No matter where you look, climate change is at the centre of every conversation.
With a wide range of global sustainability challenges and complex risks on the rise, investors are starting to re-evaluate traditional portfolio approaches.
The ESG Boom
Today, many investors want their money to align with a higher purpose beyond profit. This infographic from iShares unpacks the prolific rise of sustainable investing, and how its trillion-dollar potential is sweeping across the world.
What is Sustainable Investing?
Sustainable investing considers environmental, social, and governance (ESG) factors that create a lasting, positive impact on the world. As the term ‘ESG’ suggests, its scope goes well beyond environmental concerns alone. Examples include:
- Environmental: Climate risks, resource scarcity, and clean energy
- Social: Diversity, human rights, and cybersecurity
- Governance: Business ethics, transparency, and anti-corruption
Simply put, it’s a force for good.
Although sustainable investing emerged in the 1970s, the movement has gained impressive traction in the last few years.
How Global Assets are Growing
Since 2012, total assets in sustainable investing have more than doubled:
|Region||2012 Assets||2018 Assets|
|Total||$13.3 trillion||$30.7 trillion|
|Europe||$8.8 trillion||$14.1 trillion|
|U.S.||$3.7 trillion||$12.0 trillion|
|Japan||$0.01 trillion||$2.2 trillion|
|Canada||$0.59 trillion||$1.7 trillion|
|Australia and New Zealand||$0.18 trillion||$0.7 trillion|
The U.S. and Europe are major players in this shift. In particular, specific legislation across European countries will continue driving ESG investment for years to come.
The European ESG Landscape
Across major economies in Europe, cultural shifts and new regulations are shaping the landscape of sustainable investing.
- The UK has an ambitious net-zero greenhouse gas emissions target by 2050.
Result: Most sectors will significantly ramp up their decarbonisation efforts to meet this goal.
- As per France’s Article 173 (Energy Transition Law), investors must explain how they incorporate ESG factors into their investment strategies.
Result: A majority of French institutional investors now manage their assets with ESG criteria in mind.
- Nordic countries consider sustainability and social responsibility a cornerstone of their cultural mindset.
Result: Nordic investors are increasingly integrating all three ESG aspects into their investments.
If Europe’s trajectory is any indication, sustainable investing will soon become second nature in other parts of the world too.
No Industry is Untouched
The rise of sustainable investing is a global phenomenon, and reaches a myriad of industries.
Here is a summary of just a few ESG efforts of some of the world’s most sustainable corporations:
|Chr. Hansen A/S||Bioscience||🇩🇰 Denmark||• 100% green operations commitment by Apr 2020
• 82% of revenue directly supports UN Global Goals
|Autodesk||Software||🇺🇸 U.S.||• 100% renewable energy-run cloud services and offices
• 44% women on the Board
|Banco do Brazil||Finance||🇧🇷 Brazil||• $51 billion earmarked for green economy spending
• 99% adherence to Code of Ethics and Conduct Standards
|City Developments Ltd||Real Estate||🇸🇬 Singapore||• S$100 million fully-allocated Green Bond
• 59% carbon emissions reduction target by 2030
The business world agrees: sustainable investing is smart investing.
How Can Investors Think Sustainably?
Many investment products allow investors to easily access sustainable investing, such as exchange-traded funds (ETFs) and index funds. These provide complete transparency—allowing investors to align their approach with the objectives that matter most to them.
Investors are able to:
- Screen out companies involved in controversial businesses
- Invest in companies with high ESG standards
- Advocate for specific issues like climate change
Not only this, but sustainable investing also has the potential to improve portfolio returns. In a 2015 paper covering ESG investing since the 1970s, 90% of ESG investing matched or overperformed traditional approaches.
The Bottom Line
Investors see a triple bottom line from sustainable investing: strong financial returns, and a lasting impact on both people and the planet.
As sustainable investing goes mainstream, it won’t simply act as a niche in a broader strategy—instead, it’ll be naturally integrated throughout a portfolio.
“With the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.
—Larry Fink, BlackRock Chairman and CEO
Sustainability is a global force that will continue to factor into everyday decisions.
Soon, sustainable investing will simply be considered “investing”.
The Anatomy of the $2 Trillion COVID-19 Stimulus Bill
A visual breakdown of the CARES Act, the $2 trillion package to provide COVID-19 economic relief. It’s the largest stimulus bill in modern history.
The Anatomy of the $2 Trillion COVID-19 Stimulus Bill
The unprecedented response to the COVID-19 pandemic has prioritized keeping people apart to slow the spread of the virus. While measures such as business closures and travel restrictions are effective at fighting a pandemic, they also have a dramatic impact on the economy.
To help right the ship, the Coronavirus Aid, Relief, and Economic Security Act — also known as the CARES Act — was passed by U.S. lawmakers last week with little fanfare. The act became the largest economic stimulus bill in modern history, more than doubling the stimulus act passed in 2009 during the Financial Crisis.
Today’s Sankey diagram is a visual representation of where the $2 trillion will be spent. Broadly speaking, there are five components to the COVID-19 stimulus bill:
|Category||Total Amount||Share of the Package|
|Individuals / Families||$603.7 billion||30%|
|Big Business||$500.0 billion||25%|
|Small Business||$377.0 billion||19%|
|State and Local Government||$340.0 billion||17%|
|Public Services||$179.5 billion||9%|
Although the COVID-19 stimulus bill is incredibly complex, here are some of the most important parts to be aware of.
Funds for Individuals
Amount: $603.7 billion – 30% of total CARES Act
In order to stimulate the sputtering economy quickly, the U.S. government will deploy “helicopter money” — direct cash payments to individuals and families.
The centerpiece of this plan is a $1,200 direct payment for those earning up to $75,000 per year. For higher earners, payment amounts will phase out, ending altogether at the $99,000 income level. Families will also receive $500 per child.
There are three other key things to know about this portion of the stimulus funds:
- There will be a temporary suspension for any student loan held by the federal government. This means no payments required and no interest accrued until the end of September, 2020.
- Borrowers with federally backed loans can request forbearance on mortgage payments for up to six months.
- There will be an expansion of unemployment benefits, including a four-month enhancement of benefits. This plan includes freelancers, workers in the gig economy, and furloughed employees.
Amount: $500.0 billion – 25% of total CARES Act
This component of the package is aimed at stabilizing big businesses in hard-hit sectors.
The most obvious industry to receive support will be the airlines. About $58 billion has been earmarked for commercial and cargo airlines, as well as airline contractors. Perhaps in response to recent criticism of the industry, companies receiving stimulus money will be barred from engaging in stock buybacks for the term of the loan plus one year.
One interesting pathway highlighted by today’s Sankey diagram is the $17 billion allocated to “maintaining national security”. While this provision doesn’t mention any specific company by name, the primary recipient is believed to be Boeing.
The bill also indicates that an inspector general will oversee the recovery process, along with a special committee.
Amount: $377.0 billion – 19% of total CARES Act
To ease the strain on businesses around the country, the Small Business Administration (SBA) will be given $350 billion to provide loans of up to $10 million to qualifying organizations. These funds can be used for mission critical activities, such as paying rent or keeping employees on the payroll during COVID-19 closures.
As well, the bill sets aside $10 billion in grants for small businesses that need help covering short-term operating costs.
State and Local Governments
Amount: $340.0 billion – 17% of total CARES Act
The biggest portion of funds going to local and state governments is the $274 billion allocated towards direct COVID-19 response. The rest of the funds in this component will go to schools and child care services.
Public and Health Services
Amount: $179.5 billion – 9% of total CARES Act
The biggest slice of this pie goes to healthcare providers, who will receive $100 billion in grants to help fight COVID-19. This was a major ask from groups representing the healthcare industry, as they look to make up the lost revenue caused by focusing on the outbreak — as opposed to performing elective surgeries and other procedures. There will also be a 20% increase in Medicare payments for treating patients with the virus.
Money is also set aside for initiatives such as increasing the availability of ventilators and masks for the Strategic National Stockpile, as well as providing additional funding for the Center for Disease Control and expanding the reach of virtual doctors.
Finally, beyond the healthcare-related funding, the CARES Act also addresses food security programs and a long list of educational and arts initiatives.
Hat tip to Reddit user SevenandForty for inspiring this graphic.
COVID-19 Crash: How China’s Economy May Offer a Glimpse of the Future
China has seen a severe economic impact from COVID-19, and it may be a preview of what’s to come for countries in the early stages of the outbreak.
The Economic Impact of COVID-19
China, once the epicenter of the COVID-19 pandemic, appears to be turning a corner. As the number of reported local transmission cases hovers near zero, daily life is slowly returning to normal. However, economic data from the first two months of the year shows the damage done to the country’s finances.
Today’s visualization outlines the sharp losses China’s economy has experienced, and how this may foreshadow what’s to come for countries currently in the early stages of the outbreak.
A Historic Slump
The results are in: China’s business activity slowed considerably as COVID-19 spread.
|Economic Indicator||Year-over-year Change (Jan-Feb 2020)|
|Investment in Fixed Assets*||-24.5%|
|Value of Exports||-15.9%|
*Excluding rural household investment
As factories and shops reopen, China seems to be over the initial supply side shock caused by the lockdown. However, the country now faces a double-headed demand shock:
- Domestic demand is slow to gain traction due to psychological scars, bankruptcies, and job losses. In a survey conducted by a Beijing financial firm, almost 65% of respondents plan to “restrain” their spending habits after the virus.
- Overseas demand is suffering as more countries face outbreaks. Many stores are closing up shop and/or cancelling orders, leading to an oversupply of goods.
With a fast recovery seeming highly unlikely, many economists expect China’s GDP to shrink in the first quarter of 2020—the country’s first decline since 1976.
Danger on the Horizon
Are other countries destined to follow the same path? Based on preliminary economic data, it would appear so.
About half the U.S. population is on stay-at-home orders, severely restricting economic activity and forcing widespread layoffs. In the week ending March 21, total unemployment insurance claims rose to almost 3.3 million—their highest level in recorded history. For context, weekly claims reached a high of 665,000 during the global financial crisis.
“…The economy has just fallen over the cliff and is turning down into a recession.”
—Chris Rupkey, Chief Economist at MUFG in New York
In addition, manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware dropped to its lowest level since July 2012.
Other countries are also feeling the economic impact of COVID-19. For example, global online bookings for seated diners have declined by 100% year-over-year. In Canada, nearly one million people have applied for unemployment benefits.
Hard-hit countries such as Italy and Spain, which already suffer from high unemployment, are also expecting to see economic blows. However, it’s too soon to gauge the extent of the damage.
Light at the End of the Tunnel
Given the near-shutdown of many economies, the IMF is forecasting a global recession in 2020. Separately, the UN estimates COVID-19 could cause up to a $2 trillion shortfall in global income.
On the bright side, some analysts are forecasting a recovery as early as the third quarter of 2020. A variety of factors, such as government stimulus, consumer confidence, and the number of COVID-19 cases, will play into this timeline.
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