TBLI Weekly - May 2nd, 2023

Your weekly guide to Sustainable Investment

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Are Climate Tech Funds Fraudulent or Ignorant?

How to use blockchain to fund and create a greener future

Blockchain is providing a foundation for structural changes that support cultural climate awareness, policy-making, and individual commitments to sustainability

When watching the Earth Week panel?discussions on YouTube?I tuned in to some of the thought leaders in Blockchain and it forced me to focus on the threats of our changing environments and how projects are trying to support some of the most unfairly impacted.?

Rene Reinsberg , President of the Celo Foundation recognises that climate and economic opportunity are linked. As a technology, money is essentially software. Blockchain can reinvent the financial system and provide positive benefits through external factors. Climate change is driven by human behavior and it is not impacting people in a fair way.?

Reinsberg describes Web3 as “…a toolset for mass co-ordination.” This collective approach to solving some of the world’s biggest problems is a new way to consider the potential of humans when tackling the climate crisis.

In a world where success increasingly depends on reputation and trust, why is greenwashing so common?

Greenwashing refers to making unsubstantiated claims about sustainability and environmental practices to improve corporate image. As a result, regulatory bodies around the world are increasing their scrutiny and enforcement of ESG metrics reporting, with fines for violations sometimes exceeding US$1 million, as issued by the SEC.

However, reporting on greenwashing is challenging as organisations often struggle to measure and track relevant data points in an efficient and reliable way. This lack of standard metrics and transparency makes it difficult for consumers to trust the data and for regulators to distinguish between genuine and false reports.

Blockchain technology can help address this issue by providing transparent data recorded efficiently and automated reporting of various data points related to an organisation’s ESG tracking.?

Blockchain and Web3 Technologies funding climate solutions

Blockchain and Web3 technologies are at the forefront of a movement towards increased transparency, which can help achieve the goals set by the Paris Climate Accord and the United Nations Sustainable Development Goals. Blockchain projects are providing a foundation for structural changes that support cultural climate awareness, climate policy-making, and individual commitments to sustainability.

Today, it is dangerous to ignore the urgency of climate change. As the only place with a continuous life cycle, Earth is being harmed by all kinds of destructive actions. We need to act now to save our home and ensure a healthy environment for both living and nonliving creatures.

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‘The Godfather of A.I.’ Leaves Google and Warns of Danger Ahead

For half a century, Geoffrey Hinton nurtured the technology at the heart of chatbots like ChatGPT. Now he worries it will cause serious harm.

Geoffrey Hinton was an artificial intelligence pioneer. In 2012, Dr. Hinton and two of his graduate students at the University of Toronto?created technology?that became the intellectual foundation for the A.I. systems that the tech industry’s biggest companies believe is a key to their future.

On Monday, however, he officially joined a growing chorus of critics who say those companies are racing toward danger with their aggressive campaign to create products based on generative artificial intelligence, the technology that powers popular chatbots like ChatGPT.

Dr. Hinton said he has quit his job at Google, where he has worked for more than a decade and became one of the most respected voices in the field, so he can freely speak out about the risks of A.I. A part of him, he said, now regrets his life’s work.

“I console myself with the normal excuse: If I hadn’t done it, somebody else would have,” Dr. Hinton said during a lengthy interview last week in the dining room of his home in Toronto, a short walk from where he and his students made their breakthrough.

Dr. Hinton’s journey from A.I. groundbreaker to doomsayer marks a remarkable moment for the technology industry at perhaps its most important inflection point in decades. Industry leaders believe the new A.I. systems could be as important as the introduction of the web browser in the early 1990s and could lead to breakthroughs in areas ranging from drug research to education.

But gnawing at many industry insiders is a fear that they are releasing something dangerous into the wild. Generative A.I. can already be a tool for misinformation. Soon, it could be a risk to jobs. Somewhere down the line, tech’s biggest worriers say, it could be a risk to humanity.

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How ESG Investing Became a Political Football

Investors use a variety of strategies to inform their decisions about which stocks to buy. For many, investing is more than just a way to make money -- it's also an opportunity to express their values. Choosing individual stocks in which to invest makes you an owner of those companies, and in some investors' minds, that means taking an active role in what those companies do and how they behave.

Socially responsible investing?using environmental, social, and corporate governance (ESG) factors has become increasingly popular in recent years. Yet it has also become a hot-button issue politically, drawing criticism from some who believe that the adoption of ESG investing principles infringes on their ability to invest how they want.

Below, you'll learn more about ESG?investing and what has happened recently to bring it into the spotlight.

What ESG investing is

ESG investing seeks to choose investments in companies whose behavior reflects an awareness of key elements of social responsibility.

• On the environmental side, many ESG investors seek out companies that have policies on limiting greenhouse gas emissions in an effort to mitigate climate change, as well as seeking to adopt renewable energy and water use policies.
• Socially, ESG investors tend to favor companies that offer employees higher pay and benefits as well as promoting other social justice issues.
• And on the governance side, ESG investing promotes reasonable levels of executive compensation, diverse leadership within a company, and transparent dealings with stakeholders.

Exactly what that means depends on each individual ESG investor. For instance, some ESG proponents argue that oil and gas exploration and production companies should automatically get excluded because of the impact of fossil fuel use on climate change. Yet others have?embraced certain energy companies?that have made efforts to begin a transition toward renewable energy, even if they currently rely on oil and natural gas for their revenue and profits.

Sources of controversy

The ESG debate has landed front and center in a somewhat unexpected realm:?401(k) plans. Early on, the Department of Labor, which administers rules related to employer-sponsored retirement plans, was skeptical about allowing ESG-focused funds as investment options. That made employers reticent to seek to include them as investment choices in their plans.

Yet during the Obama administration, the Labor Department said that plan fiduciaries could consider ESG factors in choosing investments. The Trump administration reversed that stance, but the Biden administration has proposed a rule that would once again allow plan providers to consider investment options with an ESG bent.

Proponents of ESG investing argue that employee participants should have the choice to select ESG investments if they wish. Opponents argue that they don't want to be forced into an ESG-focused investment, and they object to the idea that plan sponsors could make ESG investments the default, requiring them to opt out in order to avoid going against their particular preferences.

More choice is good for all

The best compromise solution would be a rule that allows plan sponsors to make ESG investments available to plan participants while also requiring that conventional funds that don't focus explicitly on ESG remain available as options as well. That solution maximizes the amount of choice available to every employee participating in a 401(k) plan.

Unfortunately, though, many employers worry that giving employees too many choices could create liability if participants make poor choices. That might make some plan sponsors reluctant to include ESG-focused funds even if the Biden administration's Labor Department explicitly allows them.

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‘You can’t have impact and improve returns’

London Business School finance professor Alex Edmans says those new to the field 'might believe in false promises'

You cannot reduce the cost of capital and improve investor returns, London Business School finance professor Alex Edmans has said.

Speaking in an episode of the?ESG Out Loud podcast, Edmans said despite “basic finance theory” suggesting that if you are having positive impact by reducing a company’s cost of capital, you must be reducing your return because the company’s cost of capital is the return to investors, many investors, finance professors and policymakers are still making this claim.

“This is not possible. And if you can only have one or the other, that’s fine. Just be honest about it. When I go and buy organic food, I do this because I think it’s good for society. I don’t think it’s good for my wallet, but that’s fine because my motivation is not a financial one, it’s an impact one.”

Acknowledging the similarities between his points on this matter and those of ex-BlackRock CIO for sustainable investing?Tariq Fancy, Edmans said, “You can’t have both [impact and improving returns] but funds that claim they can are likely to get more investors than those that don’t.

“Sometimes you might not always be able to?vote for every climate proposal?because it’s going to be in violation of fiduciary duty to generating long-term returns. And so that more nuanced message is not going to be as popular as the message that you can always get everything. If people are new to the field, they might believe in the false promises.”

Clarity on terminology?will help, Edmans said. “The phrase ESG investing is confusing. For some people, ESG investing is just investing, it’s a way of creating long-term financial returns. It’s not to save the world.

“And then people like?Larry Fink?have climate risk is investment risk. He says ESG is capitalism, it’s about creating financial value.

“Then there’s a separate reason for ESG, which is to create social value and to change the world, for example to encourage companies to decarbonise, change the mix of their workforce, even if this doesn’t improve returns.”

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Smithfield Foods marks 21 years of sustainability progress

Smithfield Foods, Inc. has published its?21st annual sustainability impact report?tracking progress toward its ambitious sustainability targets in its continuing commitment to produce "Good Food. Responsibly."

"Smithfield's sustainability programs have accelerated over the past several years, and 2022 was a year of significant progress," said Stewart Leeth, chief sustainability officer for Smithfield Foods. "We completed a comprehensive watershed analysis, made progress toward our food loss and waste goals and expanded our renewable energy footprint to further reduce GHG emissions. Smithfield's culture of continuous improvement continues to drive our company forward to produce good food the right way while minimizing our impact on the environment."

Smithfield's sustainability program is informed by the company's sustainable impact priorities and guided by the Global Reporting Initiative?Standards, the IFRS Foundation's SASB Standards and the UN's Sustainable Development Goals. The company's?strategy spans seven pillars of animal care, environment, diversity, equity and inclusion, helping communities, worker health and safety, food safety and quality, and health and wellness.

In 2022, Smithfield remained on track to achieve carbon-negative status in all company-owned U.S. operations, reduce GHG emissions across its U.S. value chain by 30% and obtain 50% of its electricity needs from renewable resources by 2030.

Additional highlights of this year's report include:

• Producing Clean, Renewable Energy:?Smithfield's joint venture with Monarch Bioenergy saw investments in 2022 from TPG Rise Climate, the climate investing strategy of TPG's global impact investing platform TPG Rise, to rapidly accelerate the development of its clean, low-carbon renewable natural gas systems. The company's Align RNG joint venture is also nearing completion of new RNG projects in North Carolina and Arizona, with another project in North Carolina and one in Virginia currently under construction.
• Minority Farmer Program:?Smithfield continued to make life-changing investments in U.S. farm families through its minority contract farmer program, welcoming the first family of Asian descent to its farming operations. The Ng family are Burmese refugees who had farmed hogs in their village before emigrating to the United States. They now own and operate a farm and will be able to create successful family outcomes through wealth generation.
• Diversity, equity and inclusion:?In 2022, Smithfield achieved its target to increase the racial diversity of its leadership team by promoting and hiring Black, Hispanic and other underrepresented groups to reflect at least 30% of supervisors and above by 2030 – eight years ahead of schedule. Additionally, the company's Operations Leadership Program welcomed six cohorts, served more than 130 graduates representing 37 company locations and resulted in nearly 50 promotions. Eighty-five percent of current program participants and alumni are from diverse backgrounds with a focus on women and underrepresented groups.
• Animal Care:?The company continued to maintain group housing for all confirmed pregnant sows on company-owned farms globally in 2022. In its European facilities, Smithfield continues to provide pigs and poultry with housing, floor area and surface area consistent with EU requirements. The company also achieved an annual audit score of excellent (97-100%) on farms and at every processing facility globally in 2022.

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