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Week 18: Abortion rights, union rights and the problem with carbon credits
In this issue: ▸ The right to abortion ▸ The right to unionize ▸ UN PRI and human rights ▸ ESG not a walk in the park ▸ India increase coal output ▸ Oh, let’s buy some carbon credits then
Sometimes big things, monumental news, pass by in this world of ours quietly, shy, tripping on their toes as if they want to be there but not be noticed. Dressed plainly, presented in ordinary ways, these news remain in the domain of ignored news, not wanted news, not so “clicked” news.
Still news, they take a long walk through space and time and finally drop down, somehow clumsy, right in front of us. Homeless news, they don’t belong, simply because they carry unpleasant messages.
The right to abortion
So let me put it this way: Is “right to abortion” an ESG issue? The short answer to that questions is: indeed it is since it’s a Human Right and we all know that ESG covers working rights, working conditions as well as Human Rights.
Well, if you are a US based asset manager, a US based asset owner or you simply invest in US listed equities (and many of them are champions of ESG – at least on paper), you may have to take a deep look at this topic very soon.
The Supreme Court in the US has voted to overturn abortion rights, a draft opinion shows. The immediate impact of the ruling as drafted in February would be to end a half-century guarantee of federal constitutional protection of abortion rights and allow each state to decide whether to restrict or ban abortion.
It’s unclear if there have been subsequent changes to the draft. No draft decision in the modern history of the court has been disclosed publicly while a case was still pending. The unprecedented revelation is bound to intensify the debate over what was already the most controversial case on the docket this term.
A George W. Bush appointee who joined the court in 2006, Alito argues that the 1973 abortion rights ruling was an ill-conceived and deeply flawed decision that invented a right mentioned nowhere in the Constitution and unwisely sought to wrench the contentious issue away from the political branches of government.
UN human rights experts, legal scholars in international, human rights, and comparative law, and organizations like Amnesty International and Human Rights Watch urge the Court to uphold the right to abortion and the human rights of people who can become pregnant. And if the Court does overturn or undermine abortion rights, it will find itself in the company of a small cohort of regressive, increasingly undemocratic countries.
A couple of things to make this very clear:
Access to abortion is protected under international human rights law;
Access to abortion care is necessary to realize the rights of pregnant people and people who can become pregnant to health, life, equality, privacy, non-discrimination, and freedom from torture, among others;
The United States must comply with its obligations under international law and the Supreme Court should use international law to inform its decision.
Read more here.
I have not seen – and it might just be me who missed it – any statements made by the financial ESG industry about this. I looked for and tried to find ESG conferences addressing Human Rights issues specifically and I found none. The ESG industry is however championing Human Rights in every marketing sales presentation and every “stakeholder dialogue”.
The right to unionize
If above mentioned rather authoritarian decision is made in US, it means that US based companies and their staff (the people working for these companies) will not be guaranteed their basic human rights.
How this will be addressed in the context of ESG investing in the US is still not clear.
But there are well known ESG exceptions made in relation to US based companies and some of these are rather non-sustainable in their core. Like union rights, and one example is just one week old.
Amazon is held in many large ESG funds around the world. Amazon has strongly opposed the union campaigns, paying outside consultants millions of dollars to discourage employees at its US warehouses from voting yes.
Amazon also has held “captive audience meetings,” where it requires workers to leave their work stations and attend classes meant to dissuade them from unionizing. And it has printed posters, sent text messages and handed out flyers suggesting that the union’s primary motive is collecting union dues and enriching itself.
And it seems to be working. This week you could read that “Amazon workers vote against unionization in New York”.
However, union organizers in New York pledged to keep fighting to organize Amazon workers, despite the setback when workers at a Staten Island warehouse rejected joining the union. Workers at the LDJ5 warehouse voted against joining the independent Amazon Labour Union, casting 618 votes against unionization, compared with 380 votes in favour.
The union’s loss comes just weeks after it made history by organizing the first successful vote to unionize at an Amazon warehouse in the United States. Labour organizers blamed, in part, Amazon’s union-busting tactics for the loss and said the blow will not be the end of the movement.
The effort to organize workers at US’s second-largest private employer has had its share of ups and downs over the past several years as labour leaders worked to crack the tightly controlled warehouses.
The movement gained significant momentum from its victory last month, but Amazon also ramped up its union busting efforts, workers say, at the smaller Staten Island warehouse in the weeks before the vote.
“They have bred a climate of fear and hate at this building,” said Julian Mitchell-Israel, a worker at the warehouse and organizer for the union. “And it was intimidating for a lot of workers, the incredible amount of misinformation.”
Last year, an Amazon warehouse in Alabama was the first in several years to hold a vote on unionizing. That vote failed, but regulators later called for a repeat after finding that Amazon had improperly interfered with the process.
Imagine how much money various unions, as asset owners, across the world have invested in ESG funds, because it is the right thing to do. Do they know that the very same ESG funds don’t really care about union rights in the companies they invest in?
I wonder if they do, and I wonder what they would do if they knew.
UN PRI and human rights
This report issued by UN PRI is from 2020. It tells the story of “ESG Alpha in China”. It has a Chinese and UK flag under a banner of “China UK Pact”. Looks nice and tidy, serious. The UN PRI logo is there, and it’s all done under the banner of UN.
I read through it, I looked for Human Rights issues, how to address them in the context of “ESG Alpha in China”. I found zero. I got confused since I read that “Principles for Responsible Investment sets new human rights expectations for investors”.
I read through that piece as well. UN PRI is used as a key reference point for trillions of investments around the world. Six principles to rule them all. It is like a religion. I have been in many meetings the past 20 years where people were almost proudly proclaiming that “We are a signatory to UN PRI, and we have done this for the last 10 years, and this is our PRI score” etc.
Reading further, I also, finally, came across a UN PRI report on human rights and investments. The report is entitled “Why and how investors should act on human rights” and is available in English, Japanese, French and Spanish. You can find it here.
It has a couple of interesting points for all UN PRI champions out there selling “ESG funds”. All these champions, who are signatories and “fully and utterly” support the principles and place them prominently on their website and use UN PRI’s logo in all the client presentations, all the champions should apply the following action points from UN PRI Human Rights to their portfolios:
Identify actual and potential negative outcomes for people, arising from investees. (How does this work with regards to exposure to China and some other ‘complex’ countries, and what about US and abortion rights?)
Prevent and mitigate the actual and potential negative outcomes identified (This one could be tricky too since the Chinese communist government does not host engagement meetings. And the financial industry does not like to talk about outcomes. It’s scary. And I also struggle to see investors engaging with the Supreme Court in US)
Track ongoing management of human rights outcomes (Ahh, track what is not managed, well, this is a bummer, and you can always throw in some “Together with X, Y, Z investors we wrote a letter to Alibaba or Amazon”)
Communicate to clients, beneficiaries, affected stakeholders and publicly about outcomes, and the actions take (Amazing, it says “not available” when I look around among many of leading ESG funds)
Enable or provide access to remedy (Maybe set up an investor backed civil-rights organisation in Beijing? Jolly easy, as well as funding abortion rights promotions in the US? Very let’s just say “sensitive”)
ESG investing is not a walk in the park
Now, when we know all of this, the question is: What can be done to address it?
Well, in the ESG industry there has not been a serious attempt to address this. There is no discussion on the Human Rights topic, other than attempts to define ESG as an approach that does not assess what companies do, but how they do it. This is the reason why oil and gas companies, fast fashion companies and many others have A- ESG ratings regardless of what they do, i.e. depleting resources and causing residual long-term impacts in the poor countries where they operate.
Some of the largest holdings in ESG portfolios around the world, classified as SFDR 8 and 9, hold companies that manage their operations by the book, but run businesses that violate both environmental, climate and human rights standards.
Finance and banking institutions can contribute both directly and indirectly to adverse human rights impacts. Examples of direct impacts include: entire lending institutions denying customers access to finance based on race, religion, or gender; a pension fund investing in a food and beverage company that systematically buys produce from farms using child labour; the management of assets belonging to a corporate or individual client involved in human rights abuses; or investing in a company that buys or uses prospected minerals in countries undergoing conflict.
Financial instruments may also cause human rights violations indirectly by lending money to agricultural companies involved in land grabs and funding infrastructure projects that displace indigenous populations.
If they told you that ESG investing is a walk in the park, that you just need to pick some nice “material and relevant” (using your own interpretation) ESG factors in your portfolio, package it nicely (brochures, statements and conferences) and sell it to people who cannot really understand, compare and track what is what, well, then they were wrong. It is not. It is a complex journey that demands a lot of self-reflection, endurance and patience. It is boring, repetitive, tiering work.
ESG investments will become far more complicated, far more difficult to do and demand far more resources and analysis than before, and the clients will become more and more demanding.
I’m not sure the ESG industry is ready for this. I’m not sure they see the horizon behind the growing inflows in the ESG branded funds. The reality is something else and it is not selective. We just avoid seeing it for what it is.
India increase coal output
What about the climate crisis? Well, officials and analysts expect India to bump up coal production after the supply crunch prompted fears about the country’s energy security. Care Edge, a ratings and research group, said it expected India to mine more than 800mn tonnes of coal in the financial year that started in April.
Pralhad Joshi, India’s coal minister, said on Twitter that state-run Coal India, the world’s largest coal miner, increased output in April to 53.47mn tonnes, 6 per cent higher than the same month in 2019 before the coronavirus pandemic struck. Coal India “is furthering India’s energy security”, Joshi wrote.
India is the world’s second-largest coal producer and consumer and depends on the fossil fuel for about 70 percent of power generation. But the combination of surging demand as economic activity rebounds after Covid restrictions were eased and supply chain bottlenecks, such as a lack of rail cars to transport coal, have left many plants plagued by shortages.
Oh, let’s buy some carbon credits then 🙄
I understand them, we in the Western developed world with enormous CO2 footprints have promised India – in Copenhagen and later in Paris and later in Glasgow – so many things and we have not delivered much.
But we are not worried, we in the Western developed world have our own imperial relationship to nature and especially the so-called carbon credits. We simply buy something.
When a prospective buyer approached a group that restores Myanmar’s endangered mangroves about purchasing the credits used by companies to offset their carbon emissions, they were told the tokens had sold out.
The carbon credits could be bought via a reseller but at a big markup – $30 each compared with $15 quoted by Worldview International Foundation, the conservationist. The price was almost three times what the reseller agreed to pay WIF for the credits in the first place.
Carbon credits have exploded in the past 18 months, as corporate buyers have looked to burnish their environmental credentials. Each credit represents a tonne of carbon permanently avoided or removed from the atmosphere. Resellers operate in opaque and unregulated markets and are often accused of cashing in at expense of environmental causes.
The idea, which took hold in the early 2000s, is that the cash generated goes into climate projects, often in the developing world. As the market can be difficult to navigate, buyers often go through middlemen who help them identify and purchase the credits.
With brokers often reluctant to disclose pricing structures, however, it can be difficult to track how much buyer money actually goes towards reducing emissions. Laura Martin, professor at the Williams College Center for Environmental Studies, said there was “shockingly little data” about how the estimated $1bn that went into carbon offsets last year was spent. As brokers were “working to make the process ‘frictionless’”, buyers were “unlikely to question where that money goes . . . [and] how it’s spent”, she said, adding: “Who benefits financially from carbon offsetting?” and are carbon offsets a new form of neo-colonialism?
The adolescence phase of ESG is over, and it ended a couple of months ago when Russia invaded Ukraine and when the entire ESG industry completely missed the S and G risks since 2014.
The question is what the adulthood of ESG is going to be like.
That will be all for this week.