Boomer Banker

Patrick Jenkins in the Financial Times provided useful insight into the potential for banks to provide utility like returns whilst noting the risks of that strategy for investors. His comments on the risks are valid but at the same time I believe banks should be looking at business models that have less risk and provide steady returns linked to the economies that their business models support. The real question is whether the banks have simplified their models or merely decided to market a “utility” income stream whilst continuing to take risks that should result in higher returns (and more volatility). #bankingonvalues

The push from investors to increase insight into climate risks continues. In the Financial Times Mercy Investment Services (the investment services arm of the Sisters of Mercy in North America) were reportedfiling a motion with Black Rock noting among other issues that “(p)roxy voting practices that ignore climate change seem to ignore significant company-specific and economy-wide risks associated with negative impacts of climate change.” In the same issue of the FT a recent study by Bank of America was cited noting that “(q)uarrels involving environmental, social and governance issues have wiped more than $500bn off the value of large US companies over the past five year.” Further support for including ESG issues comes from the recent study from the GABV cited in my featured article. For bank lenders these issues are also relevant as they should be part of the risk assessment process. But how many banks are actually assessing the risk of ESG issues when the make underwriting decisions?

The Financial Times noted today that many large investors are now looking for companies to detail their carbon emissions. This trend got attention earlier in the month when Chris Hohn/TCI noted opposition to re-election of directors for companies not fully disclosing their carbon emissions. However, the impact of this change is limited by the large number of institutional assets (we are talking about our pension funds amongst others) that invest via passive index funds. Reuters has reported that the large index providers (MSCI, S&P Dow Jones, FTSE Russell) are looking at ways to accelerate the inclusion of Aramco in their indexes. This means that trillions of dollars of assets will be shifted into an oil giant. Clearly there is an issue to be addressed for making passive investments based on index providers socially and environmentally responsible. How can we as investors directly or through our pension funds address this issue?

(p.s. Thanks to my friend Jan for alerting me to the Reuters article)

The opportunity to support companies developing storage of renewable energy could be a growth area for banks. The EU has announce a program to encourage this development as highlighted in this article from the Financial Times. And the development of new technology continues as reported by The Economist. What bankers will grab the opportunity to be the go to bank for renewable energy storage?

McKinsey has just published Five ways that ESG creates value in its quarterly. Of interest is their estimate that 50% to 60% of banking profits are at stake from good ESG practices. As noted in the report: “getting (ESG) wrong can result in massive value destruction.”