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'Doing Well by Doing Good'? Examining the rise of ESG Investing
December 20, 2020--Since the Financial Crisis, the asset management industry and exchange-traded funds (ETFs) have surged with respect to the value of assets they represent globally. By extension, so has their direction-setting influence over the real economy through capital allocation and shareholder power. A significant part of this growth is attributable to passive investing, which is dominated by the 'Big Three' passive asset managers (BlackRock, Vanguard and State Street).
Their growth has driven significant consolidation of ownership and power within the asset management industry, with the Big Three controlling a staggering 20% of the average S&P 500 company.
Alongside these trends, 'ethical' or 'sustainable' investment strategies, called 'Environmental, Social, Governance' (ESG) investing have enjoyed increasing popularity, with record inflows during the pandemic. Governments around the world are increasingly looking to 'ESG' strategies and leveraging 'sustainable' private finance to drive the transition to a decarbonised economy. However, there are several reasons to be sceptical of the ability of 'sustainable finance' to deliver.
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Source: common-wealth.co.uk
One-third of low-carbon funds invest in oil and gas stocks
December 20, 2020--One-third of climate funds sold in the UK are invested in oil and gas companies, according to a study which highlights fears that investors may be misled by sustainable investment products.
Analysis by the left-wing think tank Common Wealth also found that low-carbon funds are much more exposed to tech and financial companies, sectors that may play an indirect role in climate change, than to stocks in clean energy.
The results will pressure regulators to take bolder action to prevent greenwashing, where fund managers overestimate their sustainability credentials to gain a share more and more market for environmental, social and governance funds.
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Source: inversezone.com
Ireland overhauls private fund rules to lure UK managers after Brexit
December 18, 2020--Reforms expected to create thousands of jobs and new business for service providers.
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Source: FT.com
IMF Executive Board Concludes 2020 Article IV Consultation with United Kingdom
December 18, 2020--The UK economy entered 2020 with some challenges but also with some strengths. Key challenges included agreeing to a post-Brexit trade deal with the EU, weak productivity growth, large regional disparities in income, population aging (and its impact on pension spending), and the need to strengthen climate policies.
At the same time, the economy was operating at full employment, inflation was close to target, household and corporate debt burdens had fallen substantially since 2009, the banking system was well-capitalized and liquid, and fiscal adjustment had set debt on a declining trajectory, with fiscal space available.
The pandemic has taken a significant human and economic toll, mitigated somewhat by an aggressive policy response. An even more tragic health impact was averted by a spring lockdown, subsequent restrictions, and a second lockdown announced in early November. These health restrictions hit economic activity hard, with a sharp decline in GDP in Q2. Nonetheless, a coordinated fiscal, monetary, and financial sector policy response has helped to hold down unemployment and insolvencies. Despite a rebound as the economy re-opened in the summer, growth for 2020 will likely be around -11 percent, with core inflation below target, and the current account deficit subdued at about 2½ percent.
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Source: IMF
ESMA consults on the impact of algorithmic trading
December 18, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has today launched a consultation seeking input from market participants on the impact of requirements under MiFID II/MiFIR regarding algorithmic trading, including high-frequency algorithmic trading.
The Consultation Paper covers the overall approach towards algorithmic trading, in particular:
the authorisation regime;
provisions for algorithmic and high-frequency traders; and
provisions applicable to trading venues allowing or enabling these market participants.
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Source: ESMA
Forecasts for the UK economy: December 2020
December 17, 2020--A comparison of independent forecasts for the UK economy in December 2020.
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Source: gov.uk
ESMA publishes draft technical standards under EMIR REFIT
December 17, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has today published a Final Report on technical standards (RTS and ITS) under the EMIR REFIT Regulation. The report covers data reporting to Trade Repositories (TRs), procedures to reconcile and validate the data, access by the relevant authorities to data and registration of the TRs.
This final report and draft RTS and ITS largely reflect the original proposals included in the consultation paper and focuses on further harmonisation of the reporting requirements as well as enhancements in the counterparties' and TRs' procedures on ensuring data quality.
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Source: ESMA
ESMA publishes final guidance to address leverage risk in the AIF sector
December 17, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has today published its final guidance to address leverage risks in the Alternative Investment Fund (AIF) sector.
ESMA's guidelines set out common criteria in order to promote convergence in the way National Competent Authorities (NCAs):
assess the extent to which the use of leverage within the AIF sector contributes to the build-up of systemic risk in the financial system; and
design, calibrate and implement leverage limits.
The guidelines follow the 2 steps-approach introduced by IOSCO and translate this approach into the European framework. Furthermore, the guidelines provide NCAs with a set of indicators to be considered when performing their risk assessment and a set of principles that NCAs should take into account when calibrating and imposing leverage limits.
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Source: ESMA
ESMA renews its decision requiring net short position holders to report positions of 0.1% and above
December 17, 2020--The European Securities and Markets Authority (ESMA), the EU's securities markets regulator, has renewed its decision to temporarily require the holders of net short positions in shares traded on a European Union (EU) regulated market, to notify the relevant national competent authority (NCA) if the position reaches, exceeds or falls below 0.1% of the issued share capital. The measure applies from 19 December 2020 for a period of three months.
The measure applies from 19 December 2020 for a period of three months.
While overall financial markets performance registered recent improvements linked to the positive news on vaccines, the COVID-19 pandemic continues to have serious adverse effects on the EU real economy with any outlook for a future recovery remaining uncertain. A forecast from the European Commission and the information on the risk of decoupling between asset valuations and fundamentals, in ESMA’s Risk Dashboard, have been used for the economic analysis supporting the decision.
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Source: ESMA
A green industrial policy for Europe
December 17, 2020--This Blueprint examines how the European Union can develop a coherent green industrial policy that will serve the goals of the European Green Deal.
The European Green Deal aims to make Europe the first climate-neutral continent by 2050. This is not going to be an easy journey. To be successful, the European Green Deal will have to foster major shifts in the European industrial structure, including transitions from fossil fuels to renewable energy and from combustion engine cars to electric cars. Shifting economies from brown to green would be a major, historic socio-economic transformation.
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Source: bruegel.org
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