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Three Financial Firms Could Change the Direction of the Climate Crisis – and Few People Have Any Idea

Africa - INTER PRESS SERVICE - Tue, 02/25/2020 - 10:59

Credit: Bigstock.

By External Source
Feb 25 2020 (IPS)

A silent revolution is happening in investing. It is a paradigm shift that will have a profound impact on corporations, countries and pressing issues like climate change. Yet most people are not even aware of it.

In a traditional investment fund, the decisions about where to invest the capital of the investors are taken by fund managers. They decide whether to buy shares in firms like Saudi Aramco or Exxon. They decide whether to invest in environmentally harmful businesses like coal.

Yet there has been a steady shift away from these actively managed funds towards passive or index funds. Instead of depending on a fund manager, passive funds simply track indices – for example, an S&P 500 tracker fund would buy shares in every company in the S&P 500 in order to mirror its overall performance. One of the great attractions of such funds is that their fees are dramatically lower than the alternative.

In 2019 there was a watershed in the history of finance. In the United States, the total value of actively managed funds was surpassed by passive funds. Globally, passive funds crossed US$10 trillion (£7.7 trillion), a five-fold increase from US$2 trillion in 2007.

 

 

This seemingly unstoppable ascent has two main consequences. First, corporate ownership has become concentrated in the hands of the “big three” passive asset managers: BlackRock, Vanguard and State Street. They are already the largest owners of corporate America.

The second consequence relates to the companies that provide the indices that these passive funds follow. When investors buy index funds, they effectively delegate their investment decisions to these providers. Three dominant providers have become increasingly powerful: MSCI, FTSE Russell and S&P Dow Jones Indices.

 

Steering global capital flows

With trillions of dollars migrating to passive funds, the role of index providers has been transformed. We traced this change in a recent paper: in the past, index providers only supplied information to financial markets. In our new age of passive investing, they are becoming market authorities.

Deciding who appears in the indices is not just something technical or objective. It involves some discretion by the providers and benefits some actors over others. By determining which players are included on the list, setting the criteria becomes an inherently political activity.

Especially relevant are the dominant emerging markets stock indices, particularly the widely tracked MSCI Emerging Markets Index. This is a list of large and medium-sized companies in 26 countries, including China, India and Mexico.

MSCI sets the standards for countries to qualify for inclusion. Above all, they have to guarantee free access to domestic stock markets for foreign investors. If a country is included, massive amounts of capital will flow into their national stock market almost automatically. As a result, MSCI and the other big three providers’ rival indices are now effectively steering global investment flows.

For example, when Saudi Arabia was recently added to the list of qualifying countries for these indices, it was predicted to trigger inflows into the Saudi stock market of up to US$40 billion.

And when Saudi Aramco, the largest global oil producer, went public last year, it was fast-tracked by the same three index providers into their emerging markets indices. Millions of investors around the world now unknowingly hold shares in this controversial corporation – either through owning emerging markets index funds or having pensions that hold such funds on their behalf.

When China was added to the key emerging market indices in 2018, reportedly after heavy lobbying from Beijing, the capital steering effect was expected to be larger by an order of magnitude. It was estimated that the long-term inflows into Chinese stocks would be up to US$400 billion.

 

The future role of index providers

The three dominant index providers’ income mainly derives from the funds replicating their indices, since they have to pay royalties for the privilege. The providers are therefore currently enjoying a fee bonanza. For 2019, MSCI reported record revenues and said the assets tracking its indices were at all-time highs.

Our research suggests that these providers’ brands are so well established that competitors will struggle to take away that business. This suggests that MSCI, FTSE Russell and S&P Dow Jones will increase their role as a new kind of de facto global regulators.

Arguably the most important aspect of their private authority for the future of our planet pertains to how corporations tackle climate change. BlackRock recently made headlines with plans to divest from firms that make more than 25% of their revenues from coal. Yet this only applies to BlackRock’s actively managed funds: most of its funds track indices from the major index providers, so they will keep investing in coal until the providers remove such companies from their indices.

Similarly, BlackRock, Vanguard and State Street all recently announced they will increase their range of so-called ESG funds, which profess to exclude the worst performing firms according to environmental, social and governance criteria. Again, these criteria are increasingly defined by the index providers, using proprietary methodologies. As The Economist has noted, the providers often decide which companies to include based on whether they go about their business sustainably rather than what business they are actually in.

For instance, Saudi Aramco produces few emissions extracting oil from the ground. It’s a comparatively “sustainable” oil company, but it’s still an oil company. Most ESG indices include industry leaders in each sector and exclude worst performers – irrespective of the industry. Consequently, many ESG funds still heavily invest in the likes of airlines, oil and mining companies.

They are also sometimes quite arbitrary about who qualifies as a good performer. For instance, the American bank Wells Fargo is ranked in the top third by one index provider, while another ranks it in the bottom 5%.

In short, this tightly interlinked group of three giant passive fund managers and three major index providers will largely determine how corporations tackle climate change. The world is paying little attention to the judgements they make, and yet these judgements look highly questionable. If the world is truly to get to grips with the global climate crisis, this constellation needs to be far more closely scrutinised by regulators, researchers and the general public.

Jan Fichtner, Postdoctoral Researcher in Political Science, University of Amsterdam; Eelke Heemskerk, Associate Professor Political Science, University of Amsterdam, and Johannes Petry, ESRC Doctoral Research Fellow in International Political Economy, University of Warwick

 

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The post Three Financial Firms Could Change the Direction of the Climate Crisis – and Few People Have Any Idea appeared first on Inter Press Service.

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Preserving World’s Biodiversity: Negotiations Convene at FAO Headquarters

Africa - INTER PRESS SERVICE - Mon, 02/24/2020 - 21:04

Delegates gather at FAO headquarters to advance negotiations of the post-2020 global biodiversity framework. Credit: Maged Srour/IPS

By Maged Srour
ROME, Feb 24 2020 (IPS)

“The world out there is watching and waiting for results,” Elizabeth Maruma Mrema warns while talking to IPS regarding the preservation of biodiversity of our planet.

The acting Executive Secretary of the Secretariat of the Convention on Biological Diversity, is referring to a worrying report[1] released by the Food and Agriculture Organization (FAO) which paints a grim picture of the planet.

“Many key components of biodiversity for food and agriculture at genetic, species and ecosystem levels are in decline and evidence suggests that the proportion of livestock breeds at risk of extinction is increasing,” the report says.

The FAO also warns that “nearly a third of fish stocks are overfished, and a third of freshwater fish species assessed are considered threatened”.

These are just some of the critical issues being debated during the open-ended working group on the post-2020 biodiversity framework. This round of negotiations is taking place at FAO headquarters from 24 to 29 February. In the run-up to October’s historic UN Biodiversity Conference, government officials, experts and activists from around the world gathered today at FAO headquarters, Rome, to forge ahead with negotiations. This round of talks was supposed to take place in Kunming, China, on the same dates. Due to the ongoing situation following the outbreak of the novel coronavirus 2019 (COVID-19), it was moved to Rome, Italy.

Background

The fourteenth meeting of the Conference of Parties (COP) to the Convention on Biological Diversity (CBD) had its meeting in Sharm el-Sheikh, Egypt, in 2018. It was here that the working group on the post-2020 global biodiversity framework was appointed. The working group’s mandate was to prepare the text of a framework that would guide the work of the Convention after the year 2020. At the working group’s first meeting held in Nairobi in August 2019, the Open-ended Working Group (WG2020) requested the Co-Chairs and the Executive Secretary to prepare a zero-draft text of the post-2020 global biodiversity framework. This framework is under consideration at its second meeting, which is currently taking place in Rome. The aim of the second meeting of the Working Group is to significantly advance the negotiation of the post-2020 global biodiversity framework, discussing the different aspects of the whole ambitious project.

‘Healthy Diets’ was among the proposed initiatives during the first day of the six-day event at FAO headquarters. The initiative emphasised the importance of ‘geographical indications’ for biodiversity, with examples and experiences from Africa and Eastern Europe. Credit: Maged Srour/IPS

Negotiations in Rome: Promoting a bi-directional approach

In the coming days, the working groups will be divided on a regional basis. They will discuss a wide variety of concerns including biodiversity, food, agriculture and fishing systems, to the importance of promoting an approach that leaves no one outside of this circuit. Civil society, the private sector, indigenous people, local communities, women and youth are all represented to create a functional framework for the whole society and at all levels. Many organisations, like Bioversity International, supported by a host of international agencies, have submitted research reports on biodiversity and food systems. It has also made representations on alternative models for access and benefit-sharing rules, practices and impacts in the Post-2020 Global Biodiversity Framework.

The voice of indigenous people

Key to the discussions is the role of indigenous people in biodiversity and Aslak Holmberg, the representative of the indigenous people, is convinced that policymakers can learn from these groups.

“There is a key message we want to share with other groups here during these negotiations,” he told IPS. “Indigenous peoples and local communities’ management of natural resources is (in fact) conserving biodiversity. (This is) because these management practices are built on a balanced relationship with the respective environment.

“Biological and cultural diversity are linked, and by this, I mean that (for indigenous communities) culture plays a fundamental role in the process of preserving biodiversity: it is in our culture to use our areas in a sustainable way. That is the message we want to share with others”.

The voice of the business sector

Representatives of the private sector too, in particular of the business world, wish to be part of the framework that will result from the negotiations and officially approved in October, in China.
Eva Zabey, Executive Director of the Business for Nature Coalition, told IPS she was grateful to the CBD secretariat for giving business and opportunity to engage and contribute to the zero draft of the post-2020 framework.

This coalition is a unique global group of influential business and conservation organisations participating in the negotiations.

“Forward-thinking businesses are starting to change the way they operate, based on their understanding of the value of nature – but this is still the exception, not the norm,” she told IPS.
“Therefore,” said Zabey, “Political leadership is needed now to transform our economic and financial systems in a way that places nature at the heart of global decision-making. It needs to create a level playing field and a stable operating environment for business.”

Zabey is looking forward to an ambitious post-2020 framework which will facilitate businesses’ involvement and create and positive “policy-business feedback loop,” she said.

Perspectives

Audrey Azoulay, United Nations Educational, Scientific and Cultural Organization (UNESCO) Director-General, perfectly summarised urgency at the negotiation.

Commenting on the global assessment report, she said: “The present generations have the responsibility to bequeath to future generations a planet that is not irreversibly damaged by human activity.”

“Our local, indigenous and scientific knowledge are proving that we have solutions and so no more excuses: we must live on earth differently”.

Zabey echoes Azouley. She said entrepreneurs are increasingly aware that the profit-sustainability ‘conflict’ is no longer feasible or conceivable.

“Companies planning on being successful in the future are starting to realise that financial performance is irrelevant on a dead planet.’

[1] http://www.fao.org/3/CA3129EN/ca3129en.pdf

The post Preserving World’s Biodiversity: Negotiations Convene at FAO Headquarters appeared first on Inter Press Service.

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Africa - INTER PRESS SERVICE - Mon, 02/24/2020 - 15:23

The post India’s Orange Farmers Search for Sustainable Agriculture appeared first on Inter Press Service.

Excerpt:

India’s Jampui Hills – a picturesque hill station in the north eastern province — has been know for decades as the Orange Bowl. But a changing climate has led farmers on a search for sustainable agriculture.

The post India’s Orange Farmers Search for Sustainable Agriculture appeared first on Inter Press Service.

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Ugandan Farmer Ends Food Insecurity for Family & Community

Africa - INTER PRESS SERVICE - Mon, 02/24/2020 - 12:55

"Ugandan farmer Carol Agoa stands in her Forest Garden where she has grown 2,000+ trees and dozens of different species of fruits, vegetables, and other crops."

By Charity Nalwoga
KAMPALA, Uganda, Feb 24 2020 (IPS)

In Aboke, Uganda, a modest restaurant serves locals breakfast, lunch and dinner. Carol Agoa isn’t just the owner and cook, she also supplies all of the food for her restaurant.

Down the road from town, Carol’s farm is bursting with life. She brings fresh mangoes, okra, tomatoes, bananas, avocados and more, preparing authentic and fresh meals for her friends and neighbors.

The 47-year-old hasn’t always had her restaurant or even the flourishing garden to supply produce. Her life just five years ago was quite different.

Carol has farmed her one acre of land in Achero B village (in north-central Uganda) for more than 10 years. But, for her and many farmers in the region, prolonged drought and expensive seed and fertilizer costs made farming an unreliable profession.

Carol planted and harvested cassava and millet each year with low yields and little return. As one of the primary caregivers for her 12 children and grandchildren, failed crops meant empty stomachs and no payday.

But in 2016 she joined “Trees for the Future’s” (TREES) Forest Garden program and quickly learned how to change her circumstances for the better.

The Forest Garden Program is a simple, replicable and scalable approach with proven success. By planting specific types of fast-growing trees, fruit trees, hardwoods and food crops in a systematic manner over a four year period, TREES is teaching families and communities how to increase production and land productivity.

Carol says that listening and following instructions from TREES technicians has made management and maintenance of her garden very easy, allowing her to harvest constantly from it to maintain her earnings and run her restaurant.

Where Carol once grew only millet and cassava, she now grows pawpaws, millet, pumpkin, mangoes, green peas, okra, yams, green pepper, tomatoes, African eggplants, bananas, soya beans and avocado. She also has timber trees like graveli, melia and albizia.

She soon became a Lead Farmer in the program, helping other farmers learn how to implement the Forest Garden Approach.

“Carol has been one of our most successful and disciplined farmers right from the start of this project. She is a source of hope and perseverance in her community,” says Trees for the Future Uganda Country Coordinator Ivan Tumuhimbise.

“This community is still feeling the effects and trauma of the Aboke girls’ abduction in 1996. A woman like Carol shows that there is opportunity for women to do great things here.”

Ugandan farmer Carol Agoa in her Forest Garden.

Carol says she is forever grateful to TREES for choosing to work in the area to help them build their community and restore what they lost during the insurgency.

Since seeing her Forest Garden come to life, Carol has seen a vast improvement in her family’s health and nutrition. “My husband and I have a healthier home with healthier children because we have successfully added a lot of fruits and vegetables in our diet.”

Carol has also been able to invest her earnings and expand her farm by adding livestock like goats, hens and cows for general rearing at home that she sells at a later stage to a local butcher. Carol has also built a second larger home from her savings from the garden and restaurant which has also given her children work.

Achero B, like most villages in Aboke, faces water challenges. The water sources are far from homes, which means Carol needed a way to bring water home for consumption. WIth her improved income, she was able to buy a water tank and access groundwater to be used around the home during scarcity.

With all her successes and business ventures, Carol says her favorite place to be is still in the Forest Garden. “The training and instruction I received from TREES technicians has made managing and maintaining my garden very easy,” she says. “I am forever grateful.

###
Learn more about Trees for the Future’s work with smallholder farmers, and visit their Forest Garden Training Center to learn how to implement regenerative agriculture practices.

The post Ugandan Farmer Ends Food Insecurity for Family & Community appeared first on Inter Press Service.

Excerpt:

Charity Nalwoga is Liaison for Communications and Development at Trees for the Future

The post Ugandan Farmer Ends Food Insecurity for Family & Community appeared first on Inter Press Service.

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