ESG funds face inflation; plus, Brazil's tipping point with Igarape's Robert Muggah

Welcome to Callaway Climate Insights. Especially to our new subscribers this week. Please enjoy, and share.

Morningstar reports this week that more money flowed into stock exchange-traded funds in the first four months of this year than in all of 2020. Some $236 billion through April vs. $232 billion in all of last year’s pandemic rally.

In that context, the market’s lurch downward this week looks a lot less imposing. For ETFs in environmental, social and governance (ESG), early fund flows have also been impressive, though not so much in performance.

About $21.5 billion flowed into sustainable funds in the first quarter, up from $20.5 in the fourth quarter, Morningstar said. But only one of the most popular five passive indexes showed any meaningful gains year-to-date, and some were down. The iShares ESG Aware MSCI USA ETF (ESGU) is up almost 11% through Wednesday.

Inflation never fails to scare, and post-Covid prices are certainly running hot. But it’s hard to put those type of inflows into a top-of-the-market, dumb-money perspective. Summer may be the time to sell in May and go away. But the economic re-awakening story still seems too good to risk missing.

Certain sectors, yes. Is ESG one of them? Don’t think so. As the focus on COP26 combines with summer wildfires and storms, it’s going to be hard to ignore the spending that needs to take place in this vital year of the battle against global warming. Especially to build out renewables such as wind and solar.

Inflation won’t wait forever. But neither will the climate emergency. Investors are betting 2021 markets still have a way to go.

More insights below. . . .

Don’t forget to contact me directly if you have suggestions or ideas at dcallaway@callawayclimateinsights.com.

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ZEUS: Tracking crime in the Amazon with Igarape’s Robert Muggah

. . . . This week saw a disturbing report from scientists that the Amazon basin in South America has released 20% more carbon than it stored in the past decade. The tipping point from carbon sink to carbon emitter would be a global catastrophe, writes David Callaway. As the world pressures Brazil’s Jair Bolsonaro to act, Robert Muggah of the Igarape Institute, a think tank in Brazil, has released a new tool that shows in dramatic fashion how competing criminal cartels are ripping apart the Amazon’s forests in a mad scramble for gold, timber, even slaves. Check out the new tool here and read more about it, as well as a new gold mine mapping tool, in ZEUS. . . .

Read the full ZEUS column


EU notebook: Banks urged to raise capital to avoid climate ‘doom loop’

‘Orizzonte Europa,’ the BNL BNP Paribas Group Rome headquarters won a smart building architecture award. BNP Paribas is one of the largest banks both in Europe and worldwide.

. . . . European banks were urged this week to triple their capital reserves to avoid an inevitable ‘doom loop’ caused by climate change risk, writes Vish Gain from Dublin. While authorities are unlikely to prescribe such a move in the wake of the Covid pandemic, it highlights the need for banks to focus on climate credit risk and market risk at a time when many have only begun to do so.

Plus, the new head of climate at the European Central Bank, and why Europe thinks it can top the U.S. in exchange-traded funds tied to the environment. . . .

Read the full EU notebook


Companies with climate-related proxy issues up for a vote

. . . . With annual meetings hitting full stride this month, here's a look at companies with climate-related proxy issues up for a vote and how they've performed in the year since last facing shareholders.

Based on data compiled by Proxy Monitor, Exxon Mobil is dealing with the most proxy measures (3), followed by Chevron and Phillips 66, with two each. Airline operators United Holdings and Delta also are facing voters. The airlines have seen their shares surge since their last annual meetings in 2020 on hopes for a rebound in travel and tourism as pandemic shutdowns ease. United Parcel Service leads gainers overall in the group since its last annual meeting as demand for shipping services has soared during the pandemic. . . .


Thursday’s subscriber insights: A sample of our best offerings

. . . . Facing the fact that hitting ambitious net-zero targets while continuing to close nuclear power plants won’t work, the U.S. is considering joining Europe in reluctantly keeping nuclear energy in its renewable mix. Read more here. . . .

. . . . The race to build a renewable energy complex is running into a severe shortage of metals, glass, chips and other vital materials — Here’s why production companies may be the next ESG darlings. Read more here. . . .


Editor’s picks: Barclays shareholder resolution rejected, more

It’s already Wildfire Preparedness Week in California.

Editor’s picks:

  • Barclays shareholders reject fossil-fuel resolution

  • Cities need to quickly get people back into public transit, researchers say

  • DFW finds reducing emissions also reduces costs

Read all of today's news roundup


Latest findings: New research, studies and projects

NASA gears up for new Earth-observing satellite missions

NASA is getting ready to announce its next generation of Earth-observing satellites, and offer plans for a multibillion-dollar set of missions that will launch later this decade, Paul Voosen writes for The American Association for the Advancement of Science. NASA calls the project an “Earth system observatory,” and its focus will be to gather data and insight into clouds and aerosols, as well as information about the temperature and chemistry on the Earth’s surface. Voosen writes that the “satellite fleets also mark a revival for NASA’s earth science, which has languished over the past decade compared with exploration of Mars and other planets. The report quotes Karen St. Germain, director of NASA’s earth science division, as saying, “Earth system science is poised to make an enormous difference in our ability to mitigate, adapt to, and plan for changes we’re seeing. … “The pace we’re going to have to do that is much higher in the decade in front of us than the decade behind us.” Charles Webb, an associate director for flight programs at NASA, said four missions would go ahead, launching as soon as 2028.

More of the latest research:


Words to live by . . . .

“This, I believe, is our new moonshot goal: a world that allows people to turn the lights on, and run our factories when the sun goes down and the wind stops, by efficiently producing and storing the natural energy that is all around us.”David Gottstein, author, economist and activist.