volatility. Knowing your risk tolerance helps you manage your emotional reactions during market downturns. </p>
<p>A retiree with a likely low tolerance to taking risks might choose an asset allocation that exposes them to low-risk assets. Someone saving for retirement might have more riskier share investments as they aim to grow their nest egg.</p>
<p>Just like shares, ETFs are subject to market fluctuations. If the market experiences a downturn, then the value of the ETF may decline too (depending on what’s in your ETF). Much of the risk depends on what type of assets the ETFs hold.</p>
<p>And in times of market stress, ETFs may not be as easy as they normally are to convert into cash. </p>
<p>Some financial products bought and sold every day on the market include debts or derivatives (futures and options investments). If your ETFs contain in the “bundle” some debts or derivatives, there is always the risk the party on the other side of a financial transaction may default on their debt obligations.</p>
<p>Growth in Australian exchange-traded funds under the management of a professional ETF manager has been robust in recent years. Market capitalisation stood at <a href="https://www.asx.com.au/content/dam/asx/issuers/asx-investment-products-reports/2023/pdf/asx-investment-products-oct-2023.pdf">A$145.83 billion</a> in October 2023, up 13.55% since October 2022.</p>
<p>But before you dive in, remember that ETFs come with their own risks.</p>
<p>Carefully research and select ETFs that are aligned with your investment goals, preferences, time horizon and risk tolerance or see a professional for advice.</p>
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Read more:
<a href="https://theconversation.com/fintok-and-finfluencers-are-on-the-rise-3-tips-to-assess-if-their-advice-has-value-161406">FinTok and 'finfluencers' are on the rise: 3 tips to assess if their advice has value</a>
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<p class="fine-print"><em><span>Angelique Nadia Sweetman McInnes has received funding from the Accounting and Finance Association of Australia and New Zealand, Central Queensland University. She is a member of Accounting and Finance Association of Australia and New Zealand, the Financial Advice Association of Australia, the Society for Trusts and Estate Planning, the Financial Planning Academic Forum, Cooperative Research Australia, the Association of Computing Machinery, the Health Informatics Knowledge Management Steering Committee, and the Australasian Society for Computers in Learning in Tertiary Education.</span></em></p>Exchange-traded funds allow you to spread your risk across many different regions and markets (such as shares, bonds, property and companies). You aren’t putting all your eggs in one basket.Angelique Nadia Sweetman McInnes, Academic in Financial Planning, CQUniversity AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2194212024-01-02T16:50:12Z2024-01-02T16:50:12ZA beginner’s guide to sustainable investing<figure><img src="https://images.theconversation.com/files/567074/original/file-20231221-24-zjv59y.jpg?ixlib=rb-1.1.0&rect=682%2C1161%2C7305%2C3317&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/businessman-holding-coin-tree-that-grows-1879675894">MEE KO DONG/Shutterstock</a></span></figcaption></figure><p>Humans have made drastic changes to the environment. We need to change our behaviour – and we need to do it fast. </p>
<p>One simple way you can do your part is by investing your money responsibly. Sustainable investing has emerged as a way to make a positive impact on the planet and society while also achieving your financial goals – and it’s popularity is really starting to grow.</p>
<p>At the beginning of 2020, the global value of sustainable investment in major financial markets stood at <a href="https://www.ft.com/partnercontent/london-stock-exchange-group/the-rise-and-rise-of-sustainable-investment.html">US$35.3 trillion</a> (£27.7 trillion). That’s equal to <a href="https://data.worldbank.org/indicator/CM.MKT.LCAP.CD?end=2020&most_recent_value_desc=true&start=1975">approximately one-third</a> of the value of all the listed companies throughout the world in 2020, and <a href="https://www.statista.com/statistics/745717/global-governmental-spending-on-space-programs-leading-countries/">almost 364 times</a> the amount spent globally on space programmes in 2022. </p>
<p>But what makes an investment worthy of the “sustainable” title? And what should you consider when researching sustainable investments of your own? </p>
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<a href="https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A graph showing the value of sustainable investment assets worldwide between 2014 and 2020." src="https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=452&fit=crop&dpr=1 754w, https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=452&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/567105/original/file-20231221-29-hkc96b.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=452&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sustainable investing has been increasing in value for almost a decade.</span>
<span class="attribution"><a class="source" href="https://www.statista.com/statistics/742097/sri-assets-value-by-region/">Statista (2023)</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<h2>Identifying a sustainable investment</h2>
<p>Sustainable investing is an investment approach that considers environmental, social and governance (ESG) criteria in addition to traditional financial factors. Environmental criteria might include factors like a company’s carbon footprint, resource use and energy efficiency. Social factors assess how a company handles its relationships with people, and governance factors examine the behaviour of the company’s leadership.</p>
<p>Sustainable and ethical investing are sometimes used interchangeably. But it’s important you understand the distinction between them. Sustainable investing tends to focus more closely on ESG factors overall and how they are being applied within an organisation. Ethical investing instead considers the moral, belief and value factors of an organisation and how they align with your principles.</p>
<p>The best place to start researching the sustainability of an investment would be to analyse either the annual report of an individual company or the fact sheet of a collective fund. Review the ESG practices of the organisation. Has the company complied with all required standards? And how do their results benchmark to competitors in the same industry?</p>
<p>Don’t forget to investigate the companies on various <a href="https://www.investing.com/">investment</a> and <a href="https://uk.finance.yahoo.com/">finance</a> sites, as many have detailed information for listed companies. Or check out the stock exchange sites themselves. </p>
<p>Companies listed on the London Stock Exchange, for example, may have received the “<a href="https://www.londonstockexchange.com/raise-finance/sustainable-finance/green-economy-mark">Green Economy Mark</a>”. This recognises companies and funds that derive more than half of their revenues from products and services that are contributing to environmental objectives, such as tackling climate change or reducing waste and pollution. </p>
<p>The Nasdaq, an American stock exchange based in New York City, has the <a href="https://www.nasdaq.com/solutions/green-equity-indexes#:%7E:text=Nasdaq%20provides%20a%20complete%20family,on%20reduction%20of%20carbon%20usage.">Green Equity Indexes</a>. The Indexes are comprised of companies that are working to enhance economic development based on a reduction of carbon usage. </p>
<p>And the New York Stock Exchange has a new asset class of companies called <a href="https://www.nyse.com/esg/resource-center#:%7E:text=To%20help%20issuers%20navigate%20the,term%20benefits%20for%20all%20stakeholders.">Natural Asset Companies</a>. These are companies that hold rights to the preservation and conservation of natural assets like trees and green spaces, so allow you to invest directly in environmental protection.</p>
<figure class="align-center ">
<img alt="Rays of light falling through the lush tree canopy of a forest." src="https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=375&fit=crop&dpr=1 600w, https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=375&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=375&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=471&fit=crop&dpr=1 754w, https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=471&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/567077/original/file-20231221-23-6d2f7z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=471&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Investing in natural asset companies allows investors to play their part in environmental protection.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/rays-light-beautifully-falling-through-green-1715555989">Smileus/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Is it profitable?</h2>
<p>Just because an investment is good for the environment doesn’t mean it won’t make money. To check whether it’s likely to be profitable, you can look at how well the company is doing financially and analyse predictions for its growth and future plans. </p>
<p>You should consider its position in the market and any unique characteristics it has, while also checking whether the company’s leadership own a significant amount of shares. If they do, then this demonstrates they believe in their company’s success and “have skin in the game”. Check if the company <a href="https://www.ft.com/content/101c66f0-2782-46bb-86c4-6b5be1e10398?segmentId=6faa8072-922c-4fbf-5b33-45a1342b0cc3">pays out a dividend</a> too, and remember to evaluate its planning for potential risks that could harm its reputation.</p>
<p>If you are looking to invest with a focus more on <a href="https://journals.sagepub.com/doi/full/10.1177/1086026620919202">making a positive impact</a> over profitability, then consider companies that lack capital due to existing in less mature or niche markets. You could invest in “<a href="https://www.reuters.com/markets/global-small-cap-stocks-lure-bargain-hunters-after-sluggish-2023-2023-12-07/">small-caps</a>”, which are generally up-and-coming companies with potential for large growth, or screen companies based on the <a href="https://on.ft.com/49d473L">types</a> and <a href="https://on.ft.com/3GbOHiM">costs</a> of their sustainability practices. </p>
<p>Smaller companies can be less profitable compared to their larger counterparts. But their potential for positive impact may be greater. This is because, among other things, small companies may be more likely to take into account the <a href="https://www.mdpi.com/19932">full life-cycle</a> of their product. </p>
<h2>Minding your money</h2>
<p>It is paramount for you to clarify your own values and goals before deciding where you invest your money. This will help to determine if your interests align with the company’s ESG operations, performance and long-term strategies. </p>
<p>Sustainable investing can take several forms. You could decide to adopt “positive screening” where you actively seek out investments that match your values. Or you could avoid any investments in an area that you disagree with – a strategy called “negative screening”.</p>
<p>You should also undertake further research to ensure that the company has actually been carrying out its reported ESG activities and has not been accused of <a href="https://on.ft.com/3sQvTCJ">greenwashing</a>. Anti-greenwashing rules have recently been introduced banning UK asset managers from using vague references to “sustainability” in marketing their funds. Prior to this, companies applied this label with little oversight from regulators.</p>
<figure class="align-center ">
<img alt="Brush painting green over a polluting power plant." src="https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=428&fit=crop&dpr=1 600w, https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=428&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=428&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=538&fit=crop&dpr=1 754w, https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=538&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/567080/original/file-20231221-23-cvmtov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=538&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Until recently, UK asset managers have been using vague references to</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/brush-painting-green-polluting-industry-smoke-2172519343">Ivan Marc/Shutterstock</a></span>
</figcaption>
</figure>
<p>When it comes to the investing process, you could be <a href="https://www.fca.org.uk/consumers/carbon-credit-trading-scams">scammed</a> if you don’t conduct <a href="https://www.fca.org.uk/consumers/protect-yourself-scams">due diligence</a> that the platform you are using is trustworthy and has the relevant credentials. You may also wish to consider an independent financial advisor for bespoke professional advice, especially if you have little investing experience. </p>
<p>Investments can go both up and down. It’s your responsibility to undertake thorough research before making an investment decision and putting capital at risk. Don’t invest money you can’t afford to lose.</p>
<hr>
<figure class="align-right ">
<img alt="Imagine weekly climate newsletter" src="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434988/original/file-20211201-21-13avx6y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
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<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>All you need to know about investing your money sustainably.Davina Bird, Lecturer in Economics, University of LincolnJames Wright, Senior Lecturer in Accounting and Finance, University of LincolnLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2180922023-11-26T19:58:11Z2023-11-26T19:58:11ZResponsible ESG investing in the Global South requires overcoming the Global North’s saviour complex<figure><img src="https://images.theconversation.com/files/561682/original/file-20231126-15-kmvdhe.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C2683%2C1510&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Socially responsible investing in the Global South should respond to local needs rather than investors' egos.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/responsible-esg-investing-in-the-global-south-requires-overcoming-the-global-norths-saviour-complex" width="100%" height="400"></iframe>
<p>ESG standards (Environment, Social and Governance) are metrics designed to guide responsible investing. The “S” in ESG has evolved into the financial innovation of social impact investing (SII), which promotes social benefits such as <a href="https://doi.org/10.1007/s10551-014-2327-0">environmental protection, gender equality and human development</a>, and also generates profits for beneficiaries and investors.</p>
<p>As rosy as this seems, how to get it done is far from settled. SII in the Global South is difficult, resulting in a paradox where — despite the best of altruistic intentions — the egos and <a href="https://global.oup.com/academic/product/the-white-mans-burden-9780199226115?lang=3n&cc=jo">saviour complexes</a> of investors benefit more than intended beneficiaries. Recent research offers some ways to mitigate this paradox.</p>
<h2>ESG culture wars</h2>
<p>ESG was co-opted into the culture wars when conservative politicians became concerned that <a href="https://hbr.org/2023/02/rescuing-esg-from-the-culture-wars">businesses had become too focused on progressive social issues</a>. </p>
<p>On one side, there are those who believe ESG <a href="https://www.irmagazine.com/esg/esg-transition-can-sustainability-still-save-world">promotes sustainability</a> and <a href="https://www.mckinsey.com/%7E/media/McKinsey/Business%20Functions/Strategy%20and%20Corporate%20Finance/Our%20Insights/Five%20ways%20that%20ESG%20creates%20value/Five-ways-that-ESG-creates-value.ashx">value creation</a> for firms. On the other side of the debate, it is maintained that ESG will <a href="https://hbr.org/2022/08/esg-investing-isnt-designed-to-save-the-planet">not save the planet</a> and that it amounts to <a href="https://www.hachettebookgroup.com/titles/vivek-ramaswamy/woke-inc/9781546090786/">empty virtue signalling</a>.</p>
<p>The <a href="https://www.economist.com/the-economist-explains/2023/06/21/how-esg-became-part-of-americas-culture-wars">ESG culture war</a> exposes the paradox of <a href="https://dx.doi.org/10.2139/ssrn.1977714">ego versus altruism</a>.</p>
<p>SII promoters cast themselves as <a href="https://doi.org/10.1177/0308518X17738253">saviours with the moral vision to solve worldwide suffering</a>, but this does not always translate into promised results in the postcolonial Global South. </p>
<p>Ironically, SII investors often <a href="https://dx.doi.org/10.2139/ssrn.1977714">bask in the glory of a victory lap, whether they deliver social impact or not</a>. What is so difficult about the Global South that authentic, altruistic motivations can go so woefully wrong?</p>
<h2>Why the Global South is so challenging</h2>
<p>Even if ESG and SII can succeed within the Global North, it is different when investing from the Global North to the Global South. Given the sums involved, it is important to understand the Global South contexts. SII is worth <a href="https://thegiin.org/assets/2022-Market%20Sizing%20Report-Final.pdf">US$1 trillion with 92 per cent of the investors based in the Global North</a> and <a href="https://thegiin.org/assets/GIIN%20Annual%20Impact%20Investor%20Survey%202020.pdf">59 per cent of the investments made in the Global South</a>.</p>
<p>Doing business in the Global South involves having to account for cultural biases and historical context, for example, in the <a href="https://doi.org/10.1108/cpoib-03-2020-0016">postcolonial behaviours of former colonizers and their subjects</a>. Failing to do so fully results in <a href="https://doi.org/10.1007/s11575-011-0113-0">strategies based on imagined rather than actual contexts</a>, reflecting an incomplete understanding of how <a href="https://doi.org/10.1002/ijfe.2554">advanced standards are adopted in developing contexts</a>. We are often left with the ill-fitting propagation of <a href="https://doi.org/10.1108/cpoib-05-2015-0017">neoliberal assumptions on what success means</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a village market scene" src="https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561406/original/file-20231123-15-lr10ai.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Conducting business in the Global South requires an understanding of cultural and historical contexts.</span>
<span class="attribution"><span class="source">(Max Brown/Unsplash)</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>It is important to get SII right in the Global South. We already know that decades of crusading development and aid programs under the banner of the “<a href="https://doi.org/10.1111/j.1468-2486.2007.00705.x">white man’s burden</a>” did not work. Handouts failed to alleviate long-term poverty. </p>
<p>Taking over from the failed development initiatives, what can be done to make SII better? Maybe we can start by straightening out the ego versus altruism paradox. </p>
<h2>Mitigating the ego versus altruism paradox</h2>
<p><a href="https://doi.org/10.1108/cpoib-05-2020-0036">My recent research on SII ventures in the Global South</a> recommends three solutions for mitigating the ego versus altruism paradox: </p>
<p>• Investment narratives should be more self-aware in balancing ego with altruism. Third-party scrutiny of results should ensure that marketing of SII does not overstate or misrepresent social impact. One’s pride in their efforts to alleviate social challenges should not eclipse the results delivered.</p>
<p>• Ensure that the money is going where you want it to. Ownership structures based on local and Indigenous sensibilities is more effective at getting investment into the right hands. The SII process usually follows the neoliberal, accounting-based conventions of Global North capital markets which continue a <a href="https://www.taylorfrancis.com/chapters/edit/10.4324/9781315142876-7/financialization-socio-technical-process-eve-chiapello">“process of colonisation and value capture”</a>. Alternatively, unique structures <a href="https://www.taylorfrancis.com/books/mono/10.4324/9781351276245/measuring-improving-social-impacts-marc-epstein-kristi-yuthas">aligning qualitative or quantitative measures to constructs</a> can be created based on active discussions with beneficiaries.</p>
<p>• Take postcolonial power imbalances into consideration. Making people less poor is not a win by itself, as they remain very poor. Financial metrics should be complemented with other indications of human dignity and flourishing. This requires SII investors to make the extra effort to build direct relationships with beneficiaries, and avoid outsourcing impact activities through local intermediaries who may be exerting power over the beneficiaries.</p>
<p>SII investors should reflect on and declare their invisible power and neoliberal privilege to create a space where issues of equality and power-sharing can be discussed with beneficiaries. Engage with beneficiaries not just as business partners, but as equal human beings to avoid an <a href="https://doi.org/10.1007/s10551-015-2737-7">inadvertent, but dehumanizing colonial gaze</a>.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a digital image of a globe showing the African continent resting on a mossy surface" src="https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=415&fit=crop&dpr=1 600w, https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=415&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=415&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=522&fit=crop&dpr=1 754w, https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=522&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/561403/original/file-20231123-15-24qirl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=522&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">With a commitment to equitable collaboration and partnership, social impact investing can produce positive change.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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</figure>
<h2>Optimism for the way forward</h2>
<p>There continue to be real opportunities for SII directed to the Global South. It is still possible to contribute to the “<a href="https://foreignpolicy.com/2009/10/02/the-poor-mans-burden/">revolution from the bottom</a>” imagined over a decade ago. </p>
<p>Witnessed by <a href="https://theconversation.com/how-global-business-could-be-the-unexpected-cop26-solution-to-climate-change-172133">proposals during COP26</a>, business plays an important role in redressing imbalances between the Global North and Global South and finding whole-planet solutions for whole-planet problems, including climate change. </p>
<p>Rather than giving in to the cynicism around ESG, we can improve our toolkit. SII remains a well-intentioned and important initiative. We do not have many other options and time is of the essence.</p><img src="https://counter.theconversation.com/content/218092/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>F. Haider Alvi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ensuring that ego and prestige of the Global North does not get in the way of on-the-ground results in the Global South will be the key to effective social impact investing in the years to come.F. Haider Alvi, Associate Professor of Innovation Finance, Faculty of Business, Athabasca UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2170262023-11-07T13:37:52Z2023-11-07T13:37:52ZSam Bankman-Fried sentenced to 25 years − how he went from $30B crypto CEO to prison inmate<figure><img src="https://images.theconversation.com/files/585146/original/file-20240328-16-k9vxuj.jpeg?ixlib=rb-1.1.0&rect=189%2C146%2C5208%2C3492&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sam Bankman-Fried got 25 years for his role in overseeing a multibillion-dollar crypto fraud.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BankmanFriedFTX/649eb5aa36574414b000b71c063de543/photo?Query=bankman-fried&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=322&currentItemNo=15">AP Photo/Seth Wenig</a></span></figcaption></figure><p><em>The case of Sam Bankman-Fried, who <a href="https://www.reuters.com/technology/sam-bankman-fried-be-sentenced-multi-billion-dollar-ftx-fraud-2024-03-28/">was sentenced on March 28, 2024, to 25 years in prison</a>, is emblematic of the fast-paced world of cryptocurrency, in which vast sums of money can be made or lost in the blink of an eye.</em></p>
<p><em>In early November 2022, the crypto exchange FTX was valued at more than US$30 billion. By the middle of that month, <a href="https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html">FTX was in bankruptcy proceedings</a>. And less than a year later, on Nov. 3, 2023, its founder, Sam Bankman-Fried, was found guilty of <a href="https://www.wired.com/story/sam-bankman-fried-trial-explained/">seven counts of money laundering and fraud</a>, following a trial that featured less than a month of <a href="https://www.wsj.com/finance/currencies/sam-bankman-fried-ftx-trial-news-updates-fbef824b">testimony</a> and only about four hours of jury deliberation.</em></p>
<p><em><a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">D. Brian Blank</a> and <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ&hl=en&oi=ao">Brandy Hadley</a> are professors who study finance, <a href="https://www.doi.org/10.1111/EUFM.12311">executives</a>, <a href="https://doi.org/10.1111/fire.12274">corporate governance</a> and financial technology. They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you should care.</em></p>
<h2>1. What happened?</h2>
<p>A million years ago, back in <a href="https://inside.com/campaigns/inside-tech-2021-07-21-28706/sections/243700">2019</a>, Bankman-Fried founded FTX, a company that ran one of the largest cryptocurrency exchanges.</p>
<p>FTX was where many crypto investors traded and held their cryptocurrency, similar to the New York Stock Exchange for stocks. Bankman-Fried also founded <a href="https://www.forbes.com/profile/alameda-research/?sh=563773816570">Alameda Research</a>, a hedge fund that invested in cryptocurrencies and crypto companies. </p>
<p>In the traditional financial sector, these two companies would be entirely separate firms, or at least have firewalls in place to avoid conflicts of interest. But in early November 2022, news outlets reported that a <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">significant proportion of Alameda’s assets</a> were a type of cryptocurrency released by FTX itself. </p>
<p>A few days later, news broke that FTX had allegedly been loaning customer assets to Alameda for risky trades <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">without customers’ consent</a> and also issuing its own FTX cryptocurrency for Alameda to use as <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">collateral</a>. As a result, criminal and regulatory investigators began scrutinizing FTX for potentially <a href="https://www.law360.com/assetmanagement/articles/1549319?nl_pk=c7efe457-0cc1-4a20-9d63-ded5145502ae&utm_source=newsletter&utm_medium=email&utm_campaign=assetmanagement&utm_content=2022-11-15&read_more=1&nlsidx=0&nlaidx=0">violating securities law</a>.</p>
<p>These two pieces of news basically led to a bank run on FTX, and soon afterward, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. This left <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">huge numbers</a> of investors who bought cryptocurrencies through the exchange with <a href="https://www.cnn.com/2022/11/14/business/ftx-customer-money-bankruptcy/index.html">no good way to get their money back</a>.</p>
<p>Within a month, Bankman-Fried was <a href="https://www.nytimes.com/2022/12/12/business/ftx-sam-bankman-fried-bahamas.html">arrested</a> and <a href="https://www.foxbusiness.com/politics/ftx-founder-sam-bankman-fried-arrested-bahamas-us-expected-request-extradition-authorities-say">charged with wire fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering</a> by the Southern District of New York. In February 2023, <a href="https://www.reuters.com/legal/new-indictment-unsealed-against-bankman-fried-containing-12-charges-2023-02-23/">additional criminal charges</a> related to political donations were announced, followed by <a href="https://www.cnbc.com/2023/03/28/sam-bankman-fried-paid-over-40-million-to-bribe-at-least-one-chinese-official-doj-alleges-in-new-indictment.html">another indictment</a> in March related to bribery.</p>
<p>Bankman-Fried’s <a href="https://edition.cnn.com/2023/10/03/investing/sbf-trial-jury-selection/index.html">first trial began on Oct. 3, 2023</a>, and largely focused on the “<a href="https://www.bloomberg.com/news/live-blog/2023-10-26/sam-bankman-fried-testifies-at-fraud-trial">essentially unlimited</a>” access to capital Alameda had on the exchange through a secret line of credit. </p>
<h2>2. Did a lack of oversight play a role?</h2>
<p>In traditional markets, corporations generally <a href="https://www.law360.com/bankruptcy/articles/1549089?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=3">limit the risk they expose themselves to</a> by maintaining liquidity and solvency. Liquidity is the ability of a firm to sell assets quickly without those assets losing much value. Solvency is the idea that a company’s assets are worth more than what that company owes to <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-15-2022/card/ftx-says-number-of-creditors-in-bankruptcy-could-top-1-million-LrfYrHxDtIoVBV42QDiG?mod=djemMoneyBeat_us">debtors and customers</a>.</p>
<p>But the crypto world has generally operated with much less caution than the traditional financial sector, and <a href="https://www.nytimes.com/2022/11/11/technology/ftx-investors-venture-capital.html?smid=tw-dealbook&smtyp=cur">FTX is no exception</a>. About <a href="https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad">two-thirds</a> of the money that FTX owed to the people who held cryptocurrency on its exchange – roughly $11.3 billion of $16 billion owed – was backed by illiquid coins created by FTX. FTX was taking its customers’ money, giving it to Alameda to make risky investments and then creating its own currency, known as FTT, as a replacement – cryptocurrency that it was unable to sell at a high enough price when it needed to.</p>
<p>In addition, nearly 40% of Alameda’s assets were in FTX’s own cryptocurrency – and remember, both companies were founded by the same person. </p>
<p>This all came to a head when investors decided to sell their coins on the exchange. FTX did not have enough <a href="https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money">liquid</a> assets to meet those demands. This in turn drove the value of FTT from over $26 a coin at the beginning of November 2022 to under $2 by Nov. 13. By this point, FTX owed more money to its customers than <a href="https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal">it was worth</a>.</p>
<p>In regulated exchanges, investing with customer funds is <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">illegal</a>. Additionally, auditors validate financial statements, and firms must publish the amount of money they hold in reserve that is available to fund customer withdrawals. And even if things go wrong, the Securities Investor Protection Corporation – or SIPC – protects depositors against the loss of investments from an exchange failure or financially troubled brokerage firm. The crypto world lacks such guardrails.</p>
<h2>3. Why is this a big deal in crypto?</h2>
<p>While the collapse of FTX and Alameda – valued at more than $30 billion and now essentially worth nothing – was dramatic, the bigger implication is simply the potential <a href="https://apnews.com/article/sam-bankman-fried-ftx-crypto-downfall-a2eaec231027dfd9f18426ff8982bbf8">lost trust in crypto</a>. </p>
<p>Bank runs are rare in traditional financial institutions, but they are <a href="https://www.wsj.com/articles/crypto-com-withdrawals-rise-after-ceo-admits-transaction-problem-11668350510">increasingly common</a> in the crypto space. Given that Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.</p>
<h2>4. If I don’t own crypto, should I care?</h2>
<p>Though investment in cryptocurrencies has grown rapidly, the entire crypto market – <a href="https://www.coindesk.com/markets/2021/10/21/crypto-market-cap-surges-to-new-record-27-trillion/">valued at over $3 trillion</a> at its peak – <a href="https://beincrypto.com/institutional-investment-in-crypto-experts-weigh-in-on-implications/">is much smaller</a> than the $120 trillion <a href="https://medium.com/ngrave/too-big-to-fail-crypto-market-size-vs-traditional-assets-eff4bb2ec529">traditional stock market</a>.</p>
<p>While investors and regulators are still evaluating the consequences of this fall, the impact on any person who doesn’t personally own crypto will be minuscule. It is true that many larger investment funds, such as
BlackRock and the Ontario Teachers Pension, held investments in FTX, but the estimated <a href="https://www.ai-cio.com/news/ontario-teachers-pension-could-lose-95-million-on-ftx-investment">$95 million the Ontario Teachers Pension lost</a> through the collapse of FTX is just 0.05% of the entire fund’s investments.</p>
<p>The takeaway for most individuals is not to invest <a href="https://www.wsj.com/articles/ftx-sam-bankman-fried-sit-in-the-crosshairs-of-u-s-prosecutors-11668398012?mod=djem10point">in unregulated markets</a> without understanding the risks. In high-risk environments like crypto, it’s possible to lose everything – a lesson investors in FTX learned the hard way.</p>
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<h2>5. What does the trial reveal about the regulatory environment for crypto?</h2>
<p>The trial of Bankman-Fried brought attention to the ever-evolving and complex nature of cryptocurrency regulation and oversight. At the conclusion of the case, <a href="https://www.reuters.com/legal/bankman-fried-trial-poses-biggest-test-date-cryptos-top-cop-2023-09-29/">Damian Williams, the federal prosecutor for the U.S. Justice Department</a>, underlined the <a href="https://www.reuters.com/legal/ftx-founder-sam-bankman-fried-thought-rules-did-not-apply-him-prosecutor-says-2023-11-02/">department’s dedication to fighting fraud,</a> even in the relatively new crypto space.</p>
<p>This case shows that the U.S. is willing to assert broad jurisdiction over financial crimes targeting its citizens, regardless of where the perpetrating company is based, which in FTX’s case was <a href="https://www.wired.com/story/sam-bankman-fried-crypto-paradise-bahamas/">the Bahamas</a>. Notably, this trial did not fall directly under the supervision of the Securities and Exchange Commission or other regulatory bodies, although pending civil cases from both <a href="https://www.sec.gov/news/press-release/2022-219">the SEC</a> and the <a href="https://www.coindesk.com/policy/2023/02/13/cftc-case-against-sam-bankman-fried-postponed-until-after-criminal-trial/">Commodity Futures Trading Commission</a>, <a href="https://news.bloomberglaw.com/securities-law/bankman-frieds-legal-woes-extend-far-beyond-criminal-trial">along with ongoing</a> class-action lawsuits, underscore the <a href="https://www.nri.com/-/media/Corporate/en/Files/PDF/knowledge/publication/lakyara/2023/09/lakyaravol376.pdf?la=en&hash=48DA9E99702BA223ACB48E1C378E1F6833C399EF">complexities in regulating the cryptocurrency sphere</a>. </p>
<p>Despite a recent crypto crackdown by the SEC, the U.S. continues to lag behind other nations in establishing comprehensive crypto regulations. This is evident in the <a href="https://www.cnbc.com/2023/10/30/uk-confirms-plans-to-regulate-crypto-industry-with-formal-legislation.html">formal regulatory frameworks introduced by places such as the U.K.</a> and the European Union. The International Monetary Fund’s <a href="https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors">call for comprehensive regulations</a> further underscores the necessity for more robust regulatory measures within the crypto industry, hinting at a widening gap between the U.S. and much of the rest of the world.</p>
<p><em>This is an updated version of a story that was <a href="https://theconversation.com/dramatic-collapse-of-the-cryptocurrency-exchange-ftx-contains-lessons-for-investors-but-wont-affect-most-people-194692">originally published</a> on Nov. 17, 2022.</em></p><img src="https://counter.theconversation.com/content/217026/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The downfall of the onetime multibillionaire holds lessons for investors and regulators alike.D. Brian Blank, Associate Professor of Finance, Mississippi State UniversityBrandy Hadley, Associate Professor of Finance and the David A. Thompson Distinguished Scholar of Applied Investments, Appalachian State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2083522023-08-27T13:32:43Z2023-08-27T13:32:43ZBusiness schools must step up on sustainable investing education<iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/business-schools-must-step-up-on-sustainable-investing-education" width="100%" height="400"></iframe>
<p>Sustainable investing takes into account environmental, social and governance (ESG) factors alongside traditional financial components. While this form of investing has existed for a long time, <a href="https://www.theglobeandmail.com/business/article-esg-backlash-may-be-dampening-investor-interest-in-us-but-theres-a/">ESG has become a hot-button issue</a> due to recent politicization and widespread public misconceptions around what it really entails. </p>
<p>ESG investing examines quantitative and qualitative non-financial data on companies. This includes environmental issues like carbon emissions, pollution and resource use; social issues like employee treatment and relationships with communities; and governance issues like diversity of corporate boards, business ethics and transparency. </p>
<p>Criticisms of ESG investing have been exacerbated by post-secondary finance programs that barely touch upon these issues, resulting in a significant <a href="https://www.thestar.com/business/2022/01/18/report-highlights-gap-in-sustainable-finance-skills-need-for-coordination.html">shortage of qualified sustainable investment professionals</a>. </p>
<h2>Due diligence</h2>
<p>A basic qualification for finance graduates is the ability to analyze the environmental, social or governance factors that create risks and opportunities for a given company and, in turn, affect investors’ returns. </p>
<p>This should not be controversial; it’s simply part of proper due diligence in portfolio investing, similar to analyzing financial factors. </p>
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Read more:
<a href="https://theconversation.com/what-does-esg-mean-two-business-scholars-explain-what-environmental-social-and-governance-standards-and-principles-are-196768">What does ESG mean? Two business scholars explain what environmental, social and governance standards and principles are</a>
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<p>Unfortunately, graduates often lack even this basic qualification, in addition to more advanced expertise required to assess the investment impacts on people and the planet.</p>
<p>Given the climate crisis and persistent inequality, business schools must urgently and immediately tackle the sustainability deficit in finance education. Formal instruction must be enhanced with experiential learning techniques that expose students to the complexity and nuances of sustainable investing.</p>
<p>Our research shows that <a href="https://impactinvestinghub.ca/student-managed-funds/">Student Managed Investment Funds (SMIFs)</a> — currently present at many Canadian universities — are an underused, hands-on learning opportunity for training the next generation of sustainable investment professionals. </p>
<h2>ESG under fire</h2>
<p>Despite the potential of sustainable investing to accelerate the <a href="https://www.un.org/en/climatechange/net-zero-coalition">net-zero carbon transition</a> and support the <a href="https://www.globalgoals.org/goals/">UN Sustainable Development Goals (SDGs)</a>, it has come under fire in recent years. </p>
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<a href="https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A dark-haired man speaks into a microphone." src="https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/543239/original/file-20230817-14573-5ej42m.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The head of the Kansas Public Employees Retirement System testifies before a Kansas legislative committee in March 2023 about a bill that would bar the pension system from ESG investing.</span>
<span class="attribution"><span class="source">(AP Photo/John Hanna)</span></span>
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<p>Politically, sustainable investing has become a <a href="https://hbr.org/2023/02/rescuing-esg-from-the-culture-wars">flashpoint for partisan conflict in America’s culture wars</a>. Right-wing critics argue that including ESG considerations in investment decisions is intrusive moralizing and part of <a href="https://www.forbes.com/sites/jeffraikes/2023/07/17/is-the-war-on-woke-a-war-on-our-countrys-future/">a “woke capitalism” agenda</a>. </p>
<p>Counterparts on the left downplay concerns about economic transition costs or <a href="https://www.theglobeandmail.com/investing/markets/inside-the-market/article-esg-funds-have-gotten-an-easy-ride-despite-their-ineffectiveness/">exaggerate the power of ESG investing</a> to create a better world. </p>
<p>Recent studies also show that <a href="https://mitsloan.mit.edu/sustainability-initiative/aggregate-confusion-project">third-party ESG ratings are unreliable</a>, leaving considerable room for <a href="https://www.esgtoday.com/guest-post-greenwashing-greenhushing-and-greenwishing-dont-fall-victim-to-these-esg-reporting-traps/">greenwashing or, at minimum, “greenwishing</a>” — when companies or investors have good intentions but fail to meet their sustainability goals. </p>
<p>Criticisms and politicization, combined with other factors, have <a href="https://www.theglobeandmail.com/investing/investment-ideas/article-esg-equity-funds-suffer-big-outflows-buffeted-by-market-jitters-and-us/">curtailed flows to ESG funds</a>. This is unfortunate given the urgent need to mobilize more financial capital to address climate change, biodiversity loss and inequality. </p>
<h2>Reforming business schools</h2>
<p>Developing competence in sustainable investing requires a serious revision in business school finance programs. </p>
<p>Core courses must include sustainable investing concepts and tools as part of mainstream financial education. This is especially important given fast-evolving ESG and climate-related regulations and rising global risks that pose new threats to companies and investors. </p>
<p>It’s also important that students learn the limits of different forms of sustainable investing to avoid falling into the trap of greenwashing. </p>
<p>Many ESG strategies primarily focus on risk mitigation with, at best, a marginal impact on people or the planet. Others, such as <a href="https://smith.queensu.ca/centres/isf/resources/primer-series/impact-investing.php">impact investing</a>, focus on measurable social and environmental outcomes, often using the UN’s SDGs for their impact goals, alongside financial returns. </p>
<p>Impact investing could unlock much needed capital for critical sectors in the net-zero transition that would otherwise be underfunded when using traditional financial metrics. </p>
<p>In short, sustainable investing, in all its forms, requires additional skills that are currently lacking in finance education. Social and environmental impacts can be difficult to quantify and may require longer-term perspectives and qualitative judgements about potential impacts on many stakeholders. </p>
<figure class="align-center ">
<img alt="A lecture hall with a man at the front delivering a lecture." src="https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/542820/original/file-20230815-23-qwj562.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">It’s important that students learn the limits of different forms of sustainable investing to avoid falling into the trap of greenwashing.</span>
<span class="attribution"><span class="source">(Unsplash)</span></span>
</figcaption>
</figure>
<h2>Student-managed investment funds</h2>
<p>These skills are best developed through hands-on practice that supplements formal instruction. <a href="https://doi.org/10.1108/MF-02-2021-0080">Student-Managed Investment Funds (SMIFs)</a> provide students with experience working together to manage real investment portfolios under the guidance of faculty supervisors and industry professionals. </p>
<p>Canadian universities have established more than 30 funds that students oversee as portfolio managers, buying and selling stocks, bonds or other assets. The capital in these funds comes from a variety of sources, including donations from companies, philanthropic gifts from individuals or foundations, and in some cases from university endowments.</p>
<p>Unfortunately, our research shows that only a <a href="https://impactinvestinghub.ca/student-managed-funds/">small minority of these funds include ESG considerations</a> in their mandates. </p>
<p>Of the 31 Canadian SMIFs we analyzed (totalling $79.5 million managed by students), only five (16 per cent) have some level of ESG consideration. Since business schools have long used student-managed funds to train the next generation of investment bankers, financial analysts and other financial industry professionals, this is surprising — and disappointing.</p>
<p>The gap is even more pronounced for impact investing, which is barely mentioned in any of the funds in our sample, despite universities’ commitments to the UN’s Sustainable Development Goals. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a graph shows the size of smifs in canada with and without ESG components." src="https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=518&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=518&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=518&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=650&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=650&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541123/original/file-20230803-29-zt1tn3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=650&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Authors’ analysis of the size of SMIFs with and without ESG components, based on publicly available data from major Canadian business schools’ websites as of fall 2022.</span>
<span class="attribution"><span class="source">Impact Investing Hub, University of Victoria</span></span>
</figcaption>
</figure>
<p>Sustainable finance education could benefit greatly when students work together to integrate financial, environmental and social factors in student-managed investment funds. </p>
<p>Learning by doing helps students develop important analytical skills, familiarizes them with key tools and data sources and helps them navigate the <a href="https://impactinvestinghub.ca/esg-impact-standards/">maze of ESG standards, frameworks and guidelines</a>.</p>
<h2>The role of universities</h2>
<p>Including sustainability mandates in finance programs and student-managed investment funds will ensure Canadian universities train the next generation of sustainable investment professionals needed to accelerate the net-zero transition. </p>
<p>We encourage university administrators and finance educators across the country to immediately implement ESG policies for existing student-managed investment funds. In collaboration with industry and donors, new funds could also be established that focus on particular themes, like climate solutions or <a href="https://www3.weforum.org/docs/WEF_Nature_positive_CEO_Briefing.pdf">nature-positive investing</a>. </p>
<p>One encouraging initiative in this regard is by <a href="https://www.propelimpact.com/investing-fellowship">Propel Impact</a>, a non-profit that is collaborating with seven universities to run their own local student impact funds. </p>
<p>Through creative partnerships with investors, Propel has been supporting student training while benefiting local communities, with $750,000 directed by students toward 14 Canadian social enterprises over the past three years. We offer this program to University of Victoria students and hope it expands to more Canadian universities. </p>
<p>As we confront pressing social and environmental challenges, we can’t be discouraged by partisan sniping. Instead, we must build momentum for sustainable investing by training future financial professionals more effectively.</p><img src="https://counter.theconversation.com/content/208352/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lorin Busaan receives funding from the UVic Impact Investing Hub for research assistance on a variety of topics related to sustainable finance and impact investing.</span></em></p><p class="fine-print"><em><span>Basma Majerbi receives funding from the Social Sciences and Humanities Research Council of Canada, the Pacific Institute for Climate Solutions and Mitacs. </span></em></p>As we confront pressing social and environmental challenges, business schools must play a big role in building momentum for sustainable investing and ignore partisan, anti-ESG sniping.Lorin Busaan, PhD Student, Gustavson School of Business, University of VictoriaBasma Majerbi, Associate Professor of Finance, Gustavson School of Business, University of VictoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2036392023-05-03T18:30:37Z2023-05-03T18:30:37ZFed rate hikes, recession fears and political backlash leave ESG investors at a crossroads<figure><img src="https://images.theconversation.com/files/523943/original/file-20230502-26-p3xlrc.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5464%2C3631&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ESG investing looks for companies that do well on environmental, social and governance benchmarks. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/directly-above-the-downtown-district-royalty-free-image/1328074262">Zhengshun Tang/Moment via Getty Images</a></span></figcaption></figure><p>The Federal Reserve <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230503a.htm">raised interest rates</a> again on May 3, 2023, by a quarter point, making it the <a href="https://www.federalreserve.gov/monetarypolicy/openmarket.htm">Fed’s 10th rate hike</a> since March 2022 in an ongoing fight to tame inflation. These rate hikes have been reverberating through the economy, raising prospects of a recession amid heightened <a href="https://www.nber.org/papers/w31048">concerns about the fragile state of banks</a>. </p>
<p>The rate hikes are also rattling sustainability-focused investing, better known as ESG investing.</p>
<p>The trend toward ESG investing, which puts pressure on companies to meet environmental, social and governance benchmarks, has almost redefined asset management over the past decade. ESG funds today are a <a href="https://www.ussif.org//Files/Trends/2022/Overview%20infographic.pdf">multitrillion-dollar market</a>.</p>
<p>However, the high uncertainty around interest rates today, along with the prospects of a looming recession and a <a href="https://www.yahoo.com/now/larry-fink-face-esg-says-213102226.html">political backlash</a>, has put the future of ESG investors at a crossroads.</p>
<p>I <a href="https://warrington.ufl.edu/directory/person/7627/">specialize in sustainable finance</a>, and my recent work has documented the <a href="https://doi.org/10.1017/S0022109022001296">impact that tough economic times</a> can have on ESG investing demand. Investments into U.S. sustainable mutual funds have <a href="https://www.morningstar.com/articles/1133418/us-sustainable-funds-suffer-a-worse-quarter-than-conventional-peers">visibly slowed</a> since 2022, suffering their worst net flows in five years. Here are how three critical factors can affect investors’ zeal for socially conscious investing going forward.</p>
<p><iframe id="KYfr3" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/KYfr3/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>Interest rate uncertainty</h2>
<p>One of the primary arguments that big institutional investors like BlackRock make for ESG investing is that it <a href="https://www.blackrock.com/ch/individual/en/themes/sustainable-investing">creates long-term value for shareholders</a>. Companies that pay careful attention to environmental, social and governance issues are believed to be better prepared for distant future risks, including regulatory risks and physical risks from climate change.</p>
<p>However, heightened uncertainty about interest rates poses a challenge today. That’s because higher rates can disproportionately affect the present value that investors assign to long-term investment outcomes. Let me explain.</p>
<p>Within the past year, the Federal Reserve has raised its benchmark lending rate from almost zero to a target <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230503a.htm">range of 5% to 5.25%</a> to combat inflation. In financial markets, higher interest rates lead to higher discount rates. That means that future cash generated by long-term investments is considered to be worth considerably less at today’s higher interest rates.</p>
<p>The more distant an asset’s value lies in the future, the more heavily it will be discounted in value when rates are high. So, long-duration investments – like most ESG investments – are especially sensitive to changes in interest rates.</p>
<p>This economic mechanism was also part of the backdrop of the recent rout in tech stocks and the <a href="https://theconversation.com/why-svb-and-signature-bank-failed-so-fast-and-the-us-banking-crisis-isnt-over-yet-201737">series of bank failures</a> that started with the <a href="https://theconversation.com/silicon-valley-bank-how-interest-rates-helped-trigger-its-collapse-and-what-central-bankers-should-do-next-201697">collapse of Silicon Valley Bank</a>. </p>
<h2>Looming recession</h2>
<p>Another factor that could affect ESG investing is the potential for an economic downturn.</p>
<p>As <a href="https://doi.org/10.1111/jofi.12547">research shows</a>, investors do not necessarily make ESG investments for greater long-term returns, but often for altruistic reasons or due to personal preferences to hold greener assets. For these ESG investors, a looming recession could change their perspective on these “luxuries.”</p>
<p>In an early warning about this possibility, <a href="https://doi.org/10.1017/S0022109022001296">a recent study</a> I conducted with an economist at the Rotterdam School of Management found that retail investors showed signs of shying away from investing in sustainable mutual funds during the early months of the COVID-19 shock in 2020. This was a period when many households experienced layoffs and furloughs, which likely pushed them to set aside luxuries to prioritize protecting the values of their 401(k)s, IRAs and other investment portfolios.</p>
<p>In other words, investors may be all for ESG, <a href="https://www.wsj.com/articles/investors-are-all-for-esg-except-that-is-when-times-are-tough-11675527842">except when times are tough</a>.</p>
<p><iframe id="Yun0K" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Yun0K/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Prominent economists, such as former Treasury Secretary Larry Summers, have warned of a <a href="https://www.bloomberg.com/news/articles/2023-04-07/larry-summers-sees-higher-chance-of-recession-fed-nearing-the-end#xj4y7vzkg">likely recession</a> as inflation and the Fed’s battle against it persist. The International Monetary Fund also <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023">lowered its global economic growth outlook</a> from 3.4% in 2022 to 2.8% in 2023. </p>
<h2>Political backlash</h2>
<p>Finally, recent political friction and anti-ESG policies across states have started to create headwinds for pension funds and large institutions that serve them.</p>
<p>For example, <a href="https://www.reuters.com/business/sustainable-business/desantis-signs-sweeping-anti-esg-legislation-florida-2023-05-02/">Florida</a> and <a href="https://apnews.com/article/esg-woke-investing-kansas-culture-war-vetoes-20842bdda84432add49f267adb897df3">Kansas</a> passed laws in recent weeks and <a href="https://corpgov.law.harvard.edu/2023/03/11/esg-battlegrounds-how-the-states-are-shaping-the-regulatory-landscape-in-the-u-s/">several other states</a> including <a href="https://www.texastribune.org/2022/08/24/texas-boycott-companies-fossil-fuels/">Texas</a> and <a href="https://www.nytimes.com/2023/02/24/your-money/anti-esg-investing-kentucky.html">Kentucky</a> have taken actions to restrict the ability of state public pension funds to invest in companies based on their ESG performance, citing concerns about fraudulent greenwashing and potential fiduciary duty violations, referring to the obligation institutional investors have to seek the highest returns for the lowest risk possible.</p>
<p>These restrictions can severely limit the capacity for ESG investing by institutional investors, which have played a significant role in driving the growth of ESG investing.</p>
<figure class="align-center ">
<img alt="Lark Fink, in business attire and glasses, sits in a news studio being interviewed." src="https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523942/original/file-20230502-321-8ju3yp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Blackrock CEO Larry Fink, shown during an earlier interview, told Bloomberg in 2023: ‘For the first time in my professional career, attacks are now personal. They’re trying to demonize the issues.’</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/blackrock-chairman-ceo-laurence-d-fink-appears-on-opening-news-photo/470074732">Taylor Hill/Getty Images</a></span>
</figcaption>
</figure>
<p>While <a href="https://dx.doi.org/10.2139/ssrn.3837706">concerns about greenwashing</a> and <a href="https://dx.doi.org/10.2139/ssrn.3887716">high fees</a> in ESG investing are not totally unwarranted, these political interventions can also have unintended consequences.</p>
<p>A <a href="https://dx.doi.org/10.2139/ssrn.4123366">recent study</a> from economists at Wharton and the Federal Reserve Bank of Chicago found that a Texas law enacted in 2021 prohibiting municipalities from contracting with banks with ESG policies had a distorting side effect on those municipalities’ borrowing costs. The policy ended up raising the cost of public finance, meaning the law ultimately cost taxpayers.</p>
<h2>Navigating the crossroads</h2>
<p>As companies hold their 2023 annual meetings, the discussions among corporate officials, investors and stakeholders will serve as an important barometer for the current state and future of ESG investing.</p>
<p>Due to high interest rate uncertainty, prospects of a recession and political upheaval, ESG is under pressure. Perceived in recent years as a paradigm shift in how market mechanisms can address harms to society, stakeholders are now <a href="https://www.eenews.net/articles/they-helped-create-esg-two-decades-later-some-see-a-mess/">scrutinizing ESG investing</a> with a critical lens regarding how strongly it can persist and how much impact it can have.</p>
<p>The next few years will be its most important stress test yet.</p><img src="https://counter.theconversation.com/content/203639/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sehoon Kim does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Three forces are pulling down ESG’s once-rapid rise in the investment world.Sehoon Kim, Assistant Professor of Finance, University of FloridaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2042072023-04-24T16:14:02Z2023-04-24T16:14:02ZChatGPT: how to use AI as a virtual financial adviser<figure><img src="https://images.theconversation.com/files/522314/original/file-20230421-20-89ix5g.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5991%2C2559&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tech support for investors.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/ai-robot-analysis-future-financial-expert-2264241731">Darunrat Wongsuvan/Shutterstock</a></span></figcaption></figure><p>From chatbots and virtual assistants to <a href="https://www.ft.com/content/aae4f11a-aa7b-47ce-b9a7-eb39f345dab3">fraud detection</a> and <a href="https://www.elibrary.imf.org/view/journals/087/2021/024/article-A001-en.xml">risk management</a>, artificial intelligence (AI) is now being used in many <a href="https://www.forbes.com/sites/qai/2023/02/24/artificial-intelligence-applications-in-investing/?sh=30aff5c5e216">areas of finance</a>. But what could an AI system like ChatGPT do for your bank balance?</p>
<p>AI tools might seem overly complex or expensive to non-experts, but advances in <a href="https://oxsci.org/chatgpt-natural-language-processing/">natural language processing and machine learning</a> could turn ChatGPT and similar products into virtual personal finance assistants. This would mean having an expert on hand to help you make sense of the latest financial news and data. </p>
<p>Staying on top of business news and financial market trends is important for making informed investment decisions and gaining an edge in the markets. Companies already use these tools to perform what finance professionals call “<a href="https://dl.acm.org/doi/10.3115/1118693.1118704">sentiment analysis</a>”. </p>
<p>This involves analysing financial news and statements to generate insights and predictions for investors about shares and other investments. For example, <a href="https://www.cnbc.com/2019/08/02/this-etf-run-by-a-robot-is-beating-the-marketheres-how-it-works.html">Morgan Stanley’s AI models</a> analyse a wide range of data – including news articles, social media posts and financial statements – to identify patterns and predict stock prices. </p>
<p>Researchers have started to explore the potential of AI tools like ChatGPT, but given how new this technology is, much of the academic research remains in the early stages. A recent preprint <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4412788">study</a>, the results of which have not been reviewed by other academics, tested ChatGPT’s predictions about stock market performance based on sentiment analysis of news headlines. </p>
<p>ChatGPT determines if a headline is good, bad or irrelevant for a firm’s stock prices and computes a score. This research found a high correlation between ChatGPT’s responses and stock market movements, showing some ability to predict the direction of returns.</p>
<p>AI tools may also be able to help investors decipher monetary policy announcements, providing insights into their potential effects on financial markets. <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4399406">Another recent preprint</a> evaluated ChatGPT’s ability to understand what announcements from the US central bank, the Federal Reserve, might mean for financial markets. </p>
<p>It compared this to professional investors’ efforts to do the same. The study found that, particularly when ChatGPT models are fine tuned, they are more accurate than other machine learning models used by professionals to analyse and understand “Fedspeak”.</p>
<p>Monetary policy decisions, such as interest rates or asset purchase programmes, can have a <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1997.tb04816.x?casa_token=nI99tv3YOYQAAAAA%3AAgJsU9RILIeswy6aUdZT38P1ibqjdIXdsKwbtjwxuWEtOcR-U59N-YFSeFCu8MeXCexnE5OugDTsDLvHxQ">big effect on financial markets</a>. So AI’s ability to assess what <a href="https://www.federalreserve.gov/newsevents/pressreleases.htm">central bank announcements on policy changes</a> will mean for financial markets could provide valuable insights into the effects of these actions. This could help you make more informed investment decisions.</p>
<figure class="align-center ">
<img alt="The flag of the US Federal Reserve Board waving in front of the US flag and a blue sky with clouds." src="https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=316&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=316&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=316&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=398&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=398&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522317/original/file-20230421-16-kpu52u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=398&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">AI tools can help decipher central bank announcements.</span>
</figcaption>
</figure>
<h2>Tailored financial guidance</h2>
<p>The ability to <a href="https://www.forbes.com/sites/qai/2023/02/10/can-i-invest-with-openai-can-and-should-openai-pick-my-stock-portfolio/?sh=27cd020e4a82">identify trends in specific market sectors</a> could also be helpful for people seeking more tailored financial guidance.</p>
<p>For example, an AI tool could be used to analyse financial data, such as balance sheets and income statements, from technology companies. It could identify patterns that might indicate opportunities or problems. An investor could then adjust their portfolio, potentially increasing returns or even just helping to reduce exposure to certain risks.</p>
<p>In addition to analysing market trends, AI could also be used to build an investment portfolio tailored to an <a href="https://www.businessinsider.com/ai-in-finance-fintech-chatgpt-generative-tools-credit-suisse-2023-3?r=US&IR=T">individual’s specific investment goals and risk tolerance</a>. Using information on your preferences such as your current financial situation and risk attitude, for example, the AI could generate a customised portfolio that accounts for the level of return you’d like to make, but also the kinds of risks you’d like to avoid.</p>
<h2>Your assistant, but not your only guide</h2>
<p>AI tools show tremendous potential as personal financial assistants, but also <a href="https://www.forbes.com/sites/bernardmarr/2023/03/03/the-top-10-limitations-of-chatgpt/?sh=407872268f35">present some challenges</a>. </p>
<p>There are several factors that AI tools may not be able to account for, such as unexpected events or changes in market conditions, as well as human behaviour. A tool like ChatGPT cannot fully comprehend the intricacies of human language and conversation, which can lead to responses that lack depth and insight. </p>
<p>There is also a <a href="https://www.sciencedirect.com/science/article/pii/S0306452223000799">need for greater transparency</a> about how these tools make decisions. For an investor to leave their portfolio in the hands of one of these “robots”, they would need to be able to understand how, for example, it reaches its conclusions and what data it uses. Some financial planning companies already offer <a href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">robo-advisors</a> – services that use algorithms to design individual investment plans – that can also do this, but, of course, you pay a fee to the financial advisers for this.</p>
<p>The <a href="https://hbswk.hbs.edu/item/chatgpt-did-big-tech-set-up-the-world-for-ai-bias-disaster">potential for bias</a> in the recommendations of these tools must also be considered. ChatGPT’s training data may have underlying biases that could affect its predictions. The <a href="https://www.theguardian.com/commentisfree/2023/mar/03/fake-news-chatgpt-truth-journalism-disinformation">accuracy and reliability</a> of ChatGPT’s predictions need careful evaluation given recent reports that it has repeated disinformation. </p>
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<img alt="Woman looking and pointing at financial charts, screen and laptop, window in the background." src="https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/522315/original/file-20230421-20-2qcpbo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>No single model or algorithm can predict financial market movements with complete accuracy. So AI tools like ChatGPT should only be used to <a href="https://ifamagazine.com/article/supplement-or-substitute-how-do-advisers-view-chatgpt-potential-impact-on-financial-services/">supplement your own judgment, not as a replacement</a>.</p>
<p>While AI could be an excellent aid for investing, it is important to do your homework thoroughly about potential investments, understand and accept the right level of risk for you, and diversify your portfolio when deciding where to invest.</p><img src="https://counter.theconversation.com/content/204207/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eun Young (EY) Oh does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>AI tools could help you to learn more about investing in shares and other financial markets – but it’s not a perfect solution.Eun Young (EY) Oh, Senior Lecturer in Economics and Finance, University of PortsmouthLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2029662023-04-19T19:37:07Z2023-04-19T19:37:07ZHow environmental, social and governance (ESG) investing controversies can impact fossil fuels<figure><img src="https://images.theconversation.com/files/521401/original/file-20230417-16-yejcsn.jpg?ixlib=rb-1.1.0&rect=172%2C15%2C4831%2C3012&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Environmental, social and governance investing, a form of responsible investing that aligns financial returns with positive environmental and social ones, has gained exponential popularity in recent years. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The past few years have witnessed a surge in the popularity and momentum of environmental, social and governance (ESG) investing — a form of responsible investing that aligns financial returns with positive environmental and social ones. </p>
<p>Institutional investors and asset managers have been viewing ESG investing as a means to mitigate investment risks and increase long-term returns. The basic premise is that <a href="https://www.statcan.gc.ca/en/trust/modernization/esg">industries that effectively manage their environment, social and government-related risks will be less susceptible to changes in regulations or societal expectations</a>. This will improve their performance over the long term.</p>
<p>In recent months, however, numerous news articles have highlighted the growing tensions and conflicts surrounding ESG investing. In February, <a href="https://subscriber.politicopro.com/article/2023/02/desantis-pushes-legislative-proposals-to-restrict-woke-esg-investing-00082566">Florida Gov. Ron DeSantis pushed legislation to further restrict state investments involving ESG</a>. Meanwhile, <a href="https://www.reuters.com/business/sustainable-business/blackrock-plans-no-big-changes-esg-stance-despite-backlash-2022-12-19/">many ESG opponents have targeted BlackRock</a>, the world’s largest funds manager and most prominent provider of ESG products and services.</p>
<p>ESG has received criticism from both ends of the ideological spectrum. Right-wing forces regard <a href="https://www.forbes.com/sites/christinero/2023/01/29/whats-behind-the-esg-investment-backlash/?sh=116d30503158">ESG as politically charged governance that advances “woke capitalism” led by corporations</a>. In contrast, the left has expressed skepticism regarding ESG’s claims, arguing that <a href="https://theconversation.com/no-blackrock-is-not-leading-a-marxist-assault-on-capitalism-203042">its business- and market-friendly approaches to equity and sustainability are antithetical to the interests of the working class</a>.</p>
<p>How can we make sense of the public debates surrounding ESG investing? As a scholar researching <a href="https://doi.org/10.1057/s41599-023-01515-2">how issues like decarbonization are contested in the public sphere</a>, I find these debates indicative of the growing polarization in the fossil fuel sector.</p>
<h2>The politics of ESG investing</h2>
<p>A closer look at the rising anti-ESG sentiment in the United States shows that attacks on environmental, social and governance investing are based on cultural, rather than economic grounds. </p>
<p>As noted in <a href="https://www.wsj.com/articles/conservatives-have-a-new-rallying-cry-down-with-esg-2ef98725">a <em>Wall Street Journal</em> analysis</a>, the main goal of conservative activists is to turn the anti-ESG movement into “a rallying cry against woke capitalism, much the way critical race theory became shorthand for broader criticisms about how race is taught in schools.”</p>
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<p>Meanwhile, the conservatives’ attacks on ESG investing call for anti-ESG legislation. This contradicts their belief that governments should not determine how capital is allocated and investment decisions are made. </p>
<p>The costs of making ESG investing a political issue are glaring. According to <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4123366">an analysis conducted by scholars at the Wharton School</a>, a Texas law, prohibiting municipalities from doing business with banks that have ESG policies against fossil fuels and firearms, came at a price. This was because its issuers incurred $300 to $500 million in additional interest on the $31.8 billion borrowed in the eight months following the law’s enactment.</p>
<p>As exemplified by the Texas case, one of the main causes of rising anti-ESG sentiment among conservatives is the increasingly apparent existential crisis of the fossil fuel industry. </p>
<p>In May 2021, <a href="https://www.reuters.com/business/sustainable-business/shareholder-activism-reaches-milestone-exxon-board-vote-nears-end-2021-05-26/">a landmark shareholder vote at ExxonMobil resulted in the ouster of three board members by Engine No. 1</a> — a small activist hedge fund pushing the oil giant to adopt a more aggressive climate strategy and reduce its carbon footprint. </p>
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<p>Around the same time, <a href="https://www.nytimes.com/2021/05/26/business/royal-dutch-shell-climate-change.html">Shell was mandated to cut its greenhouse gas emissions by 45 per cent between 2019 and 2030 by a Dutch court</a> in response to a lawsuit brought by environmental groups and activists. Such events raise serious questions about the future profitability and sustainability of carbon-intensive businesses.</p>
<h2>Divergent views on ESG investing</h2>
<p>The political disagreement over ESG investing can also be viewed as an ideological conflict over <a href="https://www.broadbentinstitute.ca/green_capitalism_and_planetary_survival">the role of capitalism in addressing societal problems like inequality and climate change</a>.</p>
<p>This conflict encompasses three main ideas. </p>
<p>First, <a href="https://www.weforum.org/agenda/2023/01/the-importance-of-esg-sustainable-future-davos-2023/">those advocating for ESG investing believe capitalism can be reformed and redirected to serve the common good</a> by incorporating environmental and social criteria into financial decision-making and creating positive change incentives.</p>
<p>Second, <a href="https://www.nytimes.com/2023/02/28/climate/esg-climate-backlash.html">conservative opponents of ESG are dismissive of ESG investing’s promotion of what they consider to be liberal causes</a>. </p>
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<figcaption><span class="caption">Some opponents of ESG investing accuse it of being a form of corporate greenwashing.</span></figcaption>
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<p>Thirdly, <a href="https://theconversation.com/no-blackrock-is-not-leading-a-marxist-assault-on-capitalism-203042">progressive opponents of ESG accuse ESG investing of being a form of greenwashing</a> — the deceptive practice of making a company or product appear to be more environmentally friendly than it actually is. </p>
<h2>Independent assessments of ESG performance</h2>
<p>ESG investing is still mired in controversy, and many believe <a href="https://www.reuters.com/business/sustainable-business/biden-vetoes-resolution-block-labor-dept-rule-esg-investing-2023-03-20/">it will play a significant role in the presidential election in the U.S. next year</a>. </p>
<p>What are the implications of the controversy for Canada? Briefly speaking, while many Canadian corporations have expressed positive attitudes toward ESG, it is concerning that <a href="https://doi.org/10.1057/s41599-023-01515-2">public narratives regarding the fate of bitumen have become increasingly polarized</a>, which parallels the politicization of ESG investing in the U.S.</p>
<p>The public opinion on the profitability of the bitumen industry in comparison to the subsidies it receives from provincial and federal governments is <a href="https://www.nationalobserver.com/2021/07/20/opinion/alberta-oilsands-net-zero-initiative-not-nearly-enough">becoming increasingly divergent</a>. This has significant implications for the future of the bitumen industry and its relationship with the government. If the perception that the industry is not paying its fair share persists, political pressure to reduce or eliminate existing subsidies will rise.</p>
<p>We urgently require comprehensive and independent assessments of the compatibility of the Canadian fossil fuel industry with ESG criteria. This will allow us to make informed decisions about how Canada’s fossil fuel industry aligns with the global transition to a low-carbon economy in the future. By taking a proactive approach to ESG, we can create a more sustainable and equitable future for all.</p><img src="https://counter.theconversation.com/content/202966/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sibo Chen receives funding from Toronto Metropolitan University and Social Sciences and Humanities Research Council of Canada. He is affiliated with International Environmental Communication Association. </span></em></p>The criticisms faced by ESG projects are indicative of the growing polarization in the future profitability of the fossil fuel sector.Sibo Chen, Assistant Professor, School of Professional Communication, Toronto Metropolitan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2012922023-03-07T17:40:29Z2023-03-07T17:40:29ZWant to support companies that support women? Look at your investments through a ‘gender lens’ – here’s how<figure><img src="https://images.theconversation.com/files/513888/original/file-20230307-18-mzlumj.jpg?ixlib=rb-1.1.0&rect=40%2C150%2C6669%2C4315&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Gender equity continues to be a significant problem in business globally. We all know the story: the gender pay gap is a persistent issue and female-dominated industries <a href="https://theconversation.com/collapse-of-negotiations-with-care-workers-shows-little-has-changed-in-how-the-government-views-the-work-of-women-183025">tend to be lower paid</a>. </p>
<p>Female representation in senior leadership and board positions remains low in many countries, particularly in Aotearoa New Zealand. Women comprise <a href="https://www.nzx.com/regulation/nzregco/diversity-statistics">only 28.5% of director positions</a> across all NZX-listed companies and just 23.7% at companies outside of the NZX’s top 50. </p>
<p>Change is slow despite the <a href="https://ideas.repec.org/p/ozl/bcecrs/ge05.html">well-established evidence</a> showing the merits of improving gender equity for businesses – including better firm performance – and excellent initiatives such as <a href="https://www.mindthegap.nz/">Mind The Gap</a>.</p>
<p>But there is a way to support companies that have made the change towards greater gender equity – and encourage others to do the same: we can invest with a “gender lens”. </p>
<p>The aim of investing with a gender lens is not only to make a financial return but also to improve the lives of women by providing capital to those companies doing well on gender issues.</p>
<p>Gender lens investing goes beyond counting female representation at board level. It encompasses the number of female managers, leaders and employees as well as the existence of policies or products provided by a company to address the gender pay gap and other inequities faced by their female employees. It also encourages investing in women-owned enterprises.</p>
<p>In essence, investing with a gender lens means identifying and investing in those companies that are empowering their female employees and embracing diversity. This might seem simple. But there are no investment portfolios or funds investing in companies that do right by women.</p>
<p>One explanation for this gap is that identifying gender-friendly companies is not easy. And this is where rating agencies have a role to play.</p>
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<h2>The role and power of rating agencies</h2>
<p>Over the past three decades there has been a fundamental shift towards investing for not only financial returns but also for social outcomes – so called Responsible Investing (RI). </p>
<p>The growth in RI has spawned an industry dedicated to defining and measuring a company’s non-financial contributions across a range of areas, specifically across the environmental, social and governance (ESG) pillars.</p>
<p>The rating agencies build scores by collecting data on issues within each of the ESG pillars – for instance, the environmental pillar comprises data on carbon emissions, land use and water, among other measures – and then converts this into an overall score.</p>
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<strong>
Read more:
<a href="https://theconversation.com/do-women-focused-capital-funds-actually-help-women-or-are-they-just-pinkwashing-131017">Do women-focused capital funds actually help women, or are they just 'pinkwashing?'</a>
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<p>Fund managers, especially those managing RI funds, use these scores to inform investment decisions. What, then, are the comparable measures for gender lens investing?</p>
<p>While some rating agencies have created measures to identify companies suitable for a gender lens portfolio – for example, Sustainalytics has a gender equality index – others have very little on gender at all. Some rating agencies seem to base gender equity performance on the number of women on a company’s board or its in-house policies on diversity and discrimination.</p>
<p>In short, there is little-to-no substantive information available to allow investing with a gender lens. And why is that? </p>
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<p>Well, rating agency MSCI states it collects information on “financially relevant ESG risks and opportunities”. Sustainalytics requires an issue to have a “substantial impact on the economic value of a company”. These agencies require an issue to affect financial performance. </p>
<p>Under its “social” pillar, for example, MSCI considers water usage, arguing companies in high-water-use industries face operation disruptions, higher regulation and higher costs for water, which can reduce returns and increase risk.</p>
<p>The absence of data related to gender implies women-friendly policies are not viewed as affecting the performance or risk of companies.</p>
<h2>A gender lens to the rescue?</h2>
<p>But with a bit of a push, rating agencies can help make gender equity transparent. They have the research capability and access to company data that everyday investors do not. This can help investors make informed decisions about what to invest in.</p>
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<strong>
Read more:
<a href="https://theconversation.com/auditing-matching-pay-and-accountability-will-close-the-gender-pay-gap-study-92659">Auditing, matching pay and accountability will close the gender pay gap: study</a>
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<p>Pressure from investors can also force companies to address equity issues. When that happens, the public metrics of company performance on gender issues become a lever around which companies can be encouraged to change.</p>
<p>Investors themselves may also find great personal satisfaction in being able to make gender-aware decisions if they could easily apply a gender lens when deciding where to invest.</p>
<p>It is time for potential investors to start demanding data be collected. Once that happens, rating agencies will send a message to companies that gender equity matters. As long as investors stay silent, progress will remain slow.</p><img src="https://counter.theconversation.com/content/201292/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ayesha Scott receives funding from Te Ara Ahunga Ora (Retirement Commission). </span></em></p><p class="fine-print"><em><span>Aaron Gilbert receives funding from Te Ara Ahunga Ora (The Retirement Commission). </span></em></p><p class="fine-print"><em><span>Candice Harris does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Investment rating companies are measuring the environmental, social and governance impact of businesses. This International Women’s Day, we should be pushing them to do the same for gender equity.Ayesha Scott, Senior Lecturer - Finance, Auckland University of TechnologyAaron Gilbert, Associate Professor in Finance, Auckland University of TechnologyCandice Harris, Professor of Management, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1967772023-02-28T19:47:11Z2023-02-28T19:47:11ZGrowing farmland inequality in the Prairies poses problems for all Canadians<figure><img src="https://images.theconversation.com/files/512091/original/file-20230223-20-aqfkhr.JPG?ixlib=rb-1.1.0&rect=113%2C5%2C3874%2C2323&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Research found that investor ownership of farmland in Saskatchewan was negligible in 2002, but by 2018 had climbed to nearly one million acres — almost 18 times the size of Saskatoon.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/growing-farmland-inequality-in-the-prairies-poses-problems-for-all-canadians" width="100%" height="400"></iframe>
<p>Real estate is a hot topic in Canada. Most Canadians are acutely aware of how home prices and rents have <a href="https://theconversation.com/new-study-reveals-intensified-housing-inequality-in-canada-from-1981-to-2016-173633">skyrocketed in the last 15 years or so</a>. In large cities, investor ownership of condos and houses has attracted the attention of policymakers and the public at large, prompting <a href="https://www.ctvnews.ca/business/who-s-exempt-from-canada-s-foreign-homebuyers-ban-here-s-what-you-need-to-know-1.6214997">the federal government to crack down on foreign buyers</a>. </p>
<p>While many are familiar with these urban real estate trends, few are aware of the <a href="https://www.landfoodsovereignty.ca/podcast">restructuring of farmland ownership occurring in rural areas</a>. Since 2014, we’ve been studying changing land tenure patterns in the Prairies, where 70 per cent of Canada’s agricultural land is situated. </p>
<p>Our research reveals three major trends — ongoing farm consolidation, increasing land concentration and expanding investor ownership of farmland — leading to <a href="https://policyalternatives.ca/publications/reports/concentration-matters">growing land inequality</a>. Like the transformation of urban real estate, who benefits from these changes is highly contested.</p>
<h2>Investor interest in farmland</h2>
<p>Investor purchases of farmland worldwide increased significantly as part of the <a href="https://grain.org/article/entries/93-seized-the-2008-landgrab-for-food-and-financial-security">global landgrab spurred by the food price spikes</a> of 2007 and 2008. High food prices, a growing global demand for food and environmental pressures <a href="https://www.producer.com/news/dont-farm-just-own/">convinced many global investors that farmland was a safe bet</a> in an increasingly volatile world. </p>
<p>As hedge funds, pension funds and wealthy individuals poured billions of dollars into farmland, researchers like us began to write about the financialization of agriculture — that is, the growing influence of financial players and financial motives over farming and food production.</p>
<p>Our research found that investor ownership of farmland in Saskatchewan was negligible in 2002, but had climbed to nearly one million acres by 2018 — almost 18 times the size of Saskatoon. (A million acres is about 4,050 square kilometres). While Saskatchewan sought to <a href="https://docs.legassembly.sk.ca/legdocs/Bills/27L4S/Bill27-187.pdf">tighten rules on farmland ownership in 2016</a>, this seems to have done little to slow down the pace of investor acquisitions. </p>
<p>Robert Andjelic, an investor from Alberta, is <a href="https://www.theglobeandmail.com/business/article-farmland-ownership-canada-andjelic/">now Canada’s largest farmland owner</a> with <a href="https://andjelic.ca/">225,435 acres in 92 Saskatchewan rural municipalities</a>. His company leases farmland to dozens of farmers and undertakes “land improvements,” such as clearing trees, brush and other natural habitat, as well as filling in wetlands in order to farm from corner to corner of every parcel.</p>
<p>Another major investor is <a href="https://www.avenuelivingam.com/fund/agricultural-land-trust/">Avenue Living</a>, which has a foot in both urban real estate (as the owner of multi-family housing units across North America) and farmland, with a portfolio of some 83,000 acres.</p>
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<img alt="A map of Saskatchewan showing the land holdings of investors and farmer-investor hybrids in blue" src="https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=464&fit=crop&dpr=1 600w, https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=464&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=464&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=583&fit=crop&dpr=1 754w, https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=583&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/512089/original/file-20230223-20-u1qbht.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=583&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Land holdings (in blue) of investors and farmer-investor hybrids in Saskatchewan in 2018. Collectively, these entities owned 969,769 acres across the province.</span>
<span class="attribution"><span class="source">(Sarina Gersher with data from Information Services Corporation)</span>, <span class="license">Author provided</span></span>
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</figure>
<p>As investors gobble up more land, there is growing unease among farmers. <a href="https://bonnefield.com/farmers/">Investors argue they are helping farmers</a> by relieving them of their assets and providing young farmers with
access to land through rental agreements. Given that, on average, investors <a href="https://policyalternatives.ca/publications/reports/who-buying-farm">pay more for land compared to other buyers</a>, these deep-pocketed buyers have undoubtedly contributed to the rapid increase of farmland prices.</p>
<p>In our <a href="https://static1.squarespace.com/static/62251c157af1ef4305dfdfe6/t/633b97a841d091158b52bcca/1664849835129/Wild+West+Report+2022+%281%29.pdf">survey of 400 prairie farmers</a>, 76 per cent of farmers under 35 indicated that non-farmer investor activity has had a negative or very negative effect on the local farmland market. 83.2 per cent of older farmers indicated that investor activity has had negative or very negative impact on the local community. </p>
<p>Farmers also expressed unease about the growing economic clout of large farmers (over 10,000 acres) and mega-farms (over 30,000 acres) in the region.</p>
<h2>Mega-farms keep accumulating land</h2>
<p>Investors are not the only entities with vast landholdings. Some of Saskatchewan’s largest grain farms now own and control tens of thousands of acres. According to our research, Monette Farms owned some 63,000 acres of land in 2018, and farms much more than that with <a href="https://monettefarms.ca/about/">production sites in Montana, Arizona and Saskatchewan</a>. </p>
<p>One Organic Farms <a href="https://www.oneorganicfarm.com/ourstory">reportedly operates on a land base of 40,000 acres</a>, with the large majority of the land rented from Andjelic Land Inc., Saskatchewan’s largest investor-owner. </p>
<p>In-depth interviews with over 100 farmers in <a href="http://hdl.handle.net/1993/35283">Alberta</a>, <a href="http://hdl.handle.net/1993/35780">Saskatchewan</a> and <a href="http://hdl.handle.net/1993/35482">Manitoba</a> revealed many are deeply concerned about the environmental degradation wrought by big agriculture. Others argued these players out-compete locals for farmland and contribute little to local communities.</p>
<h2>Why should city dwellers care?</h2>
<p><a href="https://www.oxfam.org/en/research/uneven-ground-land-inequality-heart-unequal-societies">Land inequality has significant implications</a> for the vibrancy of democracy, the viability of rural communities and the sustainability of agriculture.</p>
<p>Accessing land is currently the <a href="https://doi.org/10.15353/cfs-rcea.v5i3.288">biggest barrier for young and new farmers</a> who want to get into farming and land prices continue <a href="https://www.parklandinstitute.ca/finance_in_the_fields">to soar above what is justified by its productive value</a>. At the same time, <a href="https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3210005101">farm debt is the highest it’s ever been</a> and the prairies are experiencing <a href="https://doi.org/10.1007/s10460-022-10353-y">an emptying out of the countryside</a>. </p>
<p>We should also be concerned about the financialized logic promoted by investors and mega-farmers, which seeks to extract monetary value from every square inch of farmland.</p>
<figure class="align-center ">
<img alt="Overhead view of two tractors harvesting wheat in a huge field" src="https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/512092/original/file-20230223-26-huby4v.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Agriculture is a significant contributor to Canada’s greenhouse gas emissions.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Jeff McIntosh</span></span>
</figcaption>
</figure>
<p>Given that agriculture is a <a href="https://www.nfu.ca/publications/agricultural-greenhouse-gas-emissions-in-canada-2nd-edition/">significant contributor to Canada’s greenhouse gas emissions</a>, doubling-down on this hyper-productive, fossil-fuel dependent model will only make it harder for Canada to meet its <a href="https://www.canada.ca/en/services/environment/weather/climatechange/climate-plan/net-zero-emissions-2050.html">climate change commitment</a>.</p>
<p>The question is: what kind of agriculture do Canadians want? Growing land inequality undermines the social, economic and environmental sustainability of agriculture. </p>
<p>Progressive agrarian and food movements <a href="http://www.ipes-food.org/pages/LongFoodMovement">propose a different future</a> — one based on food sovereignty. This would entail equitable access to land for farmers, sustainable livelihoods and valuing farmland for its social and ecological worth, as well as its productive value. </p>
<p>As the climate crisis intensifies, there has never been a better time for urban and rural Canadians to work together to transform food systems.</p><img src="https://counter.theconversation.com/content/196777/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annette Desmarais receives funding from the Canada Research Chair Program and the Social Sciences and Humanities Council of Canada.
</span></em></p><p class="fine-print"><em><span>André Magnan receives funding from the Social Sciences and Humanities Research Council of Canada. </span></em></p>Farm consolidation, increasing land concentration and expanding investor ownership of farmland is leading to growing land inequality in the Canadian Prairies.Annette Desmarais, Canada Research Chair in Human Rights, Social Justice and Food Sovereignty, University of ManitobaAndré Magnan, Associate Professor, Sociology and Social Studies, University of ReginaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1966402022-12-15T21:47:42Z2022-12-15T21:47:42ZCOP15: A call to action for investors to help us meet vital biodiversity goals<figure><img src="https://images.theconversation.com/files/501385/original/file-20221215-15-d0euu7.jpg?ixlib=rb-1.1.0&rect=326%2C293%2C10353%2C5356&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Businesses and investors have a critical role to play in biodiversity and conservation efforts and need to invest in sustainable production and extraction methods</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The UN Secretary-General, António Guterres, opened the <a href="https://www.cbd.int/">UN Convention on Biological Diversity</a> (COP15) in Montréal with a stark message: “<a href="https://journalbreak.com/fate-of-the-living-world-will-be-decided-at-cop15-say-scientists-cop15/">Without nature, we are nothing. Nature is our life-support system, and yet humanity seems hell bent on destruction</a>.”</p>
<p>The summit brought together delegates from over 190 countries to negotiate the post-2020 <a href="https://www.cbd.int/doc/c/abb5/591f/2e46096d3f0330b08ce87a45/wg2020-03-03-en.pdf">Global Biodiversity Framework</a>, the implementation of which will require a transformation in the way we produce, consume and trade goods and services that rely on and impact biodiversity. </p>
<p>Companies and investors have, therefore, been paying close attention. Businesses and investors have a critical role to play in biodiversity and conservation efforts and need <a href="https://news.un.org/en/story/2022/12/1131482">to invest in sustainable production and extraction methods</a>.</p>
<p>On Dec. 14, the <a href="https://www.cbd.int/article/cop15-finance-and-biodiversity-day">Finance and Biodiversity Day</a> of the summit, speakers across the financial sector discussed various ways of aligning financial investments with the new biodiversity framework. In anticipation of these finance talks, a new global engagement initiative, <a href="https://www.prnewswire.com/news-releases/at-cop15-investors-announce-nature-action-100-to-tackle-nature-loss-and-biodiversity-decline-301699719.html">Nature Action 100</a> was launched to drive investors’ action on nature-related risks and opportunities. </p>
<p>As a scholar in sustainable finance, I believe that while these initiatives and discussions are important, we need more targeted and urgent investments in nature-friendly solutions to reverse biodiversity loss.</p>
<h2>“Without nature, we are nothing”</h2>
<p>Numerous scientific studies point to alarming statistics on the rates of biodiversity loss. The <a href="https://livingplanet.panda.org/">Living Planet Report 2022</a> shows an average decline of 69 per cent in wildlife populations since 1970, thus emphasizing the dual crises of biodiversity loss and climate change driven by human activities. </p>
<figure class="align-center ">
<img alt="A vast stretch of mangrove with a river running in between" src="https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501402/original/file-20221215-11129-13xluz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Ecosystem services from biodiversity, such as flood protection and carbon sequestration, are worth an estimated US$125-140 trillion per year.</span>
<span class="attribution"><span class="source">(AP Photo/Al-emrun Garjon)</span></span>
</figcaption>
</figure>
<p>Unlike the climate crisis that led to the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement">signing of the Paris Agreement</a>, biodiversity loss has received little attention until now. However, the risks from biodiversity loss are enormous. </p>
<p>According to an <a href="https://www.oecd.org/environment/resources/biodiversity/G7-report-Biodiversity-Finance-and-the-Economic-and-Business-Case-for-Action.pdf">OECD report</a>, ecosystem services from biodiversity, such as crop pollination, water purification, flood protection and carbon sequestration, are worth an estimated US$125-140 trillion per year. About<a href="https://planet-tracker.org/wp-content/uploads/2022/10/NDE-report.pdf"> US$44 trillion per year of this global output</a> is dependent on nature . </p>
<h2>Bending the curve of biodiversity loss</h2>
<p>The Convention on Biological Diversity’s <a href="https://www.cbd.int/gbo/gbo5/publication/gbo-5-spm-en.pdf">fifth Global Biodiversity Outlook</a> summary report for policymakers, published in 2020, suggests a portfolio of actions to restore biodiversity.</p>
<p>These actions include the restoration of landscapes and marine and coastal ecosystems, redesigning agricultural systems through innovative productivity-enhancing approaches, deploying green infrastructure, enabling sustainable and healthy diets, rapidly phasing out fossil fuel use, and many more.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph of the potential trend changes after following CBD's action plan" src="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=501&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=501&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=501&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=629&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=629&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501378/original/file-20221215-11129-zd431c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=629&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The Global Biodiversity Outlook report offers climate actions that could halt and reverse the rate of biodiversity decline (bend the curve), potentially leading to net biodiversity gains after 2030.</span>
<span class="attribution"><span class="source">(CBD/Global Biodiversity Outlook 5, Summary for Policymakers)</span></span>
</figcaption>
</figure>
<p>Businesses and investors have a critical role to play in each of these action domains, especially when it comes to shifting to more sustainable production and manufacturing processes, investing in energy efficiency and waste reduction, conservation of natural resources, and investing in climate solutions that also support biodiversity.</p>
<h2>Biodiversity awareness in the world of finance</h2>
<p>The awareness about biodiversity risks remains very limited within the finance community. This year, the non-profit CDP, which runs the world’s environmental disclosure system, included <a href="https://dfge.de/biodiversity-cdp-2022-questionnaire/">new questions to assess firms’ approaches to biodiversity</a>. </p>
<p>The results show that three-quarters of 7,700 respondent companies do not assess their impact on biodiversity. Most companies in nature-damaging sectors, such as apparel and manufacturing, are still failing to take meaningful action to stop biodiversity loss and environmental degradation. </p>
<p>According to a <a href="https://www.oecd-ilibrary.org/docserver/1a1ae114-en.pdf?expires=1670922228&id=id&accname=guest&checksum=BEFF7F6094BF8F10746F39F98A4E16A5">2021 OECD report</a>, nature-related dependencies, impacts and risks are poorly understood and almost entirely uncompensated for in the financial sector. This leads to capital misallocation that ultimately undermines the wellbeing of society. </p>
<p>There are, however, positive signs. Thirty-one per cent of companies in the CDP survey have made a public commitment and/or endorsed biodiversity-related initiatives, and 25 per cent of respondents are planning to do so within the next two years.</p>
<p>The growing awareness is confirmed by the 2022 Global Risks Report, which found that biodiversity loss ranks third among the <a href="https://assets.weforum.org/editor/responsive_large_webp_uN-wLneixIqA0YQRRbytTiHbpvtbRYoXXytgYRwzJ-o.webp">top 10 global risks by severity over the next 10 years</a>.</p>
<h2>Integrating biodiversity in financial decisions</h2>
<p>One of the key challenges for investors and lenders is getting the relevant data to make evidence-based decisions to allocate funds. This is in line with the ever-increasing demand for environmental, social and governance (ESG) data disclosure. </p>
<p>The newly launched international initiative <a href="https://tnfd.global/">Taskforce on Nature-related Financial Disclosures</a> is developing a risk management and disclosure framework for organizations to report and act on evolving nature-related financial risks.</p>
<p>Biodiversity is also attracting the attention of financial policymakers. In March 2022, the <a href="https://www.ngfs.net/en">Network for Greening the Financial System</a>, a coalition of more than 120 central banks and supervisors, <a href="http://www.ngfs.net/sites/default/files/medias/documents/statement_on_nature_related_financial_risks_-_final.pdf">published a new statement</a>, acknowledging that biodiversity loss could lead to significant macroeconomic and financial stability risks. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1602025756581937152"}"></div></p>
<p>The new investor-led initiative <a href="https://www.prnewswire.com/news-releases/at-cop15-investors-announce-nature-action-100-to-tackle-nature-loss-and-biodiversity-decline-301699719.html">Nature Action 100</a> builds on <a href="https://www.climateaction100.org/">similar initiatives</a> to help investors engage with companies that are contributing to biodiversity loss. Engaging with companies to reduce their negative impact on nature can be a powerful tool for change, especially when coming from large investors and asset owners. </p>
<p>The International Sustainability Standards Board (ISSB) is now considering biodiversity in the development of new ESG disclosure standards. Addressing COP15 delegates, Emmanuel Faber, chair of the ISSB, announced the appointment of two <a href="https://www.ifrs.org/news-and-events/news/2022/12/issb-describes-the-concept-of-sustainability/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=immediate">special advisors to provide strategic counsel on issues relating to natural ecosystems and ‘just transition.’</a> </p>
<h2>The future lies in impact investing</h2>
<p>While these initiatives are crucial, focusing on data disclosure is not sufficient. Even if we quickly agree on disclosure frameworks and measurements around biodiversity, disclosures that are voluntary and not supported by regulation are vulnerable to <a href="https://theconversation.com/greenwashing-corporate-tree-planting-generates-goodwill-but-may-sometimes-harm-the-planet-103457">greenwashing</a> which is widespread in the ESG space. </p>
<p>We need to encourage more targeted investments in nature-positive solutions that reverse biodiversity loss. Impact investing — investing money with the intention to benefit society and the environment — offers a framework for this. </p>
<p>Impact investing starts with identifying a societal challenge and then screens for investment opportunities that provide measurable solutions. But <a href="https://thegiin.org/research/publication/impact-investing-market-size-2022/">impact investments remain very small</a> relative to other responsible investment strategies. Many impact investors use the <a href="https://sdgs.un.org/goals">UN Sustainable Development Goals (SDGs)</a> to set their impact goals and measure outcomes.</p>
<p>To tackle biodiversity loss, we need more investments in SDG14 (life below water) and SDG15 (life on land). Despite the importance of ocean ecosystems for local livelihoods, food security and carbon sequestration, <a href="https://sdgs.un.org/events/accelerating-investments-sdg-14-and-sustainable-blue-economy-48934">SDG14 receives the least amount of funding</a> of any of the SDGs. </p>
<figure class="align-center ">
<img alt="Windmills" src="https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=438&fit=crop&dpr=1 600w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=438&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=438&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=551&fit=crop&dpr=1 754w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=551&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/501406/original/file-20221215-12-9gcc7c.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=551&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canada is a global leader in clean tech innovation.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Andrew Vaughan</span></span>
</figcaption>
</figure>
<p><a href="https://www.canadaaction.ca/cleantech-innovation-index-ranking">Canada is a global leader in clean tech innovation</a> and many companies at the nexus of nature and climate are emerging across the country, including innovation in ocean tech, clean marine transportation and regenerative agriculture. </p>
<p>But financing remains a challenge, especially at early stages when risk is high and scale is lacking to attract large investors. More innovative financing mechanisms and instruments are needed to fill this gap. </p>
<p>Investing in Indigenous-led projects can also advance both reconciliation and biodiversity goals, because Indigenous lands contain <a href="https://www.un.org/development/desa/indigenouspeoples/wp-content/uploads/sites/19/2018/04/Indigenous-Peoples-Collective-Rights-to-Lands-Territories-Resources.pdf">80 per cent of the world’s remaining biodiversity</a>. </p>
<p>The <a href="https://www.cbd.int/article/cop15-finance-and-biodiversity-day">Finance and Biodiversity Day</a> at COP15 stimulated important discussions on how to align financial flows with the new biodiversity framework, but real actions remain to be seen. We need action now, as time is not on our side.</p><img src="https://counter.theconversation.com/content/196640/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Basma Majerbi receives funding from Canada's Social Sciences and Humanities Research Council (SSHRC), Mitacs and the Pacific Institute for Climate Solutions (PICS) at the University of Victoria. She's a volunteer Board member with the South Island Prosperity Partnership and a member of the Research Advisory Council of the Institute for Sustainable Finance.</span></em></p>We need more targeted investments in solutions that have a positive impact on nature to reverse biodiversity loss.Basma Majerbi, Associate Professor, Peter B. Gustavson School of Business, University of VictoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1946922022-11-17T13:29:36Z2022-11-17T13:29:36ZDramatic collapse of the cryptocurrency exchange FTX contains lessons for investors but won’t affect most people<figure><img src="https://images.theconversation.com/files/495726/original/file-20221116-12-324kxc.jpg?ixlib=rb-1.1.0&rect=81%2C72%2C4464%2C2940&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The cryptocurrency exchange FTX fell from a multibillion-dollar company to bankruptcy in less than a week.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/logo-with-crypto-coins-with-100-dollar-bill-are-displayed-news-photo/1244719587?phrase=FTX%20crypto&adppopup=true">NurPhoto via Getty Images</a></span></figcaption></figure><p><em>In the fast-paced world of cryptocurrency, vast sums of money can be made or lost in the blink of an eye. In early November 2022, the second-largest cryptocurrency exchange, FTX, was valued at more than US$30 billion. By Nov. 14, <a href="https://www.cnn.com/2022/11/15/business/ftx-madoff-bankman-fried-bair/index.html">FTX was in bankruptcy proceedings</a> along with more than 100 companies connected to it. <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">D. Brian Blank</a> and <a href="https://scholar.google.com/citations?user=FKJSqjEAAAAJ&hl=en&oi=ao">Brandy Hadley</a> are professors who study finance, investing and fintech. They explain how and why this incredible collapse happened, what effect it might have on the traditional financial sector and whether you need to care if you don’t own any cryptocurrency.</em></p>
<h2>1. What happened?</h2>
<p>In <a href="https://inside.com/campaigns/inside-tech-2021-07-21-28706/sections/243700">2019</a>, Sam Bankman-Fried founded FTX, a company that ran one of the largest cryptocurrency exchanges.</p>
<p>FTX is where many crypto investors trade and hold their cryptocurrency, similar to the New York Stock Exchange for stocks. Bankman-Fried is also the founder of <a href="https://www.forbes.com/profile/alameda-research/?sh=563773816570">Alameda Research</a>, a hedge fund that trades and invests in cryptocurrencies and crypto companies. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A photo of a curly-haired man." src="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495729/original/file-20221116-18-annb65.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sam Bankman-Fried founded both FTX and the investment firm Alameda Research. News sources have reported some less-than-responsible financial dealings between the two companies.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/sam-bankman-fried-founder-and-ceo-of-ftx-testifies-during-news-photo/1237105664?phrase=sam%20bankman-fried&adppopup=true">Tom Williams via Getty Images</a></span>
</figcaption>
</figure>
<p>Within the traditional financial sector, these two companies would be separate firms entirely or at least have divisions and firewalls in place between them. But in early November 2022, news outlets reported that a <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">significant proportion of Alameda’s assets</a> were a type of cryptocurrency released by FTX itself. </p>
<p>A few days later, news broke that FTX had allegedly been loaning customer assets to Alameda for risky trades <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">without the consent of the customers</a> and also issuing its own FTX cryptocurrency for Alameda to use as <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">collateral</a>. As a result, criminal and regulatory investigators began scrutinizing FTX for potentially <a href="https://www.law360.com/assetmanagement/articles/1549319?nl_pk=c7efe457-0cc1-4a20-9d63-ded5145502ae&utm_source=newsletter&utm_medium=email&utm_campaign=assetmanagement&utm_content=2022-11-15&read_more=1&nlsidx=0&nlaidx=0">violating securities law</a>.</p>
<p>These two pieces of news basically led to a bank run on FTX.</p>
<p>Large crypto investors, like FTX’s competitor Binance, as well as individuals, began to <a href="https://decrypt.co/113723/investors-withdrawal-millions-from-ftx-binance-begins-liquidating-ftt-token">sell off cryptocurrency held on FTX’s exchange</a>. FTX quickly lost its ability to meet customer withdrawals and halted trading. On Nov. 14, FTX was also hit by an apparent <a href="https://www.coindesk.com/business/2022/11/14/ftx-hack-or-inside-job-blockchain-experts-examine-clues-and-a-stupid-mistake/">insider</a> <a href="https://edition.cnn.com/2022/11/12/business/ftx-hack/index.html">hack</a> and lost $600 million worth of cryptocurrency.</p>
<p>That same day, FTX, Alameda Research and 130 other affiliated companies founded by Bankman-Fried filed for bankruptcy. This action may leave <a href="https://www.cnbc.com/2022/11/15/ftx-says-could-have-over-1-million-creditors-in-new-bankruptcy-filing.html">more than a million</a> suppliers, employees and investors who bought cryptocurrencies through the exchange or invested in these companies with <a href="https://www.cnn.com/2022/11/14/business/ftx-customer-money-bankruptcy/index.html">no way to get their money back</a>.</p>
<p>Among the groups and individuals who held currency on the FTX platform were many of the normal players in the crypto world, but a number of more traditional investment firms also held assets within FTX. <a href="https://www.businessinsider.com/sequoia-loss-on-ftx-collapse-letter-to-investors-2022-11">Sequoia Capital</a>, a venture capital firm, as well as the <a href="https://www.theglobeandmail.com/business/article-ftx-ontario-teachers-pension-canada-regulators/">Ontario Teacher’s Pension</a>, are estimated to have held millions of dollars of their investment portfolios in ownership stake of FTX. They have both already written off these investments with FTX as lost.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A magnifying glass over the word cryptocurrency." src="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=357&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=357&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=357&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=449&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=449&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495732/original/file-20221116-16-xgz7nh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=449&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">While there has been some movement to regulate cryptocurrency, enforcement is still lacking.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/cryptocurrency-royalty-free-image/1355796318?phrase=crypto%20magnifying%20glass&adppopup=true">Solidcolours/E+ via Getty Images</a></span>
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</figure>
<h2>2. Did a lack of oversight play a role?</h2>
<p>In traditional markets, corporations generally <a href="https://www.law360.com/bankruptcy/articles/1549089?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=3">limit the risk they expose themselves to</a> by maintaining liquidity and solvency. Liquidity is the ability of a firm to sell assets quickly without those assets losing much value. Solvency is the idea that a company’s assets are worth more than what that company owes to <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-15-2022/card/ftx-says-number-of-creditors-in-bankruptcy-could-top-1-million-LrfYrHxDtIoVBV42QDiG?mod=djemMoneyBeat_us">debtors and customers</a>.</p>
<p>But the crypto world has generally operated with much less caution than the traditional financial sector, and <a href="https://www.nytimes.com/2022/11/11/technology/ftx-investors-venture-capital.html?smid=tw-dealbook&smtyp=cur">FTX is no exception</a>. About <a href="https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-balance-sheet-was-bad">two-thirds</a> of the money that FTX owed to the people who held cryptocurrency on its exchange – roughly $11.3 billion of $16 billion owed – was backed by illiquid coins created by FTX. FTX was taking its customers’ money, giving it to Alameda to make risky investments and then creating its own currency, known as FTT, as a replacement – cryptocurrency that it was unable to sell at a high enough price when it needed to.</p>
<p>In addition, nearly 40% of Alameda’s assets were in FTX’s own cryptocurrency – and remember, both companies were founded by the same person. </p>
<p>This all came to a head when investors decided to sell their coins on the exchange. FTX did not have enough <a href="https://www.bloomberg.com/opinion/articles/2022-11-10/ftx-is-still-looking-for-money">liquid</a> assets to meet those demands. This in turn drove the value of FTT from over $26 a coin at the beginning of November to under $2 by Nov. 13. By this point, FTX owed more money to its customers than <a href="https://www.bloomberg.com/opinion/articles/2022-11-09/bankman-fried-s-ftx-had-a-death-spiral-before-binance-deal">it was worth</a>.</p>
<p>In regulated exchanges, investing with customer funds is <a href="https://www.cnbc.com/2022/11/13/sam-bankman-frieds-alameda-quietly-used-ftx-customer-funds-without-raising-alarm-bells-say-sources.html">illegal</a>. Additionally, auditors validate financial statements, and firms must publish the amount of money they hold in reserve that is available to fund customer withdrawals. And even if things go wrong, the <a href="https://www.firstrepublic.com/insights-education/sipc-vs-fdic-insurance-protection-differences">Securities Investor Protection Corporation</a> – or SIPC – protects depositors against the loss of investments from an exchange failure or financially troubled brokerage firm. None of these guardrails are in place within the crypto world.</p>
<h2>3. Why is this a big deal in crypto?</h2>
<p>As a result of this meltdown, the company Binance is now considering creating an <a href="https://techxplore.com/news/2022-11-binance-fund-crypto-future-failures.html">industry recovery fund</a> – akin to a private version of SIPC insurance – to <a href="https://www.bloomberg.com/news/articles/2022-11-14/binance-ceo-cz-zhao-bids-to-replace-ftx-s-sam-bankman-fried-as-crypto-savior">avoid</a> future <a href="https://www.law360.com/bankruptcy/articles/1548995?nl_pk=6ef803a8-f435-44cb-93f5-de6a024ff206&read_more=1&nlsidx=0&nlaidx=4">failures</a> of crypto exchanges.</p>
<p>But while the collapse of FTX and Alameda – valued at more than $30 billion and now essentially worth nothing – is dramatic, the bigger implication is simply the potential <a href="https://apnews.com/article/sam-bankman-fried-ftx-crypto-downfall-a2eaec231027dfd9f18426ff8982bbf8">lost trust in crypto</a>. Bank runs are rare in traditional financial institutions, but they are <a href="https://www.wsj.com/articles/crypto-com-withdrawals-rise-after-ceo-admits-transaction-problem-11668350510">increasingly common</a> in the crypto space. Given that Bankman-Fried and FTX were seen as some of the biggest, most trusted figures in crypto, these events may lead more investors to think twice about putting money in crypto.</p>
<h2>4. If I don’t own crypto, should I care?</h2>
<p>Though investment in cryptocurrencies has grown rapidly, the entire crypto market – <a href="https://www.coindesk.com/markets/2021/10/21/crypto-market-cap-surges-to-new-record-27-trillion/">valued at over $3 trillion</a> at its peak – is much <a href="https://beincrypto.com/institutional-investment-in-crypto-experts-weigh-in-on-implications/">smaller</a> than the $120 trillion <a href="https://medium.com/ngrave/too-big-to-fail-crypto-market-size-vs-traditional-assets-eff4bb2ec529">traditional stock market</a>.</p>
<p>While investors and regulators are still evaluating the consequences of this fall, the impact on any person who doesn’t personally own crypto will be minuscule. It is true that many larger investment funds, like BlackRock and the Ontario Teachers Pension, held investments in FTX, but the estimated <a href="https://www.ai-cio.com/news/ontario-teachers-pension-could-lose-95-million-on-ftx-investment">$95 million the Ontario Teachers Pension lost</a> through the collapse of FTX is just 0.05% of the entire fund’s investments.</p>
<p>The takeaway for most individuals is not to invest in <a href="https://www.wsj.com/articles/ftx-sam-bankman-fried-sit-in-the-crosshairs-of-u-s-prosecutors-11668398012?mod=djem10point">unregulated</a> markets without understanding the risks. In high-risk environments like <a href="https://www.natlawreview.com/article/ftx-bankruptcy-and-question-prudent-retirement-plan-investments-saga-continues">crypto</a>, it’s possible to lose everything – a lesson investors in FTX are learning the hard way.</p><img src="https://counter.theconversation.com/content/194692/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Even though some traditional financial firms parked millions in the bankrupt company – once valued at $30 billion – the impact of FTX’s spectacular crash is limited to crypto investorsD. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityBrandy Hadley, Associate Professor of Finance and the David A. Thompson Professor in Applied Investments, Appalachian State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1944422022-11-11T05:05:03Z2022-11-11T05:05:03ZThe spectacular collapse of a $30 billion crypto exchange should come as no surprise<figure><img src="https://images.theconversation.com/files/494811/original/file-20221111-22-l7l6k.jpg?ixlib=rb-1.1.0&rect=365%2C968%2C4301%2C2674&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Unsplash</span></span></figcaption></figure><p>Not long ago, <a href="https://ftx.com">FTX</a> was one of the world’s largest trading platforms for cryptocurrencies. Founded in 2019, the Bahamas-based <a href="https://www.theguardian.com/technology/2022/nov/10/what-happened-to-ftx-and-could-crisis-spill-over-to-rest-of-crypto">crypto exchange</a> had a meteoric rise to prominence, and was <a href="https://www.cnbc.com/2022/01/31/crypto-exchange-ftx-valued-at-32-billion-amid-bitcoin-price-plunge.html">valued at more than US$30 billion</a> earlier this year.</p>
<p>All that has changed in the past two weeks. First, <a href="https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/">concerns emerged</a> about links between FTX and an asset-trading firm called Alameda Research, including <a href="https://www.wsj.com/articles/ftx-tapped-into-customer-accounts-to-fund-risky-bets-setting-up-its-downfall-11668093732?st=wawn6imqxkhz3z8">suggestions that customers’ funds have been transferred from FTX to Alameda</a>. </p>
<p>A few days later, rival firm Binance (the biggest crypto exchange) <a href="https://www.wsj.com/livecoverage/stock-market-news-today-11-07-2022/card/binance-to-sell-holdings-of-ftx-s-token-as-relations-between-crypto-exchanges-fray-VukiTcJgKWJeZEEgnG5y?page=1">announced</a> it would sell its holdings of FTT tokens, a crypto that reportedly comprises much of Alameda’s assets. </p>
<p>Panicked customers rushed to withdraw funds from FTX, and the company is now on the brink of collapse, with a banner message on its website announcing it is “currently unable to process withdrawals”.</p>
<p>This is not the first such <a href="https://www.cnbc.com/2022/07/11/how-the-fall-of-three-arrows-or-3ac-dragged-down-crypto-investors.html">rapid disintegration</a> we have seen in the loosely regulated world of cryptocurrency, and it’s unlikely to be the last. </p>
<h2>No rescuers in sight</h2>
<p>The majority owner of both FTX and Alameda, <a href="https://www.ft.com/content/83bc681a-a0f9-43bb-b627-c6dacae4a0a3">Sam Bankman-Fried</a>, had rescued other troubled crypto companies earlier this year. Now he is desperately <a href="https://www.ft.com/content/c6658ce8-26a3-4580-9e64-6083a7d35eca">looking for an investor with a lazy $8 billion to save his companies</a>. </p>
<p>Many firms have <a href="https://www.theguardian.com/technology/2022/nov/10/cryptocurrency-exchange-ftx-now-worthless-says-key-investor">already written off</a> the value of their stakes in FTX. So it will not be easy for Bankman-Fried to find investors willing to put in new funding. </p>
<p>Binance thought about taking over the troubled company outright. It decided against, citing concerns about <a href="https://www.ft.com/content/ad440b22-00e2-44e9-b95d-449bb89fd504">allegations of misconduct and an investigation</a> by the US Securities and Exchange Commission.</p>
<p>The price of FTT has now plunged. A week ago it was trading at US$24. Now it is at <a href="https://coinmarketcap.com/currencies/ftx-token/">less than US$4</a>.</p>
<h2>Cautionary lessons</h2>
<p>Trading in “assets” with <a href="https://worldfinancialreview.com/what-is-bitcoins-fundamental-value/">no underlying fundamental value</a> on loosely regulated exchanges is always going to be a very risky endeavour. For many, it is likely to end in tears.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-is-bitcoins-fundamental-value-thats-a-good-question-171387">What is Bitcoin's fundamental value? That's a good question</a>
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</em>
</p>
<hr>
<p>Other kinds of asset are different. Company shares have a fundamental value based on the dividend (or at least an expected future dividend) paid from the company’s profits. Real estate has a fundamental value that reflects the rent the investor earns (or the owner-occupier saves). The value of a bond depends on the amount of interest it pays. Even gold at least has some practical uses, for jewellery, dental fillings or electronics. </p>
<p>But crypto so-called currencies such as Bitcoin, Ether and Dogecoin (and thousands more “alt-coins” and “meme-coins”) have no such fundamental value. They are a game of pass-the-parcel, in which speculators try to sell them to someone else before the price collapses.</p>
<p>Unregulated financial institutions are prone to the equivalent of a Depression-style “bank run”. Once doubts emerge about their soundness, each person has an incentive to be early in the queue to withdraw their money before the money runs out.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cryptocurrencies-are-great-for-gambling-but-lousy-at-liberating-our-money-from-big-central-banks-173901">Cryptocurrencies are great for gambling – but lousy at liberating our money from big central banks</a>
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<hr>
<p>In a recent <a href="https://www.ft.com/content/eac0e56c-f30b-4591-b603-f971e60dc58b">interview</a>, Bankman-Fried gave a description of his business model that seems to rely heavily on <a href="https://www.sec.gov/files/ia_virtualcurrencies.pdf">funds injected by new investors</a>, rather than on future returns based on the intrinsic value of the assets themselves.</p>
<h2>Impact on crypto</h2>
<p>These events have further eroded confidence in the crypto ecosystem. Prior to this latest fiasco, the “value” of cryptocurrencies had already dropped from a peak of more than US$3 trillion to US$1 trillion. It has now <a href="https://coinmarketcap.com/">fallen even lower</a>. </p>
<p>Just as a few stars such as Amazon emerged from the wreckage of the dot-com bubble, so it is possible that only a handful of applications of the blockchain technology that underpins crypto have enduring utility. </p>
<p>And the idea of an electronic form of currency is being realised in the form of <a href="https://www.bis.org/publ/bppdf/bispap125.htm">central bank digital currencies</a>. But as Hyun Song Shin, the chief economist of the Bank of International Settlements, <a href="https://www.bis.org/speeches/sp220626b.pdf">put it</a>, “everything that can be done with crypto can be done better with central bank money”.</p><img src="https://counter.theconversation.com/content/194442/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a senior economist at the Bank for international Settlements. </span></em></p>Problems in yet another crypto-related company have raised further doubts about the sector.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1922182022-10-12T16:39:06Z2022-10-12T16:39:06ZFinancing the transition to net-zero – here’s how the EU will advise investors where to put their money<figure><img src="https://images.theconversation.com/files/489057/original/file-20221010-25-lxsokg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Scaling up public and private investment will be crucial to finance the transition to net-zero.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/solar-power-station-736731844">Mark Agnor/Shutterstock</a></span></figcaption></figure><p>Ahead of next month’s COP27 climate summit we have been given a stark reminder of the lengths still required to tackle climate change. A new report estimates that investments of <a href="https://www.iea.org/events/breakthrough-agenda-report-2022">US$1 trillion (£904 billion) a year</a> in renewable power will be needed by 2030 to avoid the effects of climate change. Scaling up private and public investment will be crucial in financing this transition.</p>
<p>Yet directing investment to where it can have the most decisive impact represents a challenge. “Greenwashing”, where organisations exaggerate their environmental credentials, is rife and impedes the flow of investment towards truly sustainable projects. One way to address this issue is by ranking activities in terms of how sustainable they are – producing something called a “taxonomy” of sustainable activities.</p>
<p>Set to become law in 2023, the <a href="https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en#:%7E:text=%E2%80%9CEU%20taxonomy%E2%80%9D.-,What%20is%20the%20EU%20taxonomy%3F,implement%20the%20European%20green%20deal.">EU Taxonomy for Sustainable Activities</a> is one recent example of this. Embedded within many different regulations, financing mechanisms and subsidy schemes it is designed to direct investment in line with the <a href="https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en">European Green Deal</a> – the EU’s strategy for achieving carbon neutrality by 2050.</p>
<p>But the EU taxonomy has <a href="https://www.ecowatch.com/eu-plan-gas-nuclear-power-sustainable.html">attracted criticism</a>, among them that many of its decisions are subjective and attract intense political lobbying. The decisions to classify gas and nuclear as climate-friendly investments, for example, have <a href="https://www.ft.com/content/42320458-dfeb-4f5e-9655-aba281cef662">angered environmental groups</a> and may be subject to a legal challenge. As the UK considers developing its own green taxonomy, there are concerns that it will suffer from similar issues. </p>
<h2>Making green activities visible to investors</h2>
<p>The taxonomy classifies what activities can be marketed as sustainable investments and provides a standard definition throughout the EU. Rather than having to assess what is sustainable from scratch, investors can simply refer to the taxonomy. </p>
<p>To be deemed as sustainable, an economic activity must contribute to various climate objectives. These range from climate change mitigation, to the sustainable use of natural resources and biodiversity restoration and include zero emissions transportation and afforestation. There is a broad consensus on most of the activities classified as sustainable. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A coal-fired power plant with a large chimney in the centre in front of a large wall of coal deposits." src="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489105/original/file-20221011-17-vdu3dn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The EU taxonomy excludes coal power generation.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/jaworzno-silesia-poland-november-24-2019-1584621979">Eva Alex/Shutterstock</a></span>
</figcaption>
</figure>
<p>If an activity is not on the list, then it is classified as unsustainable and its access to investment is limited. Carbon intensive coal-fired power generation is one such activity. Phasing out coal generation will reduce demand, with further impacts on investment in mines and coal-related infrastructure.</p>
<p>This will carry social and economic implications for coal-dependent economies, such as Poland. In 2019, the Polish coal industry accounted for <a href="https://www.statista.com/statistics/422202/number-of-employees-mining-quarying-sector-poland/">84,000 jobs</a>, all of which could be at risk.</p>
<h2>Some decisions are contentious</h2>
<p>This is where the main drawback of the taxonomy lies. The power of any list to make or break an industry like coal in Poland means that its construction will be fiercely contested and certain decisions will involve subjectivity. This is particularly true where the criteria can have a profound impact on a country’s future growth.</p>
<p>Agriculture was initially excluded from the taxonomy. The decision was driven by the fear that its inclusion would conflict with the EU’s <a href="https://agriculture.ec.europa.eu/common-agricultural-policy/cap-overview/cap-glance_en">Common Agricultural Policy</a> and limit farmers’ access to subsidies. The risk of disrupting subsidies worth €58.0 billion (£50.9 billion) and damaging EU food security was considered too high. </p>
<p>This has been subsequently reconsidered, reflecting the possibility that specific animal and crop production practices could make substantial contributions to biodiversity. Crop production often relies on <a href="https://agriculture.ec.europa.eu/sustainability/environmental-sustainability/biodiversity_en">natural processes</a> such as pollination, while making the switch to crop production will cause less greenhouse gas emissions than livestock farming. In the future, various farming practices can be included in the taxonomy.</p>
<p>While the EU taxonomy’s construction was a long, carefully orchestrated process, it was also subject to intense political lobbying.</p>
<p>Despite unresolved concerns regarding the disposal of radioactive waste, <a href="https://reclaimfinance.org/site/wp-content/uploads/2021/07/Report-EU-taxonomy-Out-with-science-in-with-lobbyists-RF.pdf">pro-nuclear lobbyists</a> fought hard to earn nuclear power generation its “green” classification. The inclusion of nuclear power was subject to a detailed series of technical studies.</p>
<figure class="align-center ">
<img alt="An aerial view of a nuclear power plant surrounded by pools of water with a large cloud of steam drifting through the sky." src="https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/489114/original/file-20221011-20-sskvjv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The inclusion of nuclear in the EU taxonomy is still being contested.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/nuclear-power-plant-aerial-view-panorama-1029049147">Andrea Izzotti/Shutterstock</a></span>
</figcaption>
</figure>
<p>Some countries say investments in gas are necessary to transition towards cleaner fuels. Under certain conditions, <a href="https://op.europa.eu/en/publication-detail/-/publication/3eb4d1ac-1505-11ec-b4fe-01aa75ed71a1/language-en/format-PDF/source-230246876">natural gas</a> can now be included as a sustainable activity. This will allow the construction of new natural gas plants, locking countries into high-carbon energy generation.</p>
<p>In many cases, politically constructed taxonomies can maintain environmental injustice rather than solve it.</p>
<h2>Lessons for the UK</h2>
<p>Following Brexit, the UK is considering developing its own sustainable taxonomy in line with its growth objectives. But concerns have been raised that any taxonomy in the UK will be constructed to satisfy political short-termism. This could divert investment towards environmentally destructive activities.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1578265324637544448"}"></div></p>
<p>Recent policy announcements, such as the reversal of the 2019 ban on fracking and increased oil and gas production suggest that this is a real possibility. Under a new leader in Liz Truss, the UK government has already <a href="https://www.theguardian.com/business/2022/oct/07/uk-offers-new-north-sea-oil-and-gas-licences-despite-climate-concerns">announced plans</a> to award more than 100 North Sea oil and gas exploration licenses.</p>
<p>But if constructed correctly, a taxonomy for sustainable activities remains a valuable tool as the world searches for sustainability. It holds the key for accessing the resources needed to support a sustainable transition.</p>
<p>Given the power that any taxonomy holds, greater transparency and scrutiny over how these criteria are constructed is needed. A robust independent evidence base for activities that may be considered sustainable is required. This would enable a classification that is closely aligned with climate targets, includes truly sustainable activities, and omits harmful activities that would otherwise continue. A taxonomy may be a list, but it has the power to shape the future.</p><img src="https://counter.theconversation.com/content/192218/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian Thomson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The transition to net zero will require huge investments, but how do we make sure investment goes to the right place?Ian Thomson, Director of the Centre for Responsible Business, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1901182022-10-06T16:34:29Z2022-10-06T16:34:29ZFrom GameStop to crypto: how to protect yourself from meme stock mania<figure><img src="https://images.theconversation.com/files/486250/original/file-20220923-11-m4it8b.jpg?ixlib=rb-1.1.0&rect=40%2C60%2C6669%2C4406&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Meme stocks are investment assets that receive a lot of attention on social media.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/meme-stock-investment-warning-concept-smart-1997924141">Jirsak / Shutterstock</a></span></figcaption></figure><p>Recent <a href="https://www.southampton.ac.uk/news/2021/01/larisa-yarovaya-gamestop-crypto-exuberance.page">rallies</a> in stocks popularised on social media have attracted increasing numbers of investors looking to these so-called “meme stocks” for quick returns. But while it might look like a fun game, there are real risks to investing in stocks and other financial products popularised on social media. And with <a href="https://www.cnbc.com/2022/09/23/uk-government-dishes-out-tax-cuts-as-country-braces-for-recession.html">recessions</a> looming <a href="https://www.bbc.co.uk/news/business-62976318">around</a> the world, the danger is becoming even more acute.</p>
<p>The term meme stock was traditionally used to describe any share that receives a lot of attention on social media. One of the more notable recent examples of a meme stock, retailer GameStop, saw its stock soar <a href="https://www.theguardian.com/business/2022/aug/13/meme-stock-frenzy-gamestop-bed-bath-beyond-amc">by more than 10,600%</a> in 2021 following discussions by individual investors on r/WallStreetBets – a popular subreddit on the Reddit social media platform. You’ve probably heard about other <a href="https://edition.cnn.com/2022/05/12/investing/gamestop-amc-meme-stocks/index.html">instances</a> of assets popularised on social media of late, including cinema chain AMC and US retailer Bed Bath & Beyond. </p>
<p>Meme stock rallies <a href="https://blockworks.co/meme-stocks-are-back-and-theyve-brought-dogecoin-and-shiba-inu/">have also boosted</a> cryptocurrency products, such as <a href="https://www.investopedia.com/terms/s/stablecoin.asp">stablecoins</a> and <a href="https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq">non-fungible tokens</a> – basically any assets for which hype has been built online. And while these new decentralised finance assets <a href="https://www.sciencedirect.com/science/article/pii/S1044028322000217">are very different to stocks</a>, the way sentiment is formed about these assets on social media tends to be the same. </p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3822315">Recent research</a> I carried out with colleagues aimed to understand the role of Reddit in the GameStop share rally involved a textual analysis of 10.8 million comments on r/WallStreetBets and high-frequency GameStop prices. What we found sends a warning signal to all meme stock investors: online chatter pushes prices up but can’t save investors when asset values start to collapse.</p>
<p>Our analysis showed that online discussions – or “net sentiments”, as shown in the chart below – on r/WallStreetBets helped to initiate GameStop’s price growth and caused a spike in trading volumes during the bullish market for this stock when the hype was high.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing trading volumes for GameStop stock (blue) and online discussion of the stock (red)." src="https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=423&fit=crop&dpr=1 600w, https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=423&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=423&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=532&fit=crop&dpr=1 754w, https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=532&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/484082/original/file-20220912-14-rurrnp.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=532&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Online discussion of GameStop by investors versus trading volume (data taken at 30 minute intervals) in January and February 2021.</span>
<span class="attribution"><span class="source">Author's chart using data from Bloomberg and Reddit.</span></span>
</figcaption>
</figure>
<p>But we found that positive comments by people on Reddit could not prevent GameStop from falling when people started selling. In early February 2021, online sentiment was growing, that is, there were more positive comments about GameStop than negative on r/WallStreetBets, even as investor returns for GameStop stock (recorded at 30-minute intervals for our research) kept falling and trading volume decreased.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing returns (blue & red) and online discussion (green) about GameStock shares." src="https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=381&fit=crop&dpr=1 600w, https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=381&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=381&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=479&fit=crop&dpr=1 754w, https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=479&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/484080/original/file-20220912-6431-mvs4db.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=479&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Online discussion of GameStop versus investment returns for the stock taken at 30 minute intervals.</span>
<span class="attribution"><span class="source">Author's own chart using data from Bloomberg and Reddit.</span></span>
</figcaption>
</figure>
<p>Investors should learn a lesson from the GameStop story. When online commenters are trying to hype a stock, they will often add hashtags such as “to the moon” and HODL (a misspelling of “Hold” – as in hold the stock rather than sell – that has become an acronym for <a href="https://www.investopedia.com/terms/h/hodl.asp#:%7E:text=HODL%20is%20an%20acronym%20for,user%20on%20an%20online%20forum.">hold on for dear life</a> in the online trading world). But if the price starts falling, it does not matter how many of these hashtags are in the comments on a subreddit, our research shows the wider market reaction to the price decline will outweigh any encouragement made on investment forums. </p>
<h2>Don’t believe the hype</h2>
<p>Social media often feeds <a href="https://sdg.com/webinars/overconfidence-confirmation-bias-business-decisions/#:%7E:text=Confirmation%20bias%2C%20where%20we%20tend,cause%20of%20many%20decision%20failures.">both overconfidence and confirmation biases</a> – probably the most common <a href="https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/behavioral-finance/">cognitive biases</a> in business and finance. When reading investment forums, amateur investors are often searching for confirmation of their own decision to invest in a meme stock. These investors then often simply feed each other’s biases by sharing information that confirms this desirable outcome.</p>
<p>And there is even more risk involved in investing in cryptocurrencies versus equities. Crypto markets <a href="https://cointelegraph.com/news/a-brief-history-of-bitcoin-crashes-and-bear-markets-2009-2022">are volatile</a> and lack sufficient regulation to make them more stable. The recent <a href="https://www.ft.com/content/5a3b6fe9-329c-4c97-9f2b-3b00edeb0618">collapse of Terra Luna </a>, for example, saw individual investors <a href="https://www.theguardian.com/technology/2022/jul/12/they-couldnt-even-scream-any-more-they-were-just-sobbing-the-amateur-investors-ruined-by-the-crypto-crash">lose their savings</a> after investing in the algorithmic stablecoin. </p>
<p>With inflation climbing amid an energy and cost of living crisis, the cryptocurrency market has struggled to recover quickly from its most recent collapse, with the market leader <a href="https://www.ft.com/content/14cfb2cb-79f4-4ef9-ad08-11264175ed9f">Bitcoin losing 70% of its value since November 2021</a>. But even these factors have not deterred amateur investors from seeking returns in crypto markets. </p>
<p>Aside from waiting for governments to tighten crypto regulation – as is planned in <a href="https://www.ft.com/content/7cf1f46b-00b3-4af8-997a-90efb72bfb02">Singapore</a>, for example – there are a few steps that retail investors can take to protect themselves from meme-stock mania. </p>
<p><strong>1. Beware when something sounds too good to be true</strong></p>
<p>If an asset or stablecoin claims to be low risk, but investors are bragging about enormous returns made in no time, this is a red flag. Such claims are usually too good to be true, since there are no risk-free assets that can offer high returns. Investors should check the yields of <a href="https://www.cnbc.com/quotes/US3M">the US three-month Treasury bills</a> to shape their expectations of potential low-risk returns. </p>
<p><strong>2. Carefully consider a range of information</strong></p>
<p>It does not help to read ten articles that support your own opinion and quickly scan through headlines that suggest the alternative. Consumers have learned to be more wary about promises of unrealistic and scientifically impossible results for all kinds of products – a similar precaution should apply to investments.</p>
<p><strong>3. Pay attention to sources</strong></p>
<p>If an article or analyst’s opinion has been sponsored by a crypto firm or exchange, this information is the same as any other paid-for advertisement. Investment forums and social media are not trustworthy sources of investment tips either, they are full of bots and can be used as an inexpensive marketing tool for crypto firms looking to manipulate the market. </p>
<p>As shown by <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3822315">recent research</a> on GameStop, social media is very effective at sparking extreme rallies in a meme stock, but it does not protect retail investors when the price drops back to its fair value.</p><img src="https://counter.theconversation.com/content/190118/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Larisa Yarovaya does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Meme stock investing might seem like a fun game, but the risks are real.Larisa Yarovaya, Deputy Head of the Centre for Digital Finance, Associate Professor in Finance, University of SouthamptonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1864462022-07-24T12:29:02Z2022-07-24T12:29:02ZInvesting in crypto-assets: How to limit the risk of being exposed to fraud<figure><img src="https://images.theconversation.com/files/472877/original/file-20220706-16-xsnd5q.jpg?ixlib=rb-1.1.0&rect=23%2C0%2C5185%2C3467&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Peter Thiel, co-founder of PayPal and Palantir, delivers a keynote speech at the Bitcoin Conference in April in Miami Beach, Fla.</span> <span class="attribution"><span class="source">(AP Photo/Rebecca Blackwell)</span></span></figcaption></figure><p>In 2017, thousands of investors in over 175 countries found themselves with empty pockets after having invested nearly US$4 billion in a cryptocurrency called “OneCoin”. The mastermind behind the project, <a href="https://www.bbc.com/news/stories-50435014">Ruja Ignatova</a>, vanished with what is believed to be the entire amount missing.</p>
<p>This news item struck a nerve in the cryptocurrency world. The BBC even <a href="https://www.bbc.co.uk/programmes/p07nkd84/episodes/downloads">devoted a podcast</a> to it. And while this case was one of large-scale fraud, the fact remains that fraudulent schemes are frequent in the world of crypto-assets, which includes cryptocurrencies (such as Bitcoin) and non-fungible tokens (NFTs). Possession of these tokens grants investors rights that can take different forms (either access to a good — like a work of art — a service or something similar to owning a stock).</p>
<p>I have been interested in the study of fraud for many years, first in my professional practice as an auditor and forensic accountant, then as a researcher. I am primarily interested in the factors that lead to fraud, as well as the indicators and impacts of fraud. More recently, my interest has focused on fraud related to crypto-assets, since these new technologies carry new risks and limitations that both users/investors and regulators face.</p>
<h2>An alarming amount of fraud</h2>
<p>A 2018 report from a crypto-asset firm estimates that nearly 80 per cent of all initial coin offerings (ICOs) launched in 2017 — such as the issuance of new cryptocurrencies — <a href="https://research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU0gDgFQ">were fraudulent</a>. Of course, it is not possible to accurately measure the number of frauds that occur each year, not least of all because most are not reported to the relevant authorities. However, this alarming figure should still raise questions for potential investors about how to manage the risks they are taking.</p>
<p>It should be noted that crypto-assets are subject to little or no regulation around the world. Regulatory bodies such as Québec’s <a href="https://lautorite.qc.ca/en/professionals/fintech-financial-technology/how-the-amf-supports-innovative-firms/legislative-guidance">Autorité des marchés financiers</a> and the <a href="https://www.sec.gov/">Security and Exchange Commission</a> in the United States, have been working on the subject for some time now, but regulation in certain areas is lagging. One reason for this is the <a href="https://www.newyorker.com/business/currency/the-challenges-of-regulating-cryptocurrency">decentralized and borderless nature of these investments</a>, which makes the development and enforcement of laws and regulations particularly difficult.</p>
<h2>Traditional indicators of fraud</h2>
<p>Investing in crypto-assets falls under the purview of finance technology, commonly referred to as <a href="https://bootcamp.cvn.columbia.edu/blog/what-is-fintech">FinTech</a>. The tools for investing in FinTech diverge significantly from those of traditional finance. Investors in FinTech are often driven by the search for quick gains, bordering on speculation.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="woman outside OneCoin office" src="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469572/original/file-20220617-16-h26kyk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A woman walks past the office of cryptocurrency OneCoin, founded by Ruja Ignatova, which defrauded investors of billions of dollars.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>The fact remains that signals of fraud — which have existed for a very long time in traditional finance, such as stock market investments — are also present in FinTech. One only has to think of promises of incredible returns, far beyond what regulated markets are generating. Or the pressure some financial product promoters place on investors to act quickly, which pushes investors to place their money without taking time to think through their decision.</p>
<p>This urgency is felt particularly by investors when a promoter plays on their fears of missing an incredible investment opportunity, thereby inciting them to put their money down quickly in order to beat others to the chase. A parallel could be drawn with promotions for products in stores that sell at cut-rate prices, while claiming that quantities are limited. However, in the case of investing, this often turns out to be a fraudulent scheme rather than an attractive opportunity.</p>
<h2>Explanatory documents, not regulatory documents</h2>
<p>The technological aspect of crypto-assets means that new indicators of fraud have emerged in its wake. Since these differ from what investors are used to hearing from those responsible for informing them about risks — including investment advisors — it is very important that investors pay close attention to the projects in which they are considering investing. </p>
<p>Indeed, the absence (or near absence) of regulation means that, for the time being, investors are solely responsible for protecting themselves against the fraudulent schemes that are rife in the industry. Some investment funds offer <a href="https://www.investopedia.com/investing/understanding-cryptocurrency-etfs/">cryptocurrency exchange-traded funds</a>. But the fact remains that these investments carry a <a href="https://www.forbes.com/sites/nicolelapin/2021/12/23/explaining-cryptos-volatility/?sh=fa2e1247b543">risk of volatility</a>.</p>
<p>As in the case of a traditional investment, the teams behind the ICO publish what is called a <a href="https://coinmarketcap.com/alexandria/glossary/whitepaper">“white paper”</a>. Similar to a prospectus for a public offering — when a company raises additional funds through a stock offering, for example — this document provides the potential investor with a wealth of information about the proposed project. Among other things, it explains how the project works and who the team is behind it.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Close-up photo of gold bitcoin, ethereum and litecoin coins lying on U.S. currency paper and white keyboard" src="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/469573/original/file-20220617-19-sgjb45.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The ease of investing, coupled with sweeping advertising (especially on social media such as Facebook), means that people are often enticed to invest in crypto-assets.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>However, the similarities with prospectuses end there because, unlike the latter, white papers are not regulated. An issuer can therefore show what it wants, and conversely, omit information that could prove useful to a potential investor. </p>
<p>It is important to note that for most projects, anyone can issue a white paper. But regulators strongly recommend that the entity in question be registered, not only to build confidence with potential investors, but more importantly, to ensure that the rules in place are being followed.</p>
<h2>New signals of fraud</h2>
<p>There are new signals of fraud that are unique to crypto-assets. We have seen white papers containing elements that contradict each other, incongruities or even errors in the name of a company behind a project. Some white papers are copied from other projects and quickly revised, leaving behind typos. It should be noted that as a general rule, an ICO is a unique project and a copy usually signals a fraudulent project.</p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/17JEm8lVL_s?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">An advertisement from the Autorité des marchés financiers, which aims to raise awareness of the risks associated with crypto-assets.</span></figcaption>
</figure>
<p>Another indicator of potential fraud is a white paper in which certain passages are too complex to be easily read. This should prompt the potential investor to question the seriousness of the project. The primary purpose of a white paper is to inform an investor, so abstruse language should never be used for projects being presented as coherent.</p>
<p>What’s more, because of the technological complexity of the work involved, the team behind the project is especially essential to its success. So if the project documentation does not include a description of the team, whether in the white paper or on its web site, this absence should raise questions in an investor’s mind. </p>
<p>For that matter, it is usually quite easy to get in touch with the team behind an ICO in order to ask questions or obtain additional information about the project, which is not the case in traditional finance. If a potential investor cannot get in touch with the team, again, there is reason to question the seriousness of the project.</p>
<p>Encountering any of the signals of fraud discussed above does not necessarily mean that a project is fraudulent. However, recognizing these signals will make an investor better equipped to manage the fraud-related investment risks that are particularly prevalent in the crypto-asset ecosystem.</p><img src="https://counter.theconversation.com/content/186446/count.gif" alt="La Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Annie Lecompte has received funding from the Quebec CPA Foundation.</span></em></p>The craze for crypto-currencies continues to grow. However, the environment is risky for investors, not only in terms of volatility, but also because of fraud.Annie Lecompte, Professeure - Certification, Université du Québec à Montréal (UQAM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1853712022-07-07T12:17:06Z2022-07-07T12:17:06ZSEC’s climate disclosure plan could be in trouble after a recent Supreme Court ruling, but a bigger question looms: Does disclosure work?<figure><img src="https://images.theconversation.com/files/472722/original/file-20220706-17-k7yyb3.jpg?ixlib=rb-1.1.0&rect=0%2C72%2C5404%2C3519&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Factories can be large sources of greenhouse gas emissions.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/factory-at-sunset-in-cleveland-ohio-news-photo/144078373"> Joe Sohm/Visions of America/Universal Images Group via Getty Images</a></span></figcaption></figure><p>The U.S. Securities and Exchange Commission is <a href="https://theconversation.com/sec-proposes-far-reaching-climate-disclosure-rules-for-companies-heres-where-the-rules-may-be-vulnerable-to-legal-challenges-179534">considering requiring</a> publicly traded U.S. companies to disclose the climate-related risks they face. Republican state officials, emboldened by a <a href="https://supreme.justia.com/cases/federal/us/597/20-1530/">recent Supreme Court ruling</a>, are <a href="https://www.eenews.net/articles/up-next-west-virginia-ag-targets-sec-climate-proposal/">already threatening to sue</a>, claiming regulators don’t have the authority.</p>
<p>While the debate heats up, what’s surprisingly missing is a discussion about whether disclosures actually influence corporate behavior.</p>
<p>An underlying premise of financial disclosures is that <a href="https://www.anderson.ucla.edu/sites/default/files/documents/areas/fac/dotm/Papers/Blanco%20Caro%20Corbett%20BusHor%202017%20An%20inside%20perspective%20on%20carbon%20disclosure.pdf">what gets measured is more likely to be managed</a>. But do corporations that disclose climate change information actually reduce their carbon footprints?</p>
<p>I’m a professor of economics and public policy, and my research shows that while carbon disclosure encourages some improvement, it is <a href="https://doi.org/10.1142/S2010007822500038">not enough by itself</a> to ensure that companies’ greenhouse gas emissions fall. Worse still, some companies use it to obfuscate and enable <a href="https://doi.org/10.1177/1086026615575332">greenwashing</a> – false or misleading advertising claiming a company is more environmentally or socially responsible than it really is.</p>
<p>I believe the SEC has an unprecedented opportunity to design a program that is greenwashing-resistant.</p>
<h2>Disclosure doesn’t always mean less carbon</h2>
<p>Although <a href="https://www.gsb.stanford.edu/faculty-research/publications/impact-carbon-disclosure-mandates-emissions-financial-operating">carbon disclosure</a> is often held up as an indicator of corporate social responsibility, the data tells a more nuanced story.</p>
<p>I investigated the carbon disclosures made by nearly 600 companies that were listed in the S&P 500 index at least once between 2011 and 2016. The <a href="https://www.cdp.net/en">disclosures were made to CDP</a>, formerly the Carbon Disclosure Project, a nonprofit organization that surveys companies and governments about their carbon emissions and management. More than half of all S&P 500 firms respond to its requests for information.</p>
<p>At first glance, one might think that a mandated, unified framework for reporting companies’ climate management and risk data and their greenhouse gas emissions, such as the one <a href="https://www.sec.gov/news/press-release/2022-46">proposed by the SEC</a>, is likely to lead to more efficient use of fossil fuels, lowering emissions as the economy grows. </p>
<p>I did find that companies that have proactively disclosed their emissions to CDP on average reduced their entitywide carbon emissions intensity by at least one measure: <a href="https://doi.org/10.1142/S2010007822500038">carbon emissions per capita of full-time employees</a>. This means that as a company increases in size, it is estimated to reduce its carbon footprint on a per-employee basis. This does not, however, necessarily translate to a reduction in a company’s overall carbon emissions. Much of the decline involved large emissions-intensive companies, <a href="https://www.nrdc.org/experts/ben-longstreth/pepco-advances-climate-action-dc">such as utilities</a>, that were trying to get ahead of expected climate regulations. </p>
<p><iframe id="Tfeup" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Tfeup/10/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Companies that received a “<a href="https://guidance.cdp.net/en/guidance?cid=8&ctype=theme&idtype=ThemeID&incchild=1&micro-site=0&otype=ScoringMethodology&tags=TAG-599%2CTAG-605%2CTAG-646">B” grade</a> from CDP <a href="https://doi.org/10.1142/S2010007822500038">increased their entitywide carbon emissions</a> on average over that time. Notably, those in the financial, health care and other consumer-oriented sectors that did not experience the same level of regulatory pressure as greenhouse gas-intensive firms led the increase.</p>
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<p>About a quarter of the S&P 500 companies that completed <a href="https://guidance.cdp.net/en/guidance?cid=18&ctype=theme&idtype=ThemeID&incchild=1&microsite=0&otype=Questionnaire&tags=TAG-646,TAG-605,TAG-600">CDP’s annual climate change survey</a> undertook assessments of their business impacts on the environment and integrated climate risk management into their business strategy. Yet entitywide emissions still increased.</p>
<p>Earlier research found similar results in the first decade of the U.S. Department of Energy’s Voluntary Greenhouse Gas Registry. Overall, it found that participating in the registry had <a href="https://doi.org/10.1016/j.jeem.2010.11.001">no significant effect</a> on the companies’ carbon emissions intensity, but that many of the companies, by being selective in what they reported, reported emissions reductions.</p>
<p>Another study, which focused on the <a href="https://doi.org/10.1007/s10640-012-9568-0">power sector’s participation</a> in CDP’s surveys, found an increase in carbon intensity.</p>
<h2>‘A-List’ may not be exempt from greenwashing</h2>
<p>Even companies that made CDP’s coveted “<a href="https://www.cdp.net/en/companies/companies-scores">A-List</a>” of climate leaders may not necessarily be free of greenwashing.</p>
<p>A company earns an “A” grade when it <a href="https://www.cdp.net/en/companies/companies-scores">has met criteria</a> of disclosure, awareness, management and leadership, including adopting global <a href="https://www.cdp.net/en/guidance/guidance-for-companies/organizational-guide-for-environmental-action">best practices</a>, such as a <a href="https://sciencebasedtargets.org/">science-based emissions target</a>, regardless of whether these practices translate into improved environmental performance.</p>
<p>Because CDP grades companies based on sustainability outputs rather than outcomes, an “A-list” company could be “carbon neutral” when it counts only the facilities it owns and <a href="https://www.wired.co.uk/article/corporate-greenwashing">not the factories that make its products</a>. Moreover, a company that has earned an “A” could commit to removing all emitted carbon but maintain partnerships with oil and gas companies to “<a href="https://www.chron.com/business/energy/article/Schlumberger-Chevron-and-Microsoft-launch-14445539.php">generate new exploration opportunities</a>”.</p>
<figure class="align-center ">
<img alt="An illustration of buildings with symbols of sustainability above each." src="https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=349&fit=crop&dpr=1 600w, https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=349&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=349&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=438&fit=crop&dpr=1 754w, https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=438&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/472724/original/file-20220706-26-2j27q7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=438&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Companies often define sustainability in different ways to suit their needs.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/eco-technology-or-environmental-concept-royalty-free-illustration/1339858537">Narongrit Doungmanee via Getty Images</a></span>
</figcaption>
</figure>
<p>Retail and apparel giants Walmart, Target and Nike – all in the “B” to “A-minus” range in recent years – offer an example of the challenge. </p>
<p>They regularly disclose their carbon management plans and emissions to CDP. But they are also part of the industry-led <a href="https://apparelcoalition.org/brands-retailers/">Sustainable Apparel Coalition</a>, which has <a href="https://www.nytimes.com/2022/06/12/climate/vegan-leather-synthetics-fashion-industry.html?searchResultPosition=1">controversially</a> portrayed petroleum-based synthetics as the most sustainable choice above natural fibers in the <a href="https://apparelcoalition.org/the-higg-index/">Higgs Index</a>, a supply chain measurement tool that some clothing companies use to show a social and environmental footprint to consumers. Walmart <a href="https://www.ftc.gov/business-guidance/blog/2022/04/55-million-total-ftc-settlements-kohls-and-walmart-challenge-bamboo-and-eco-claims-shed-light">has been sued</a> by the <a href="https://consumer.ftc.gov/articles/eco-friendly-green-marketing-claims">Federal Trade Commission</a> over products described as bamboo and “eco-friendly and sustainable” that were made from rayon, a semi-synthetic fiber <a href="https://idoc.pub/documents/rayon-manufacturing-processpdf-19n0r6ozpknv">made using toxic chemicals</a>.</p>
<h2>Designing a greenwashing-resistant disclosure program</h2>
<p>I see three key ways for <a href="https://www.sec.gov/news/press-release/2022-46">the SEC</a> to design a climate disclosure program that is greenwashing-resistant.</p>
<p>First, misinformation or disinformation about <a href="https://www.ft.com/content/5812ab1f-c2d4-4681-a6be-45f0befd92df">ESG</a> – environmental, social and governance factors – can be minimized if companies are given clear guidelines on what constitutes a low-carbon initiative.</p>
<p>Second, companies can be required to benchmark their emission targets based on historical emissions, undergo independent audits and report concrete changes.</p>
<p>It’s important to clearly define “carbon footprint” so these metrics are comparable among companies and over time. For example, there are <a href="https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance">different types of emissions</a>: Scope 1 emissions are the direct emissions coming out of a firm’s chimneys and tailpipes. Scope 2 emissions are associated with the power a company consumes. Scope 3 is harder to measure – it includes emissions in a company’s supply chain and through the use of its products, such as gasoline used in cars. It reflects the <a href="https://www.resources.org/special-series-sec/indirect-emissions-disclosures-are-important-but-tricky/">complexity of the modern supply chain</a>.</p>
<p>Finally, companies could be asked to disclose a <a href="https://climateaction.unfccc.int/Actors">fixed deadline for phasing out fossil fuel assets</a>. This will better ensure that pledges translate into concrete actions in a timely and transparent manner.</p>
<p>Ultimately, investors and financial markets need accurate and verifiable information to assess their investments’ future risk and determine for themselves whether <a href="https://www.pledgetonetzero.org/">net-zero pledges</a> made by companies are credible.</p>
<p>There is now momentum across the globe to hold companies accountable for their emissions and climate pledges. <a href="https://www.resources.org/special-series-sec/international-context-of-the-proposed-climate-disclosure-rule-from-the-us-securities-and-exchange-commission/">Disclosure rules</a> have been introduced in the <a href="https://www.gov.uk/government/news/uk-to-enshrine-mandatory-climate-disclosures-for-largest-companies-in-law">United Kingdom</a>, <a href="https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/corporate-disclosure-climate-related-information_en">European Union</a> and <a href="https://environment.govt.nz/what-government-is-doing/areas-of-work/climate-change/mandatory-climate-related-financial-disclosures/">New Zealand</a>, and in Asian business hubs like <a href="https://www.reuters.com/business/sustainable-business/singapore-exchange-mandates-climate-board-diversity-disclosures-2021-12-15/">Singapore</a> and <a href="https://www.channelnewsasia.com/asia/hong-kong-climate-change-disclosure-rules-global-standard-1340256">Hong Kong</a>. When countries have similar <a href="https://www.sciencedirect.com/science/article/pii/S0959652622021679?casa_token=8djSoDlmEWcAAAAA:t3zmENuJimB7p2MEdTpxmY3AuT5i-bq77Grx7Xgl1Gqkkyykdh_0maSjKO3vPnDAg4NUvTiKZw">policies</a>, allowing for consistency, comparability and verifiability, there will be fewer opportunities for loopholes and
exploitation, and I believe our climate and economy will be better for it.</p><img src="https://counter.theconversation.com/content/185371/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lily Hsueh does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A review of S&P 500 companies finds carbon disclosure doesn’t necessarily mean emissions fall.Lily Hsueh, Associate Professor of Economics and Public Policy, Arizona State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1825332022-06-10T14:59:31Z2022-06-10T14:59:31ZSustainable investment: is it worth the hype? Here’s what you need to know<figure><img src="https://images.theconversation.com/files/463994/original/file-20220518-15-g1re07.jpg?ixlib=rb-1.1.0&rect=0%2C7%2C5120%2C2866&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Socially responsible investing is becoming more popular.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/young-woman-home-sitting-on-couch-2068039649">Shutterstock</a></span></figcaption></figure><p>Supposedly sustainable investment funds make a staggering list of promises, including higher returns, lower risk, combatting climate change and even supporting diversity. And many believe them: investments in ESG (<a href="https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp">environmental, social and governance</a>) funds are on track to pass <a href="https://www.bloomberg.com/company/press/esg-may-surpass-41-trillion-assets-in-2022-but-not-without-challenges-finds-bloomberg-intelligence/">£34 trillion</a> by the end of 2022, nearly double their £18.4 trillion in 2016. </p>
<p>But sustainable investing has also attracted strong criticism. Former BlackRock sustainable investing chief Tariq Fancy labelled ESG a “<a href="https://medium.com/@sosofancy/the-secret-diary-of-a-sustainable-investor-part-1-70b6987fa139">dangerous placebo</a>”, and the Wall Street Journal has published a week-long series of rebuttals to the trend, with their <a href="https://www.wsj.com/articles/why-the-sustainable-investment-craze-is-flawed-11642865789">opening piece</a> entitled “Why the Sustainable Investment Craze is Flawed.”</p>
<p>Whatever side you’re on, you have incentives to make your claims extreme. Asset managers promising that their ESG funds will save the world see new business flooding in, and are heralded as saviours of capitalism. Critics have similarly become famous by ordaining themselves as whistleblowers who’ve uncovered a financial scandal. </p>
<p>If you’re a first-time investor trying to decide where to put your money, it can be hard to know who to believe. So if we strip back the hyperbole and examine the evidence, is sustainable investing worth the hype? To answer that, we’ll consider the three objectives that investors have when buying ESG funds.</p>
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<img alt="Quarter life, a series by The Conversation" src="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/451343/original/file-20220310-13-1bj6csd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em><strong><a href="https://theconversation.com/uk/topics/quarter-life-117947?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">This article is part of Quarter Life</a></strong>, a series about issues affecting those of us in our twenties and thirties. From the challenges of beginning a career and taking care of our mental health, to the excitement of starting a family, adopting a pet or just making friends as an adult. The articles in this series explore the questions and bring answers as we navigate this turbulent period of life.</em></p>
<p><em>You may be interested in:</em></p>
<p><em><a href="https://theconversation.com/five-must-read-novels-on-the-environment-and-climate-crisis-139437.com?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Five must-read novels on the environment and climate crisis</a></em></p>
<p><em><a href="https://theconversation.com/what-karl-marx-has-to-say-about-todays-environmental-problems-97479.com?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">What Karl Marx has to say about today’s environmental problems</a></em></p>
<p><em><a href="https://theconversation.com/why-your-reusable-coffee-cup-may-be-no-better-than-a-disposable-120949.com?utm_source=TCUK&utm_medium=linkback&utm_campaign=UK+YP2022&utm_content=InArticleTop">Why your reusable coffee cup may be no better than a disposable</a></em></p>
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<h2>Does sustainable investment make more money?</h2>
<p>The first objective is, unsurprisingly, financial. By investing in sustainable companies, you’ll increase your returns, and by shunning unsustainable ones, you’ll reduce risk. Industries like electric cars are the <a href="https://theconversation.com/can-a-future-ban-on-gas-powered-cars-work-an-economist-explains-150590">future of transport</a>, while dumping fossil fuel companies means you’re immune to a <a href="https://theconversation.com/new-eu-carbon-tax-wrong-rate-could-wreck-net-zero-goals-but-right-rate-can-help-worlds-poor-161463">carbon tax</a>. </p>
<p>There’s evidence that certain dimensions of ESG pay off. One of <a href="https://hbr.org/2016/03/28-years-of-stock-market-data-shows-a-link-between-employee-satisfaction-and-long-term-value">my studies</a> finds that companies with high employee satisfaction, a “social” dimension, deliver shareholder returns that beat their peers by 2.3%-3.8% per year over a 28-year period. Other research finds higher returns for companies with superior <a href="https://www.apm.org.uk/resources/what-is-project-management/what-is-governance">governance</a> and those that link CEO pay to <a href="https://alexedmans.com/blog/executive-pay/higher-stock-returns-when-ceos-own-more-shares/">performance</a>. </p>
<p>But ESG is plagued by <a href="https://theconversation.com/confirmation-bias-a-psychological-phenomenon-that-helps-explain-why-pundits-got-it-wrong-68781">confirmation bias</a>. Since we want to believe that ethical companies perform better, we latch onto studies that assert this, even if the evidence isn’t that strong. </p>
<p>This highlights how the financial case for sustainability hinges on which ESG dimensions you consider. Every day, attention-grabbing articles <a href="https://hbr.org/2022/04/yes-investing-in-esg-pays-off">insist</a> that “investing in ESG pays off”. But to argue about whether ESG helps or hinders returns is as fruitless as asking whether food is good or bad for you – it depends on the food. </p>
<h2>Does sustainable investment change company behaviour?</h2>
<p>The second objective is the fund’s impact on company behaviour. <a href="https://gofossilfree.org/divestment/what-is-fossil-fuel-divestment/">Divestment campaigns</a> aim to encourage shareholders to sell the stock of certain companies and deter new investors from buying it. By <a href="https://theconversation.com/fossil-fuel-divestment-will-increase-carbon-emissions-not-lower-them-heres-why-126392">divesting</a> (say) fossil fuel companies, the argument goes, we deprive them of capital and stop them creating more pollution. </p>
<p>But investor boycotts don’t starve a company of funds, because you can only sell if someone else buys. They’re very different from <a href="https://theconversation.com/how-one-woman-pulled-off-the-first-consumer-boycott-and-helped-inspire-the-british-to-abolish-slavery-140313">customer boycotts</a>, which do strip a company of revenue.</p>
<p>Perhaps divestment doesn’t pull the plug on a company immediately, but doesn’t it make it harder for it to sell shares in the future? Not necessarily. <a href="https://www.climate-transparency.org/wp-content/uploads/2017/07/Brown-to-Green-Report-2017_web.pdf">“Brown” companies</a> like fossil fuels and tobacco aren’t raising much capital to begin with – they’re in yesterday’s industries with few growth opportunities. And evidence suggests that the cost of raising capital has <a href="https://protect-eu.mimecast.com/s/Rtx8C9p13TN1LmGUEy-3B?domain=nber.org">little effect</a> on company expansion. </p>
<figure class="align-center ">
<img alt="Protest signs against fossil fuels cover a red pylon" src="https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/463295/original/file-20220516-11-2zzqx9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Consumer anger at fossil fuel exploitation is growing.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/takver/23569605421">John Englart/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>The stock price might matter for many other reasons than the cost of capital. Even if a company isn’t raising capital, a low price worsens the CEO’s reputation and demotivates employees. But if so, my <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4093518">research</a> suggests that the best strategy is actually tilting (leaning away from a “brown” sector but still being willing to own companies leading on ESG in that sector), not exclusion (shunning that industry outright). </p>
<p>If a fossil fuel company knows it will be divested whatever it does, there’s no incentive for it to develop <a href="https://theconversation.com/these-energy-innovations-could-transform-how-we-mitigate-climate-change-and-save-money-in-the-process-5-essential-reads-180076">clean energy</a>. But if its shares will be bought if it’s leading its sector in sustainability, this motivates it to clean up its act by investing more heavily in cutting emissions. </p>
<p>Many accuse ESG funds with stakes in brown industries of hypocrisy, and praise those that won’t touch a troubled sector like oil, but the reality is far more nuanced. And owning brown companies is the only way to hold them to account. The investment firm Engine No. 1 famously got three climate-friendly directors <a href="https://www.nytimes.com/2021/06/09/business/exxon-mobil-engine-no1-activist.html">appointed</a> to Exxon’s board because it held shares in the company. </p>
<p>Claiming you’re a true sustainable investor because you only invest in green companies is arguably like a doctor crowing that all her patients are healthy – when it’s a doctor’s job to treat the sick.</p>
<h2>Is sustainable investment the right thing to do?</h2>
<p>The final motive is moral: you believe it’s morally right to invest in certain companies. For example, even if diverse firms don’t perform better, it’s reasonable to invest in them as an <a href="https://medium.com/@alex.edmans/is-there-really-a-business-case-for-diversity-c58ef67ebffa">expression</a> of your values. </p>
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<img alt="Three people of colour sit at a table, with one person speaking" src="https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/463291/original/file-20220516-24-m1srgf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Diversity is a dimension of ESG.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/wocintechchat/25721113570">WOC In Tech Chat/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<p>But identifying “moral” companies is difficult, because many key dimensions of morality are difficult to observe. A company could put minorities on its board to check the diversity box, but <a href="https://www.forbes.com/sites/danabrownlee/2019/09/15/the-dangers-of-mistaking-diversity-for-inclusion-in-the-workplace/?sh=7f7ea8744d86">do nothing</a> to create an inclusive culture.</p>
<p>So is sustainable investing worth the hype? It does have the potential to improve performance, but only if you focus on particular dimensions. It can change company behaviour, but through tilting and engagement rather than exclusion. ESG is neither the panacea that advocates allege, nor the scandal that detractors declare. But shades of grey get lost in the shadows if we only look for black and white.</p><img src="https://counter.theconversation.com/content/182533/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Edmans does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Environmental, social and governance investment funds claim to help save the planet and better society, but the reality is more complex.Alex Edmans, Professor of Finance, London Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1837062022-05-26T15:01:29Z2022-05-26T15:01:29ZWho really owns the oil industry’s future stranded assets? If you own investment funds or expect a pension, it might be you<figure><img src="https://images.theconversation.com/files/465531/original/file-20220526-13-wdtgf0.jpg?ixlib=rb-1.1.0&rect=170%2C0%2C5038%2C3368&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More countries are discouraging fossil fuel use, but the industry is still pumping.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/an-off-shore-oil-platform-off-the-coast-in-huntington-beach-news-photo/1217468918">Leonard Ortiz/MediaNews Group/Orange County Register via Getty Images</a></span></figcaption></figure><p>When an oil company invests in an expensive new drilling project today, it’s taking a gamble. Even if the new well is a success, future government policies designed to slow climate change could make the project unprofitable or force it to shut down years earlier than planned.</p>
<p>When that happens, the well and the oil become what’s known as <a href="https://www.lloyds.com/strandedassets">stranded assets</a>. That might sound like the oil company’s problem, but the company isn’t the only one taking that risk.</p>
<p>In a <a href="https://www.nature.com/articles/s41558-022-01356-y">study published May 26, 2022</a>, in the journal Nature Climate Change, <a href="https://scholar.google.com/citations?user=9xh8Po0AAAAJ&hl=en">we</a> <a href="https://scholar.google.com/citations?user=1gais1MAAAAJ&hl=en">traced</a> the ownership of over 43,000 oil and gas assets to reveal who ultimately loses from misguided investments that become stranded.</p>
<p>It turns out, private individuals own over half the assets at risk, and ordinary people with pensions and savings that are invested in managed funds shoulder a surprisingly large part, which could exceed a quarter of all losses.</p>
<h2>More climate regulations are coming</h2>
<p>In 2015, almost every country worldwide signed the <a href="https://www.un.org/en/climatechange/paris-agreement">Paris climate agreement</a>, committing to try to hold global warming to well under 2 degrees Celsius (3.6 F) compared to pre-industrial averages. Rising global temperatures were already contributing to <a href="https://theconversation.com/heat-waves-hit-the-poor-hardest-a-new-study-calculates-the-rising-impact-on-those-least-able-to-adapt-to-the-warming-climate-175224">deadly heat waves</a> and <a href="https://theconversation.com/climate-change-and-wildfires-how-do-we-know-if-there-is-a-link-101304">worsening wildfires</a>. Studies showed the <a href="https://www.ipcc.ch/">hazards would increase</a> as greenhouse gas emissions, primarily from fossil fuel use, continue to rise.</p>
<p>It’s clear that meeting the Paris goals will <a href="https://www.iea.org/reports/net-zero-by-2050">require a global energy transition</a> away from fossil fuels. And many countries are developing climate policies designed to encourage that shift to cleaner energy. </p>
<p>But the oil industry is still launching new fossil fuel projects, which suggests that it doesn’t think it will be on the hook for future stranded assets. U.N. Secretary-General António Guterres called a <a href="https://www.euronews.com/green/2022/04/10/seven-new-oil-and-gas-projects-approved-since-ipcc-report-called-for-an-end-to-fossil-fuel">recent wave of new oil and gas projects</a> “<a href="https://www.un.org/press/en/2022/sgsm21228.doc.htm">moral and economic madness</a>.”</p>
<figure class="align-center ">
<img alt="Teenagers play in the water of the Caspian sea - one young man is flipping another, with several Soviet oil rigs behind them." src="https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&rect=0%2C19%2C4387%2C2946&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/465401/original/file-20220525-12-1uqbl2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Much of the stranded asset risk falls on individuals.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/teenagers-from-a-boxing-school-take-part-in-a-training-news-photo/478734696">Kirill Kudryavtsev/AFP via Getty</a></span>
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<h2>How risk flows from oil field to small investor</h2>
<p>When an asset becomes stranded, the owner’s anticipated payoff won’t materialize. </p>
<p>For example, say an oil company buys drilling rights, does the exploration work and builds an offshore oil platform. Then it discovers that demand for its product has declined so much because of climate change policies that it would cost more to extract the oil than the oil could be sold for.</p>
<p>The oil company is owned by shareholders. Some of those shareholders are individuals. Others are companies that are in turn owned by their own shareholders. The lost profits are ultimately felt by those remote owners.</p>
<p>In the study, we modeled how demand for fossil fuels could decline if governments make good on their recent emissions reduction pledges and what that would mean for stranded assets. We found that <a href="https://www.nature.com/articles/s41558-022-01356-y">$1.4 trillion in oil and gas assets</a> globally would be at risk of becoming stranded.</p>
<p>Stranded assets mean a wealth loss for the owners of the assets. We traced the losses from the oil and gas fields, through the extraction companies, on to those companies’ immediate shareholders and fundholders, and again their shareholders and fundholders if the immediate shareholders are companies, and all the way to people and governments that own stock in the companies in this chain of ownership. </p>
<p><iframe id="gQHve" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/gQHve/15/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>It’s a complex network.</p>
<p>On their way to ultimate owners, much of the loss passes through financial firms, including pension funds. Globally, pension funds that invest their members’ savings directly into other companies own <a href="https://www.ft.com/content/435a9384-8711-4b99-95a8-d55e962343c6">a sizable amount</a> of those future stranded assets. In addition, many <a href="https://www.investopedia.com/terms/d/definedcontributionplan.asp">defined contribution pensions</a> have investments through fund managers, such as BlackRock or Vanguard, that invest on their behalf.</p>
<p>We estimate that total global losses hitting the financial sector – including through cross-ownership of one financial firm by another – from stranded assets in oil and gas production could be as high as $681 billion. Of this, about $371 billion would be held by fund managers, $146 billion by other financial firms and $164 billion could even affect bondholders, often pension funds, whose collateral would be diminished.</p>
<p><iframe id="gnS6j" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/gnS6j/8/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>U.S. owners have by far the largest exposure. Ultimately, we found that losses of up to $362 billion could be distributed through the financial system to U.S. investors.</p>
<p>Some of the assets and companies in an ownership chain are also overseas, which can make the exposure to risk for a fund owner even more difficult to track.</p>
<h2>Someone will get stuck with those assets</h2>
<p>Our estimates are based on a snapshot of recent global share ownership. At the moment, with <a href="https://money.com/gas-prices-near-record-high-2022/">oil</a> and <a href="https://www.reuters.com/markets/commodities/europe-asia-gas-buyers-switching-long-term-supplies-beat-volatile-prices-2022-05-25/">gas</a> prices near record highs due to supply chain problems and the Russian war in Ukraine, oil and gas companies are paying splendid dividends. And in principle, every shareholder could sell off their holdings in the near future.</p>
<p>But that does not mean the risk disappears: Someone else buys that stock.</p>
<p>Ultimately, it’s like a game of musical chairs. When the music stops, someone will be left with the stranded asset. And since the most affluent investors have sophisticated investment teams, they may be best placed to get out in time, leaving less sophisticated investors and defined contribution pension plans to join the oil and gas field workers as losers, while the managers of the oil companies unfold their golden parachutes.</p>
<p>Alternatively, powerful investors could successfully lobby for compensation, as has happened repeatedly in the <a href="https://www.cga.ct.gov/PS98/rpt%5Colr%5Chtm/98-R-0392.htm">U.S.</a> and <a href="https://www.cleanenergywire.org/news/german-govt-adopts-coal-exit-fixes-hard-coal-compensation">Germany</a>. One argument would be that they couldn’t have anticipated the stricter climate laws when they invested, or they could point to governments asking companies to produce more in the short-term, as happened recently <a href="https://www.politico.com/news/2022/03/09/granholm-calls-oil-companies-increase-production-00015802">in the U.S.</a> to substitute for Russian supplies.</p>
<p>However, divesting right away or hoping for compensation aren’t the only options. Investors – the owners of the company – can also pressure companies to shift from fossil fuels to renewable energy generation or another choice with growth potential for the future.</p>
<p>Investors not only may have the financial risk, but also the related financial responsibility, and ethical choices may help preserve both the value of their investments and the climate.</p><img src="https://counter.theconversation.com/content/183706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gregor Semieniuk has previously received funding from the UK Research Councils and the ClimateWorks Foundation.</span></em></p><p class="fine-print"><em><span>Philip Holden has been funded through UK Research Councils, the European Commission and the Leverhulme Trust. </span></em></p>A study found $1.4 trillion in oil and gas industry assets would be at risk if governments follow through on their pledges to deal with climate change.Gregor Semieniuk, Assistant Research Professor of Economics, UMass AmherstPhilip Holden, Senior Lecturer in Earth System Science, The Open UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1837052022-05-24T18:58:08Z2022-05-24T18:58:08ZHow a sustainability index can keep Exxon but drop Tesla – and 3 ways to fix ESG ratings to meet investors’ expectations<figure><img src="https://images.theconversation.com/files/465092/original/file-20220524-13-6d13mw.jpg?ixlib=rb-1.1.0&rect=0%2C40%2C6720%2C4426&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Tesla CEO Elon Musk, shown at an electric vehicle factory, called ESG ratings 'a scam' after an index dropped Tesla. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/tesla-head-elon-musk-talks-to-the-press-as-he-arrives-to-to-news-photo/1270402341">Maja Hitij/Getty Images</a></span></figcaption></figure><p><em>A major stock index that tracks sustainable investments <a href="https://www.indexologyblog.com/2022/05/17/the-rebalancing-act-of-the-sp-500-esg-index/">dropped electric vehicle-maker Tesla</a> from its list in May 2022 – but it kept oil giant ExxonMobil. That move by the S&P 500 ESG Index has set off a roiling debate over the value of ESG ratings.</em> </p>
<p><em>ESG stands for environmental, social and governance, and ESG ratings are meant to gauge companies’ performance in those areas. <a href="https://www.bloomberg.com/company/press/esg-may-surpass-41-trillion-assets-in-2022-but-not-without-challenges-finds-bloomberg-intelligence/">About</a> <a href="https://www.ussif.org/files/Trends%20Report%202020%20Executive%20Summary.pdf">one-third</a> of all investments under management use ESG criteria, yet many environmental problems <a href="https://unfccc.int/blog/what-is-the-triple-planetary-crisis">continue to worsen</a>. Tesla CEO Elon Musk called the ratings “<a href="https://twitter.com/elonmusk/status/1526958110023245829">a scam</a>,” and the U.S. Securities and Exchange Commission proposed <a href="https://www.sec.gov/news/press-release/2022-92">new disclosure rules</a> for funds that market themselves as ESG-focused.</em></p>
<p><em>We asked <a href="https://scholar.google.com/citations?user=JwLkuSIAAAAJ&hl=en">Tom Lyon</a>, a business economics professor at the University of Michigan who studies sustainable investing, to explain what happened and how ESG ratings could be improved to better reflect investors’ expectations.</em></p>
<h2>How does a company like Tesla, which makes electric vehicles, get dropped from the S&P 500 ESG index while Exxon is still there?</h2>
<p><a href="https://www.sustainability.com/thinking/rate-the-raters-2020/">ESG ratings agencies</a> typically rate companies against others within their industry, so oil and gas companies are rated separately from automotive companies or technology companies. Exxon stacks up fairly well relative to others in the oil and gas category on many measures. But if you compared Exxon to, say, Apple, Exxon would look terrible on its total greenhouse gas emissions.</p>
<p>Tesla may rate well on many environmental factors, but social and governance factors have been dragging the company down. <a href="https://www.indexologyblog.com/2022/05/17/the-rebalancing-act-of-the-sp-500-esg-index/">S&P listed allegations</a> of racial discrimination, poor working conditions at a Tesla factory and the company’s response to a federal safety investigation as reasons for dropping the company.</p>
<p>The way ESG criteria are measured also carries some biases. For example, the ratings consider a company’s direct greenhouse gas emissions <a href="https://theconversation.com/esg-investing-has-a-blind-spot-that-puts-the-35-trillion-industrys-sustainability-promises-in-doubt-supply-chains-170199">but not its Scope 3 emissions</a> – emissions from the use of its products. So Tesla doesn’t get as much credit as it might, and Exxon doesn’t get penalized as much as it might.</p>
<h2>What can be done to make ESG investments better reflect investors’ expectations?</h2>
<p>One strategy is for investment firms to <a href="https://www.trilliuminvest.com/esg/esg-integration-criteria">invest in a small number of carefully vetted companies</a> and then use their influence within those companies to monitor behavior and drive change.</p>
<p>Another is for raters to stop trying to aggregate all of the different measures into a single rating.</p>
<p>Investors concerned about ESG often value different objectives – one investor may really care about human rights in South America while another is focused on climate change. When ESG ratings try to force all of those objectives into a single number, they obscure the fact that there are trade-offs. </p>
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<p>ESG could be broken up so ratings instead focused on each piece individually. </p>
<p>Environmental issues tend to have a lot of available data, which make E the easiest category to rate in a consistent way. For example, scientific data is available on the increased health risks a person faces when exposed to benzene. The EPA’s <a href="https://www.epa.gov/toxics-release-inventory-tri-program">Toxic Release Inventory</a> shows <a href="https://enviro.epa.gov/triexplorer/chemical.html?pYear=2020&pLoc=0000071432&pParent=TRI&pDataSet=TRIQ1">how much benzene</a> various manufacturing facilities release. It’s then possible to create a toxicity-weighted exposure measure for benzene and other toxic chemicals. A similar measure can be created for air pollution.</p>
<p>Social issues and governance issues are much harder to aggregate up into single ratings. Within the G category, for example, how do you aggregate diversity in the board room with whether the CEO personally appointed all the board members? They are capturing fundamentally different things.</p>
<p>The SEC is considering a third strategy: <a href="https://www.natlawreview.com/article/sec-targeting-esg-investing-2022">enhancing disclosure requirements</a> so investors have access to better information about what is in their ESG portfolios. The SEC <a href="https://www.sec.gov/news/press-release/2022-92">proposed new reporting rules</a> for ESG funds and advisors on May 25, 2022, including proposing that some environment-focused funds be required to disclose the greenhouse gas emissions associated with the portfolio. </p>
<h2>What else do ESG ratings overlook?</h2>
<p>ESG ratings often omit important behaviors and choices. One that’s particularly important is <a href="https://doi.org/10.1177/0008125618778854">corporate political activity</a>. </p>
<p>A lot of companies like to <a href="https://doi.org/10.1177/1086026615575332">talk a green game</a>, but investors rarely know what these companies are doing behind the scenes politically. Anecdotally, there is evidence that many are actually <a href="http://doi.org/10.1073/pnas.1922175117">playing a fairly dirty game politically</a>. For example, a company might say it supports a carbon tax while <a href="https://www.opensecrets.org/industries/indus.php?Ind=E">donating to members of Congress</a> and <a href="https://oversight.house.gov/sites/democrats.oversight.house.gov/files/Analysis%20of%20the%20Fossil%20Fuel%20Industrys%20Legislative%20Lobbying%20and%20Capital%20Expenditures%20Related%20to%20Climate%20Change%20-%20Staff%20Memo%20%2810.28.21%29.pdf">lobbying groups</a> that oppose climate policies.</p>
<p>To me, that’s the most egregious failure in the ESG domain. But we don’t have the data to track this behavior adequately, since Congress has not required disclosure of all types of political spending, especially so-called “<a href="https://www.opensecrets.org/dark-money/basics">dark money</a>” from <a href="https://www.opensecrets.org/political-action-committees-pacs/super-pacs/2022">super PACs</a>. </p>
<p>A few organizations are gathering more detailed information on specific issues. <a href="https://influencemap.org/index.html">InfluenceMap</a>, for example, invests an enormous amount of time looking at companies’ annual reports, tax filings, press releases, advertisements and any information about lobbying and campaign spending to rate them. <a href="https://lobbymap.org/company/Exxon-Mobil">It gave ExxonMobil a grade of D-</a> for its political action on climate.</p>
<h2>What can investors looking for positive impact do if ESG ratings aren’t the answer?</h2>
<p>Investors can always take a more targeted approach and invest in specific categories that they believe will provide essential solutions for the future. For example, if climate change is their leading concern, that may mean investing in wind and solar power or electric vehicles.</p>
<p>ESG funds often claim that they outperform the market because companies with strong management in environment, social and governance areas tend to be better managed overall. And on average, firms <a href="https://doi.org/10.1016/j.jfineco.2015.12.003">with higher social performance</a> do have a <a href="https://doi.org/10.5465/amj.2011.0744">somewhat higher financial performance</a>. However, some insiders, like <a href="https://www.usatoday.com/story/opinion/2021/03/16/wall-street-esg-sustainable-investing-greenwashing-column/6948923002/">former Blackrock sustainable investment head Tariq Fancy</a>, argue that ESG portfolios today aren’t very different from non-ESG portfolios, and often hold almost all the same stocks.</p>
<p>There’s also a larger question in the background of all of this: Is investment pressure really what’s going to drive us toward a more sustainable future?</p>
<p>If you want to make a difference, consider spending time working with activist groups or <a href="https://doi.org/10.1016/j.oneear.2021.02.008">groups that support democracy</a>, because without public pressure and democracy, countries aren’t likely to make good environmental decisions.</p>
<p><em>This article was updated May 25, 2022, with the SEC proposing new disclosure rules.</em></p><img src="https://counter.theconversation.com/content/183705/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Lyon does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sustainable investing’s credibility took a hit when the S&P 500 ESG index dropped the electric vehicle-maker but kept the oil giant. The SEC is now considering new disclosure rules.Tom Lyon, Professor of Sustainable Science, Technology and Commerce and Business Economics, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1802862022-04-06T13:31:07Z2022-04-06T13:31:07ZIt’s time for the Canada Infrastructure Bank to reclaim its public purpose<figure><img src="https://images.theconversation.com/files/455875/original/file-20220401-27-4gl6l0.jpg?ixlib=rb-1.1.0&rect=6%2C0%2C4236%2C2830&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Canada Infrastructure Bank was founded in 2017 by the Liberal Party to support revenue-generating infrastructure projects through public-private partnerships.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>The <a href="https://cib-bic.ca/en/about-us/our-purpose/">Canada Infrastructure Bank</a> (CIB), a federal government financial institution, opened its doors five years ago with great promise, vowing to deploy $35 billion of investments towards “the next generation of infrastructure Canadians need.”</p>
<p>But rather than investing public money in public services, the CIB has instead <a href="https://doi.org/10.1080/07078552.2017.1343008">privatized our water, transportation and electricity</a>. For every dollar invested by the CIB, the hope was that<a href="https://globalnews.ca/news/3039197/liberals-announce-canada-infrastructure-bank-what-is-it-and-how-does-it-work/"> $4 to $5 would be invested by the private sector</a>.</p>
<p>This extraordinary leap of faith in private capital and market forces was baked into the <a href="https://www.laws-lois.justice.gc.ca/eng/acts/C-6.18/FullText.html">CIB Act:</a></p>
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<p>“The purpose of the Bank is to invest and seek to attract investment from private sector investors and institutional investors, in infrastructure projects in Canada or partly in Canada that will generate revenue.”</p>
</blockquote>
<p>Five years later, the CIB has not been able to deliver on its promise. Of the <a href="https://cib-bic.ca/en/">$19.4 billion invested to date</a>, only about one-third has come from private and institutional investors ($7.2 billion).</p>
<p>The <a href="https://www.pppcouncil.ca/web/P3_Knowledge_Centre/About_P3s/Definitions_Models.aspx">public-private partnership model (PPP)</a> promoted by the CIB has failed. Typically, PPPs involve long term contracts where public money supports private, for-profit delivery of public services and infrastructure. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/covid-19-illustrates-why-canada-needs-more-and-better-public-banks-154000">COVID-19 illustrates why Canada needs more — and better — public banks</a>
</strong>
</em>
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<p>In <a href="https://www.wellingtonadvertiser.com/mapleton-drops-plan-to-outsource-water-wastewater-infrastructure/">Mapleton, Ont.</a>, for example, the CIB aimed to funnel private investment into public water provisioning in a form of PPP. Local authorities pulled out when the contractual terms <a href="https://www.municipalservicesproject.org/sites/municipalservicesproject.org/files/publications/22.Canada.pdf">worked against the public good</a>, underscoring the <a href="https://www.eurodad.org/historyrepppeated">problems of PPPs</a> that have been well documented around the world.</p>
<h2>Safeguarding a public purpose legacy</h2>
<p>Not all public banks operate in this way. The <a href="https://coebank.org/en/project-financing/how-access-ceb-financing/">Council of Europe Development Bank</a>, for example, recognizes PPPs as inherently problematic, noting that they can “require extensive use of consultancy and legal services at considerable additional costs”. <a href="https://www.kbn.com/en/investor/">Kommunalbanken</a>, a Swedish public bank, focuses entirely on publicly owned and publicly operated infrastructure.</p>
<p>It’s not too late for the CIB to renew its vows and become a more pro-public institution. In fact, there are signs this is already happening. Some of the CIB’s investment partnerships include projects that promote <a href="https://cib-bic.ca/en/partnerships/">public-public partnerships</a> by funding public sector <a href="https://cib-bic.ca/en/medias/articles/the-canada-infrastructure-bank-invests-up-to-30-million-in-its-first-zero-emission-school-bus-project/">zero-emission buses</a> and <a href="https://cib-bic.ca/en/projects/green-infrastructure/city-of-edmonton-building-retrofits/">municipal building retrofits</a>. The CIB also funds public interest projects, like <a href="https://pm.gc.ca/en/news/news-releases/2021/07/05/new-investment-canadas-steel-industry-create-jobs-and-build-cleaner">decarbonizing production</a>.</p>
<p>But more needs to be done to remake and safeguard the CIB as a public bank with a public purpose. </p>
<p>First, it needs a far more robust sustainability mandate. If a project cannot demonstrate how it will reduce carbon emissions or protect the environment, it should not get funded. The publicly owned <a href="https://www.ucl.ac.uk/bartlett/public-purpose/publications/2021/sep/opinion-finnish-climate-fund-ilmastorahasto-strategy">Finnish Climate Fund</a> and the <a href="https://www.invest-nl.nl/?lang=en">Dutch Invest-NL</a> incorporate such binding conditions.</p>
<p>Second, the CIB needs to improve its governance. Current provisions for the <a href="https://cib-bic.ca/en/about-us/governance/">board of directors</a> are vague and subject to political cycles. The CIB Act fails to specify who is appointed on the board and on what representational basis.</p>
<figure class="align-center ">
<img alt="The corner of a building with KfW visible in blue letters" src="https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/455867/original/file-20220401-43826-t85rye.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">German bank Kreditanstalt für Wiederaufbau’s board of directors includes designated representatives from government, trade unions, municipalities and other key areas.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>A more robust governance framework would see broad stakeholder representation written in to the bank’s legal framework, much like <a href="https://www.kfw.de/kfw.de-2.html">the German public development bank, Kreditanstalt für Wiederaufbau</a>. Its highest governing forum, the <a href="https://www.kfw.de/About-KfW/Arbeitsweise-und-Unternehmensf%C3%BChrung/Verwaltungsrat-und-seine-Aussch%C3%BCsse/">Board of Supervisory Directors</a>, includes designated representatives from government, trade unions, municipalities and other key areas.</p>
<h2>Time for change</h2>
<p>The recent Private Member’s <a href="https://www.parl.ca/legisinfo/en/bill/44-1/c-245">Bill C-245</a>, intended to amend the CIB Act, is a step in the right direction. Put forward by Manitoba MP <a href="https://canadiandimension.com/articles/view/leveraging-public-ownership-in-the-fight-against-climate-change">Niki Ashton</a>, it is pitched as “an alternative to the Liberals’ privatization agenda that uses public ownership to support communities in the fight against climate change.” </p>
<p>It starts with jettisoning the CIB’s current emphasis on PPPs by having the CIB prioritize lending to all levels of public institutions, including northern and Indigenous communities. It is also a first step in improving governance by proposing the inclusion of First Nations, Inuit and Métis members on the board.</p>
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<p>Moreover, binding <a href="https://www.ohchr.org/sites/default/files/Documents/Issues/IPeoples/FreePriorandInformedConsent.pdf">free, prior and informed consent (FPIC) of Indigenous Peoples</a> needs to be one part of a broader strategy of public financial institutions in Canada contributing to reconciliation.</p>
<p>The CIB must also take leadership from the <a href="https://theconversation.com/costa-ricas-banco-popular-shows-how-banks-can-be-democratic-green-and-financially-sustainable-82401">Costa Rican Banco Popular</a> and commit to gender equity in all of its decision-making bodies. </p>
<p>The goal should be to foster inclusive, green and democratic networks that mutually reinforce the public purpose of the CIB. Recent scholarship suggests <a href="https://t.co/5Kkgtxo4Bt">democratization and inclusion</a> lead to public banks funding <a href="https://www.routledge.com/Development-Banks-and-Sustainability-in-the-Andean-Amazon/Ray-Gallagher-Sanborn/p/book/9781032087931">better and greener infrastructure with fewer social conflicts</a>.</p>
<h2>The five-year itch</h2>
<p>The notion of changing the CIB is within reach. This year, the CIB must conduct its first five-year review and deliver it to Parliament. </p>
<p>Canadians should be aware of this opportunity and communities across Canada should be engaged in it. <a href="https://cib-bic.ca/en/contact-us/">Ask the CIB</a> about its public consultation plans, reach out to MPs, see how <a href="https://cupe.ca/canada-infrastructure-bank-10-essential-questions-ask">unions</a> are responding and <a href="https://fcm.ca/en">encourage cities</a> to demand more of the CIB.</p>
<p>The CIB has failed on its own terms, presenting an opportunity to reclaim its public purpose. Rather than underwriting private interests and the privatization of public services, the CIB can build a democratic institutional legacy of providing patient, low-cost and appropriate financing for green and just community transitions in the public interest.</p><img src="https://counter.theconversation.com/content/180286/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rather than underwriting private interests and the privatization of public services, the Canada Infrastructure Bank can build a better democratic institutional legacy.Thomas Marois, Reader in Development Studies, SOAS, University of LondonDavid McDonald, Professor, Global Development Studies, Queen's University, OntarioSusan Spronk, Associate Professor of International Development and Global Studies, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1757172022-02-03T13:13:52Z2022-02-03T13:13:52ZWhy are people calling Bitcoin a religion?<figure><img src="https://images.theconversation.com/files/443516/original/file-20220131-124991-gt2h4m.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C5636%2C3463&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some Bitcoin evangelists see the currency as an answer to problems that plague society.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/the-social-solidarity-economy-messiah-royalty-free-illustration/1309244426?adppopup=true">mustafa akman/iStock via Getty Images</a></span></figcaption></figure><p>Read enough about Bitcoin, and you’ll inevitably come across people who refer to the cryptocurrency as a religion.</p>
<p>Bloomberg’s <a href="https://www.bloomberg.com/news/newsletters/2021-01-04/five-things-you-need-to-know-to-start-your-day">Lorcan Roche Kelly</a> called Bitcoin “the first true religion of the 21st century.” Bitcoin promoter <a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">Hass McCook</a> has taken to calling himself “The Friar” and wrote a series of Medium pieces comparing Bitcoin to a religion. There is a <a href="https://churchofbitcoin.org/">Church of Bitcoin</a>, founded in 2017, that explicitly calls legendary Bitcoin creator Satoshi Nakamoto its “prophet.”</p>
<p>In Austin, Texas, <a href="https://austonia.com/crypto-billboards-austin">there are billboards</a> with slogans like “Crypto Is Real” that weirdly mirror the ubiquitous <a href="https://cdn.christianaidministries.org/wp-content/uploads/2018/08/Houston-Texas.jpg">billboards about Jesus</a> found on Texas highways. Like many religions, Bitcoin even has <a href="https://www.vice.com/en/article/ne74nw/inside-the-world-of-the-bitcoin-carnivores%22%20%5Ct%20%22_blank">dietary restrictions</a> associated with it.</p>
<h2>Religion’s dirty secret</h2>
<p>So does Bitcoin’s having prophets, evangelists and dietary laws make it a religion or not?</p>
<p><a href="https://scholar.google.com/citations?user=4EKx-aoAAAAJ&hl=en">As a scholar of religion</a>, I think this is the wrong question to ask.</p>
<p>The dirty secret of religious studies is that there is no universal definition of what religion is. Traditions such as Christianity, Islam and Buddhism certainly exist and have similarities, but the idea that these are all examples of religion is relatively new.</p>
<p><a href="https://womrel.sitehost.iu.edu/Rel433%20Readings/SearchableTextFiles/Smith_ReligionReligionsReligious.pdf">The word “religion”</a> as it’s used today – a vague category that includes certain cultural ideas and practices related to God, the afterlife or morality – arose in Europe around the 16th century. Before this, many Europeans understood that there were only three types of people in the world: Christians, Jews and heathens. </p>
<p>This model shifted after the Protestant Reformation when a <a href="https://www.google.com/books/edition/Early_Modern_Europe/t6TXB9RbwbYC?hl=en&gbpv=0">long series of wars</a> began between Catholics and Protestants. These became known as “wars of religion,” and religion became a way of talking about differences between Christians. At the same time, Europeans were encountering other cultures through exploration and colonialism. Some of the traditions they encountered shared certain similarities to Christianity and were also deemed religions.</p>
<p>Non-European languages have historically not had a direct equivalent to the word “religion.” What has counted as religion has changed over the centuries, and there are always political interests at stake in determining whether or not something is a religion.</p>
<p>As religion scholar <a href="https://religion.ua.edu/wp-content/uploads/2017/05/mccutchmtsr2007.pdf">Russell McCutcheon</a> argues, “The interesting thing to study, then, is not what religion is or is not, but ‘the making of it’ process itself – whether that manufacturing activity takes place in a courtroom or is a claim made by a group about their own behaviors and institutions.”</p>
<h2>Critics highlight irrationality</h2>
<p>With this in mind, why would anyone claim that Bitcoin is a religion?</p>
<p>Some commentators seem to be making this claim to steer investors away from Bitcoin. Emerging market fund manager <a href="https://www.cnbc.com/2021/11/03/crypto-is-a-religion-not-an-investment-investor-mark-mobius-says.html">Mark Mobius</a>, in an attempt to tamp down enthusiasm about cryptocurrency, said that “crypto is a religion, not an investment.” </p>
<p>His statement, however, is an example of a <a href="https://owl.excelsior.edu/argument-and-critical-thinking/logical-fallacies/logical-fallacies-false-dilemma/">false dichotomy fallacy</a>, or the assumption that if something is one thing, it cannot be another. There is no reason that a religion cannot also be an investment, a political system or nearly anything else. </p>
<p>Mobius’ point, though, is that “religion,” like cryptocurrency, is irrational. This criticism of religion has been around since the Enlightenment, <a href="https://www.google.com/books/edition/Discovering_World_Religions_at_24_Frames/UVa2KtlPHocC?hl=en&gbpv=1">when Voltaire wrote</a>, “Nothing can be more contrary to religion and the clergy than reason and common sense.”</p>
<p>In this case, labeling Bitcoin a “religion” suggests that bitcoin investors are fanatics and not making rational choices.</p>
<h2>Bitcoin as good and wholesome</h2>
<p>On the other hand, some Bitcoin proponents have leaned into the religion label. McCook’s articles use the language of religion to highlight certain aspects of Bitcoin culture and to normalize them. </p>
<p>For example, “<a href="https://www.nasdaq.com/articles/stacking-sats%3A-how-small-weekly-investments-can-offer-decent-returns-2021-03-30">stacking sats</a>” – the practice of regularly buying small fractions of bitcoins – sounds weird. But McCook refers to this practice as a religious ritual, and more specifically as “<a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">tithing</a>.” Many churches practice tithing, in which members make regular donations to support their church. So this comparison makes sat stacking seem more familiar.</p>
<p>While for some people religion may be associated with the irrational, it is also associated with what religion scholar <a href="https://bulletin.equinoxpub.com/2013/11/why-atheism-matters/">Doug Cowan</a> calls “the good, moral and decent fallacy.” That is, some people often assume if something is really a religion, it must represent something good. People who “stack sats” might sound weird. But people who “tithe” could sound principled and wholesome.</p>
<figure class="align-center ">
<img alt="Hands emerging from clouds holding a bitcoin token." src="https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/443521/original/file-20220131-23-y42jyq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Associating Bitcoin with religion could add a sheen of morality.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/illustration/funny-cartoon-modern-illustration-on-bitcoin-royalty-free-illustration/1346610226?adppopup=true">Takoyaki Tech/Getty Images</a></span>
</figcaption>
</figure>
<h2>Using religion as a framework</h2>
<p>For religion scholars, categorizing something as a religion can pave the way for new insights.</p>
<p>As religion scholar <a href="https://womrel.sitehost.iu.edu/Rel433%20Readings/SearchableTextFiles/Smith_ReligionReligionsReligious.pdf">J.Z. Smith writes</a>, “‘Religion’ is not a native term; it is created by scholars for their intellectual purposes and therefore is theirs to define.” For Smith, categorizing certain traditions or cultural institutions as religions creates a comparative framework that will hopefully result in some new understanding. With this in mind, comparing Bitcoin to a tradition like Christianity may cause people to notice things that they didn’t before.</p>
<p>For example, many religions were founded by <a href="https://www.baylorisr.org/wp-content/uploads/2019/10/Charismatic-Leadership.pdf">charismatic leaders</a>. Charismatic authority does not come from any government office or tradition but solely from the relationship between a leader and their followers. Charismatic leaders are seen by their followers as superhuman or at least extraordinary. Because this relationship is precarious, leaders often remain aloof to keep followers from seeing them as ordinary human beings. </p>
<p>Several commentators have noted that Bitcoin inventor Satoshi Nakamoto resembles a sort of prophet. Nakamoto’s true identity – or whether Nakamoto is actually a team of people – <a href="https://www.cnbc.com/2017/10/27/bitcoins-origin-story-remains-shrouded-in-mystery-heres-why-it-matters.html">remains a mystery</a>. But the intrigue surrounding this figure is a source of charisma with consequences for bitcoin’s economic value. Many who invest in bitcoin do so in part because they regard Nakamoto as a genius and an economic rebel. In Budapest, artists even erected a <a href="https://www.euronews.com/next/2021/09/17/hungary-s-bitcoin-fans-unveil-faceless-statue-of-mysterious-crypto-founder-satoshi-nakamot">bronze statue</a> as a tribute to Nakamoto.</p>
<figure class="align-center ">
<img alt="Bust with gold face wearing a hooded sweatshirt." src="https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=482&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=482&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=482&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=606&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=606&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444106/original/file-20220202-27-1tmt84n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=606&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A bust of Satoshi Nakamoto in Budapest, Hungary.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Bust_of_Satoshi_Nakamoto_in_Budapest.jpg">Fekist/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>There’s also a connection between Bitcoin and <a href="https://oxfordre.com/religion/view/10.1093/acrefore/9780199340378.001.0001/acrefore-9780199340378-e-125">millennialism</a>, or the belief in a coming collective salvation for a select group of people. </p>
<p>In Christianity, millennial expectations involve the return of Jesus and the final judgment of the living and the dead. Some Bitcoiners believe in an inevitable coming “<a href="https://medium.com/the-bitcoin-times/the-passion-of-the-believers-bf26f3b46315">hyperbitcoinization</a>” in which bitcoin will be the only valid currency. When this happens, the “Bitcoin believers” who invested will be justified, while the “no coiners” who shunned cryptocurrency will lose everything.</p>
<h2>A path to salvation</h2>
<p>Finally, some Bitcoiners view bitcoin as not just a way to make money, but as the answer to all of humanity’s problems.</p>
<p>“Because the root cause of all of our problems is basically money printing and capital misallocation as a result of that,” <a href="https://cointelegraph.com/magazine/2021/07/29/is-bitcoin-a-religion-if-not-it-soon-will-be">McCook argues</a>, “the only way the whales are going to be saved, or the trees are going to be saved, or the kids are going to be saved, is if we just stop the degeneracy.”</p>
<p>[<em>Explore the intersection of faith, politics, arts and culture.</em> <a href="https://theconversation.com/us/newsletters/this-week-in-religion-76/?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=religion-explore">Sign up for This Week in Religion.</a>]</p>
<p>This attitude may be the most significant point of comparison with religious traditions. In his book “<a href="https://www.amazon.com/God-Not-One-World-Differences-ebook/dp/B003F1WMAC/ref=sr_1_1?keywords=prothero+god+is+not+one&qid=1643235046&sprefix=Prothero+god+%2Caps%2C99&sr=8-1">God Is Not One</a>,” religion professor <a href="https://www.bu.edu/religion/people/faculty/bios/prothero/">Stephen Prothero</a> highlights the distinctiveness of world religions using a four-point model, in which each tradition identifies a unique problem with the human condition, posits a solution, offers specific practices to achieve the solution and puts forth exemplars to model that path.</p>
<p>This model can be applied to Bitcoin: The problem is fiat currency, the solution is Bitcoin, and the practices include encouraging others to invest, “stacking sats” and “<a href="https://www.investopedia.com/terms/h/hodl.asp">hodling</a>” – refusing to sell bitcoin to keep its value up. The exemplars include Satoshi and other figures involved in the creation of blockchain technology.</p>
<p>So does this comparison prove that Bitcoin is a religion? </p>
<p>Not necessarily, because theologians, sociologists and legal theorists have many different <a href="https://www2.kenyon.edu/Depts/Religion/Fac/Adler/Reln101/definitions.pdf">definitions of religion</a>, all of which are more or less useful depending on what the definition is being used for. </p>
<p>However, this comparison may help people understand why Bitcoin has become so attractive to so many people, in ways that would not be possible if Bitcoin were approached as a purely economic phenomenon.</p><img src="https://counter.theconversation.com/content/175717/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joseph P. Laycock does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>With mantras, a mysterious founder and promises of societal salvation, there are echoes of religious traditions in the cryptocurrency.Joseph P. Laycock, Assistant Professor of Religious Studies, Texas State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1701992021-11-09T19:40:31Z2021-11-09T19:40:31ZESG investing has a blind spot that puts the $35 trillion industry’s sustainability promises in doubt: Supply chains<figure><img src="https://images.theconversation.com/files/431157/original/file-20211109-23-l1r5vy.jpg?ixlib=rb-1.1.0&rect=0%2C44%2C7337%2C4858&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Environmental, social and governance problems in a company's supply chain can be hard for investors to track.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/container-cargo-port-ship-yard-storage-handling-of-royalty-free-image/1300225698">KDP via Getty Images</a></span></figcaption></figure><p>If you own stocks, chances are good you have heard the term <a href="https://theconversation.com/us/topics/esg-88758">ESG</a>. It stands for environmental, social and governance, and it’s a way to laud corporate leaders who take sustainability – including climate change – and social responsibility seriously, and punish those who do not.</p>
<p>In less than two decades since a <a href="https://www.unepfi.org/fileadmin/documents/freshfields_legal_resp_20051123.pdf">United Nations report</a> drew attention to the concept, ESG investing has evolved into a <a href="https://www.bloomberg.com/news/articles/2021-09-29/-wild-west-of-esg-ripe-for-a-crackdown-veteran-investor-says">US$35 trillion industry</a>. Money managers overseeing <a href="https://www.ussif.org/files/Trends%20Report%202020%20Executive%20Summary.pdf">one-third of total U.S. assets under management said they used ESG criteria in 2020</a>, and by 2025 global assets managed in portfolios labeled “ESG” are expected to reach <a href="https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/">$53 trillion</a>.</p>
<p>These investments have gained momentum in part because they cater to investors’ growing desire to have a positive impact on society. By quantifying a company’s actions and outcomes on environmental, social and governance issues, ESG measures offer investors a way to make informed trading decisions. </p>
<p>However, investors’ trust in ESG funds may be misplaced. As scholars in the field of <a href="https://carey.jhu.edu/faculty/faculty-directory/tinglong-dai-phd">supply chain management</a> and <a href="https://scholar.google.com/citations?user=Kk-QbksAAAAJ&hl=en">sustainable operations</a>, we see a major flaw in how rating agencies, such as Bloomberg, MSCI and Sustainalytics, are measuring companies’ ESG risk: the performance of their supply chains.</p>
<p><iframe id="b0h1v" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/b0h1v/7/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<h2>The problem with ignoring supply chains</h2>
<p>Nearly every company’s operations are backed by a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3593540">global supply chain</a> that consists of workers, information and resources. To accurately measure a company’s ESG risks, its end-to-end supply chain operations must be considered.</p>
<p>Our <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3939968">recent examination</a> of ESG measures shows that most ESG rating agencies do not measure companies’ ESG performance from the lens of the global supply chains supporting their operations. </p>
<p>For example, Bloomberg’s <a href="https://www.oecd.org/finance/ESG-Investing-Practices-Progress-Challenges.pdf">ESG measure</a> lists “supply chain” as an item under the “S” (social) pillar. By this measure, supply chains are treated separately from other items, such as carbon emissions, climate change effects, pollutants, and human rights. This means all those items, if not captured in the ambiguous “supply chain” metric, reflect each company’s own actions but not their supply chain partners’. </p>
<p>Even when companies collect their suppliers’ performance, “selective reporting” can arise because there is no unified reporting standard. One recent study found that companies tend to report environmentally responsible suppliers and conceal “bad” suppliers, <a href="http://dx.doi.org/10.2139/ssrn.3700310">effectively “greenwashing” their supply chain</a>.</p>
<p>Carbon emissions are another example. Many companies, such as <a href="https://www.bloomberg.com/news/features/2021-07-13/why-former-executives-warn-of-false-gains-in-esg-frenzy">Timberland</a>, have claimed great successes in reducing emissions from their own operations. Yet the emissions from their supply chain partners and customers, known as “<a href="https://www.msci.com/www/blog-posts/scope-3-carbon-emissions-seeing/02092372761">Scope 3 emissions</a>,” may remain high. ESG rating agencies have not been able to adequately include Scope 3 emissions because of a <a href="https://www.scoperatings.com/#!search/research/detail/166389EN">lack of data</a>: Only 19% of companies in the manufacturing industry and 22% in the service industry disclose this data.</p>
<p>More broadly, without accounting for a company’s entire supply chain, ESG measures fail to reflect global supply chain networks that today’s big and small companies alike depend on for their day-to-day operations.</p>
<h2>Amazon and the third-party-supplier problem</h2>
<p>Amazon, for example, is among ESG funds’ <a href="https://ssir.org/articles/entry/the_world_may_be_better_off_without_esg_investing">largest</a> and <a href="https://www.ft.com/content/9e3e1d8b-bf9f-4d8c-baee-0b25c3113319">favorite</a> holdings. As a company <a href="https://www.businessinsider.com/amazon-bigger-than-walmart-overall-sales-2021-8">bigger</a> than Walmart in terms of annual sales, Amazon has reported emissions from shipping that are only <a href="https://www.businessinsider.com/walmart-target-amazon-among-biggest-maritime-polluters-overseas-shipping-impact-report-2021-7">one-seventh</a> of Walmart’s. But when researchers for two advocacy groups reviewed public data on imports, they found only about <a href="https://www.pacificenvironment.org/wp-content/uploads/2021/07/SIZ_Shady-Ships-Report.pdf">15% of Amazon’s ocean shipments</a> could be tracked. </p>
<p>In addition, Amazon’s figure does not reflect emissions generated by its many third-party sellers and their suppliers who operate outside the U.S. This difference matters: Whereas Walmart’s supply chain relies on a centralized procurement strategy, Amazon’s supply chain is highly decentralized – <a href="https://www.statista.com/statistics/259782/third-party-seller-share-of-amazon-platform/">a large percentage</a> of its revenue comes from third-party suppliers, about <a href="https://www.barrons.com/articles/safety-first-for-online-markets-or-customers-may-shop-elsewhere-51598370480">40%</a> of which sell directly from China, which further complicates emissions tracking and reporting.</p>
<figure class="align-center ">
<img alt="Looking down on a worker at a computer in a large warehouse" src="https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431156/original/file-20211109-19-503xf3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Retailers are skilled at tracking supply chain goods once they arrive, but the impact those goods may already have had on the climate and workers in other countries is often overlooked.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/top-view-of-warehouse-worker-using-laptop-to-check-royalty-free-image/1324728773">Kmatta via Getty Images</a></span>
</figcaption>
</figure>
<p>Another important ESG metric concerns consumer protection. Amazon prides itself as “<a href="https://www.aboutamazon.com/about-us">Earth’s most customer-centric company</a>.” However, when its customers have been injured by products sold by third-party sellers on its platform, Amazon has <a href="https://static.reuters.com/resources/media/editorial/20200924/bolgervamazon--appellopinion.pdf">argued that</a> it should not be held liable for the damage, because it functions as an “online marketplace” matching buyers and sellers. Amazon’s foreign third-party sellers are <a href="https://www.jdsupra.com/legalnews/is-amazon-liable-for-third-party-9783896/">often not subject to U.S. jurisdiction</a> so <a href="https://www.barrons.com/articles/safety-first-for-online-markets-or-customers-may-shop-elsewhere-51598370480">can’t be held accountable</a>.</p>
<p>Yet major ESG rating agencies do not appear to reflect the supply chain implication on customer protection when measuring Amazon supply chain performance. </p>
<p>For example, in 2020, <a href="https://www.msci.com/our-solutions/esg-investing/esg-ratings/esg-ratings-corporate-search-tool/issuer/amazoncom-inc/IID000000002157075">MSCI</a>, the largest ESG ratings agency, upgraded Amazon’s ESG rating from BB to BBB, reflecting its strength in areas such as <a href="https://www.fool.com/investing/stock-market/types-of-stocks/esg-investing/esg-rating/">corporate governance and data security</a>, despite its <a href="https://www.modernretail.co/platforms/amazon-briefing-why-amazons-product-liability-risk-is-growing/">consumer liability risk</a>. </p>
<p>These gaps are also concerns for ratings of companies such as <a href="https://fortune.com/2020/07/25/ppe-supply-chain-national-security/">3M</a>, <a href="https://greenalphaadvisors.com/the-s-in-esg-moderna-vs-exxonmobil/">ExxonMobil</a> and <a href="https://www.forbes.com/sites/timabansal/2021/05/13/how-green-is-tesla-really/?sh=5676ee9b1576">Tesla</a>.</p>
<h2>Other countries are adding pressure</h2>
<p>Currently there is no unified reporting standard, so different companies may cherry-pick certain ESG performance measures to report to boost their sustainability and social ratings. </p>
<p>To improve consistency, the next step would be for ESG rating agencies to redesign their methodology to take into account what may be environmentally harmful and unethical operations across the entire global supply chain. ESG rating agencies could, for example, create incentives for companies to collect and disclose their supply chain partners’ activities, such as Scope 3 emissions. </p>
<p>In June 2021, the German Parliament passed the <a href="https://www.loc.gov/item/global-legal-monitor/2021-08-17/germany-new-law-obligates-companies-to-establish-due-diligence-procedures-in-global-supply-chains-to-safeguard-human-rights-and-the-environment/">Supply Chain Due Diligence Act</a>, which will become effective in 2023. Under this new law, large companies based in Germany will be responsible for social and environmental issues arising from their global supply chain networks.</p>
<p>This includes prohibitions on child labor and forced labor, and attention to occupational health and safety throughout the entire supply chain. Those who violate the law face a <a href="https://www.loc.gov/item/global-legal-monitor/2021-08-17/germany-new-law-obligates-companies-to-establish-due-diligence-procedures-in-global-supply-chains-to-safeguard-human-rights-and-the-environment/">fine of up to 2%</a> of their annual revenues.</p>
<p>The European Union’s new <a href="https://www.spglobal.com/marketintelligence/en/news-insights/blog/what-is-the-impact-of-the-eu-sustainable-finance-disclosure-regulation-sfdr">Sustainable Finance Disclosure Regulation</a>, which went into effect in March 2021, adds pressure in a different way. It requires funds to report details on how they integrate ESG characteristics into their investment decisions. That has led <a href="http://bloomberg.com/news/articles/2021-09-29/fund-managers-start-axing-esg-buzzword-as-greenwash-rules-bite">some money managers to drop the phrase</a> “ESG integrated” from some of their assets, Bloomberg reported.</p>
<p>Without similar laws in the U.S., we believe ESG rating agencies could fill an important gap. To be sure, surveying a company’s entire supply chain’s ESG performance is far more complex. Yet by tying all the ESG dimensions to a company’s supply chain end-to-end operations, rating agencies can nudge corporate leaders to be responsible for actions across their supply chains that would otherwise be kept in the dark.</p>
<p>[<em>Over 115,000 readers rely on The Conversation’s newsletter to understand the world.</em> <a href="https://theconversation.com/us/newsletters/the-daily-newsletter-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=100Ksignup">Sign up today</a>.]</p><img src="https://counter.theconversation.com/content/170199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christopher S. Tang has been a consultant to Amazon, HP, IBM, Nestlé (USA), GKN (UK) and Accenture.</span></em></p><p class="fine-print"><em><span>Tinglong Dai does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Two supply chain experts see a major flaw in how ratings agencies measure companies’ environmental, social and governance performance.Tinglong Dai, Professor of Operations Management & Business Analytics, Carey Business School, Johns Hopkins UniversityChristopher S. Tang, Professor of Supply Chain Management, University of California, Los AngelesLicensed as Creative Commons – attribution, no derivatives.