This Week in ESG and Impact Investing

  On June 15th, several American financial and political leaders convened in distinct discussions concerning the future of Minority Deposit Institutions (MDIs) and Community Development Financial Institutions (CDFIs). At a White House press conference, a Federal Deposit Insurance Corporation (FDIC) Board meeting and MDI policy statement release, in a House Financial Services Committee statement, and a Georgetown University forum with an all-star cast, minority lending was the conversation of the day. Utilizing the Mosaic Theory, Creative Investment Research contends that the convergence of these events may not be a coincidence, and may signal a significant policy change. We note that the MDI events of June 15th were preceded by a June 14th meeting of the California Public Employees’ Retirement System (CalPERS) Investment Committee. Of particular relevance was a progress report on the Fund’s Sustainable Investment 5 Year Strategy Plan. Fund management discussed diversity and inclusion t

On June 18, Facebook released it’s white paper on the new digital currency, Libra.   The news led David Marcus, Chief Executive Officer of Calibra, to appear before the House Financial Services committee on July 17 - a day after appearing before the Senate Banking Committee. House Financial Services Committee members questioned whether Facebook would have overwhelming control over   the Libra Association’s 27 other members and if they were to be trusted with 2.7 billion users’ financial data, given past privacy violations.   Facebook’s trustworthiness has been in question since the 2016 Cambridge Analytica data scandal.   Most recently, charges brought in March by the Department of Housing and Development concerning Facebook's alleged violations the Fair Housing Act have not helped the firm gain favor with the public. Last month, Facebook was removed from the S&P ESG 500 index because of privacy concerns and a lack of transparency as to why certain user infor

Last week the House Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets held a hearing on “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social, and Governance Disclosures.” Several pieces of legislation, or bills, have been proposed, (but not filed yet) in the US House of Representatives regarding Environmental, Social and Governance (ESG) reporting by large corporations. ● HR ___: ESG Disclosure Simplification Act of 2019 (Rep. Vargas) ● HR ___: Shareholder Protection Act of 2019 ● HR ___: Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act of 2019 ● HR ___: To require issuers required to file an annual or quarterly report under the Securities Exchange Act of 1934 to disclose the total amount of corporate tax such issuer paid in the period covered by the report, and for other purposes ● HR ___: Climate Risk Disclosure Act of 2019 (Rep. Casten) The US

The Federal Reserve Act (FRA) requires the Chairman of the Federal Reserve System  to testify before the House Financial Services Committee and the Senate Banking Committee twice a year, in February and July, on how the Board handles monetary policy and its observations on economic developments. In keeping with that requirement, the current Chairman of the Federal Reserve, Jerome Powell, testified before the House on July 10th. He indicated as follows: Economic activity increased at a solid pace in the first part of 2019. The labor market has continued to strengthen: unemployment fell from 3.9% (Dec) to 3.6% (May), wage gains remained moderate.  Inflation has been running below the Federal Open Market Committee’s ( FOMC ) longer- run objective of 2 percent.  In June, the FOMC judged that current and prospective economic conditions called for maintaining the target range for the federal funds rate at 2 1⁄4 to 2 1⁄2 percent.  Inflation: Consumer Price Index = 1.5 (May).

The House Financial Services Committee Subcommittee on Diversity and Inclusion held a hearing on Tuesday June 25, 2019 to explore the challenges minority- and women- owned (MWO) firms face competing in the asset management industry. According to Bella Research Group’s Diverse Asset Management Project Firm Assessment, MWO firms account for approximately 8.6% of all asset management firms but only manage 1.1% of all assets under management, $785 billion out of $71.4 trillion, and are underrepresented as managers in every asset class but over-represented in the top quartile of fund performance. False assumptions harm opportunities for MWO firms. Bella’s concluded that compared to peers who manage similar asset classes, 25% of women-owned and 28% of minority-owned asset management firms fall in the top quartile on average for fund performance. Studies have shown that minority and women-led investment firms invest in more diverse entrepreneurs and businesses, enriching  c

On June 20 the House Financial Services Committee held a hearing on diversity in America’s boardrooms. The witness list consisted of Ms. Chelsa Gurkin, Acting Director of the Education, Workforce and Income Security team of the U.S. Government Accountability Office, Mr. Luke Visconti, Founder and Chairman of DiversityInc, Mr. Ron Lumbra, Managing Partner of Heidrick and Struggles, Ms. Linda Akutagawa, Chair of the Alliance for Board Diversity, the Former Ambassador to Argentina, Vilma Martinez, and Dr. Stephanie Creary, an Assistant Professor of Management at the Wharton School of Business of the University of Pennsylvania. The hearing examined options for diversifying the gender, racial and ethnic composition of corporate and federal boards. Each witness presented testimony on how to address the issue of diversity on corporate boards and identify the conditions that lead to meaningful diversity so that more companies can follow the lead of firms that have been successful. D

At a February 27, 2019 Financial Services Committee hearing on Monetary Policy, Rep. Al Green (TX) asked the following question of the hearing's only witness - Chairman of the Board of Governors of the Federal Reserve System (the Fed), Jerome Powell: "I want you to do a study on the impact discrimination has on the economy." ( See video at https://www.c-span.org/video/?458249-2/federal-reserve-chair-powell-testifies-day-capitol-hill&start=2499#) We attended the hearing (https://twisri.blogspot.com/2019/03/monetary-policy-and-state-of-economy.html) , and were delighted to hear the question, which, in light of events in New Zealand,  takes on new significance. Clearly, the economic and social cost of discrimination is growing worldwide, inspired by events in the US. This adds instability to the culture and, eventually, the  marketplace. This makes getting an accurate answer to Mr. Green's question critical. It is unclear that Federal Reserve ec

On February 27th, The Committee on Financial Services of the US House held a hearing “Monetary Policy and the State of the Economy.” Chairman of the Board of Governors of the Federal Reserve System, Jerome Powell was the only witness. Lanxi He, Research Analyst Intern, Creative Investment. Georgetown University, attended the hearing and provided input for this post. The Federal Reserve Act (FRA) directs the Chairman of the Fed to testify before the House Committee on Financial Services and the Senate Committee on Banking twice a year. The testimony focuses on the management of monetary policy and its impact on domestic and global economic developments. Each appearance requires the Board submit a Monetary Policy Report. During this hearing, House members cited China's economic growth and the political allocation of capital. This line of questioning recalled the view of University of Chicago Professor Chang-Tai Hsieh. On February 25th, The Becker Friedman Institute for