In Brief

Prime Capital buys sustainable investment RIA

North Carolina-based Earth Equity Advisors is a certified B Corporation

Sustainable investing RIA Earth Equity Advisors has been acquired by Prime Capital Investment Advisors, the firms announced today.

The deal gives Prime Capital an injection of $151m in assets under management and a practice focused on sustainable, responsible and impact investing, the companies stated.

Prime Capital, a wealth management firm based in Overland Park, Kansas, oversees $22bn in assets.

Earth Equity, which is based in Asheville, North Carolina, specializes in fossil-fuel-free portfolios that include investments in clean energy, transportation, real estate and food companies. The advisor, a Certified B Corporation, was founded in 2004.

The acquisition will add 275 household clients to Prime Capital, according to the announcement.

Earth Equity CEO Peter Krull is joining Prime Capital as partner and director of sustainable investing. The rest of the firm’s team joining the acquiring firm includes three financial advisers and a client service associate.

Earth Equity will retain its brand name but will add “a Prime Capital Investment Advisors Company” to it.

The deal is the second that Prime Capital has announced so far in 2023. On Jan. 3, it disclosed its acquisition of Pasadena, California-based Stonnington Group, which manages $575m for 275 clients.

Sustainability-themed funds on rise

More new ESG funds are coming to the market, and a greater share are sustainable funds, according to Cerulli

The list of US mutual funds and ETFs with an ESG focus grew by 23% over a year as of the second quarter, reaching 813 products.

That trend is coupled with a greater market share for passively managed funds which, as of the end of June, accounted for 23%, up from 20% a year prior, according to a report Monday from Cerulli Associates. The pace of new ESG-themed ETFs coming to market fueled that, with launches outpacing those of mutual funds, the company found.

Of the products on the market as of June, about 24% were ESG-integration funds, 48% were negative-screen funds and 28% were sustainability-themed funds. By comparison, about 29% of the funds in 2020 were ESG integration, 49% negative screening and 22% sustainability themed.

Despite the growth in the number of products, total assets in US ESG ETFs and mutual funds are projected to be about $669bn by the end of 2022, which would be down 13% from the high of $768bn at the end of 2021, according to Cerulli. The drop would be due to negative returns, rather than sales, with net flows for the products at $5.8bn through the first half of the year. However, that is less than a tenth of the sales seen during the first six months of 2021, with more than $59bn flowing into the products.

Last year, by comparison, net sales were more than $94bn.

US ESG-themed funds could surpass total assets of $1trn in 2025, reaching an estimated $1.3trn by the end of 2027, the firm stated in the report. By then, 43% of estimated assets would be ETFs, up from less than 21% at the end of 2021.

The top areas for product development, by new funds that address environmental issues, are climate change (83%), pollution (60%) and clean water (60%), according to Cerulli. The top social issues covered by new funds are equal opportunity employment and diversity (37%), gender equality (37%), labor standards (33%) and housing (33%).

Oregon’s pension is getting the net-zero treatment

Measure comes as conservative states have all but banned ESG in public pensions

Oregon’s $90bn state pension plan is aiming to have net-zero greenhouse gas emissions by 2050, according to a new proposal from the state’s treasurer, Tobias Read.

In a little over a year, Read will present the pension system’s investment council with a comprehensive plan for accomplishing that, according to an announcement made Wednesday.

That plan will likely lean heavily on an engagement strategy with portfolio companies, rather than divestment, Read’s office said in a statement.

The announcement comes amid moves in the opposite direction on climate policy by treasurers in conservative-led states, some of which are effectively banning ESG considerations and blacklisting asset managers.

“Our investment decisions must be driven by financial considerations and investment returns, not politics,” Read said in the announcement. “The reality is we must reduce the risks that climate change poses to our investments and to the retirement security of Oregon’s hardworking public servants and their families.”

As treasurer, Read is the CFO of the pension plan, although there are four other voting members on the council he will have to convince.

The proposal includes four main components, the first of which is a pledge to achieve net-zero emissions in the portfolio by 2050 or sooner. After that, the state would have to determine a baseline emissions level and set interim targets, finding opportunities for more low-carbon investments. The third piece is reviewing the carbon-intensive aspects of the portfolio, such as those that currently include fracking, thermal coil or tar sands. The other component is a reporting strategy to show progress toward net zero.

Trading app Fennel seeks to win customers with ESG data

The subscription-based service provides climate and another data on stocks

A trading app launched today, Fennel, aims to make ESG considerations and shareholder voting a pillar of retail investors’ decisions.

The app has a monthly subscription fee of $4.99 and promotes itself as not charging commissions, using securities lending or paying for order flow. It is the product of Greenwich, Conn.-based broker-dealer Fennel Financials, which registered with Finra and the Securities and Exchange Commission this year.

The company has raised $5m in seed funding from backers including Acorns founder Jeff Cruttenden, The Capitol Factory, Temerity Capital Partners and others, it said in its announcement.

“Fennel’s key feature is its in-app ESG data and rankings, which provides unprecedented information to retail investors on public companies’ environmental, social and governance practices,” the company stated. “With Fennel, users can invest in publicly-listed stocks and ETFs as they analyze detailed ESG data and further understand how the companies they invest in impact the world they live in.”

The app also provides information about shareholder voting for the stocks its customers hold. Increasing the engagement that retail investors have with companies is necessary, as just over a quarter of their shares end up being voted, Fennel stated, referring to a report from ProxyPulse.

“Today, the shareholder voting process is an overlooked method of invoking positive corporate change,” Fennel founder and CEO Daniel Naim said in a statement. “Our mission is to give everyone a voice in the companies they invest in, not just the top 1% with formidable seats at the table.”

UN: ‘Bogus’ net-zero pledges cover up fossil fuel expansion

UN's Guterres speaks at the launch of net-zero guidance at COP27

At the launch of a roadmap for financial institutions and businesses to achieve net zero at COP27 yesterday, UN secretary-general, António Guterres, called current pledges “bogus,” calling for them to be aligned with the new guidance.

“I have a message to fossil fuel companies and their financial enablers,” he said.

“So-called ‘net-zero pledges’ that exclude core products and activities are poisoning our planet. They must thoroughly review their pledges and align them with this new guidance. Using bogus ‘net-zero’ pledges to cover up massive fossil fuel expansion is reprehensible.”

He was speaking today in Sharm el-Sheikh at the launch of the report, Integrity Matters: Net Zero Commitments by Business, Financial Institutions, Cities and Regions, by the expert group Guterres set up at COP26 last year that is chaired by Catherine McKenna.

The report sets out a roadmap for firms but also stricter guidelines than other voluntary groups have, such as requiring firms to not invest in new fossil fuel supply or deforestation, a limited use of carbon credits, the inclusion of Scope 3 emissions and the exclusion of lobbying.

“Targets must cover all greenhouse gas emissions and all scopes of emissions,” Guterres said. “For financial institutions, this means all financed activities.”

MSCI adds climate action indexes

It includes companies based on SBTi targets, green revenues, climate risk management and track record

MSCI has launched a suite of climate indexes for equity investors looking to reduce emissions.

The MSCI Climate Action Indexes will select and rank companies based on four main indicators, Christine Chardonnens, executive director, global ESG and climate indices at MSCI, told ESG Clarity.

These are carbon intensity, Science-Based Targets Initiative (SBTi)-approved targets or a similar credible track record, green revenues and the strength of their climate risk management.

The carbon intensity reflects the current state of the company and the forward-looking indicators (SBTi-approved target, credible track record, green revenues and climate risk management) are used to assess the steps companies take to reduce their emissions, Chardonnens added.

The investible companies are then ranked by these criteria, selecting the top half for inclusion in the index.

The indexes also use MSCI ESG Business Involvement Screening Research and MSCI Climate Change Metrics to identify and remove controversial companies.

MSCI said the indexes are designed for equity investors who are looking for broad sector coverage and are seeking to drive the low-carbon transition in the real economy by investing in companies making progress towards emission reduction targets. 

Melissa McDonald, head of ESG and climate indexes at the firm, said: “The MSCI Climate Action Indexes helps investors looking to fulfill that aim by gaining exposure to the companies that are making meaningful progress towards net zero in the real economy and addressing the systemic risks of climate change.”

The suite comprises MSCI ACWI Climate Action Index, MSCI World Climate Action Index, MSCI Emerging Markets Climate Action Index, MSCI USA Climate Action Index and MSCI Europe Climate Action Index.