Globally, ESG Investors Must Tailor Approaches to Different Locales

With investing to meet environmental, social, and governance (ESG) goals, it pays to know the differing political, legal, and institutional risks in each country. This can be a daunting task.

Investec, for example, takes a candidly different approach to sub-Saharan Africa and Indonesia when engaging in each region, IPE recently reported. In Africa, Investec assumes a more supportive client-type role, while Indonesia’s societal differences mandate a different strategy. “Indonesia is making a lot of social progress but there is a lot of infrastructure planned, which leads to issues around land expropriation and loss of biodiversity,” Peter Eerdmans, co-head of EMD at Investec Asset Management, told IPE.

The CFA Society recently explored critical elements that make the Middle East unique when considering ESG mandates. One thing to “understand about the integration of ESG in the Middle East is that it is subordinate to Islamic Finance in which capital is raised and invested in accordance with shariah law,” said Matt Orsagh, director of capital market policy at the CFA Institute.

Investors can find opportunities for alpha generation if they come to grips with different institutional frameworks in any given society, Cathy Hepworth, co-head of EMD at PGIM Fixed Income, said in IPE’s report. “Venezuela is a strong example where a poor social and governance outlook caused us to be underweight sovereign paper versus collateralized quasi-sovereign debt. Ukraine was a more positive story, where improvements in social and governance conditions led us to increase our weighting in that country prior to its 2019 rally.”

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Acclimating to such structural differences among the regions causes individuals to determine how they’ll learn about them. There are different intelligence providers to choose from, and many times firms rely on their own research. IPE reports that Rob Drijkoningen, Neuberger Berman’s co-head of emerging markets debt, uses a combination of third-party ESG indicators and internally generated ones.

Assets managed in ESG are soaring around the world, with the largest 500 asset managers increasing their positions by 23.3% in 2018 compared to their overall assets, according to a report by Willis Towers Watson’s Thinking Ahead Institute.

Other countries are ramping up with regards to their ESG programs. The Asset recently reported that the “Monetary Authority of Singapore (MAS) announced during the Singapore Fintech Festival that it has established a US$2 billion green investments program (GIP) to invest in public market investment strategies with a strong green focus.”

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Tags: Africa, concerns, Emerging Markets, ESG, Indonesia, Investors

Want to narrow the yawning federal deficit? Be tougher on tax collection, says former Treasury Secretary Lawrence Summers, in a research paper.

The government could collect $535 billion more over the next 10 years if the Internal Revenue Service stepped up its audits. Summers, now a Harvard economics professor, suggests restoring it to the frequency last seen in 2011 and before. Back then, a period encompassing his tenure as Treasury secretary under Bill Clinton and as economic advisor to Barack Obama, collections were higher, Summers argued.

Audit rates were higher in the past and the focus was more on millionaires and billionaires, according to his academic paper, written with a University of Pennsylvania law professor, Natasha Sarin.

Reviewing the returns of the wealthy is time-consuming but delivers the goods, Summers and Sarin contended. “Under-reporting is more than five times as high for individuals who earn $10 million or more annual than it is for those who make under $200,000 a year,” the paper said. Uncollected taxes will cost federal coffers around $630 billion in 2020, their research found.

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The IRS audit rate peaked at 1.1% for all individual returns and since has dropped to 0.5% in 2018, the agency’s stats show. Should the audit tempo return to 2011 levels, then there would be 131,000 extra audits, the Summers paper maintained., Treasury has proposed more funding for its taxpayer compliance efforts in the 2020 fiscal year.

No doubt, red ink is rising in Washington. The federal deficit for fiscal 2019, which ended September 30, was $984 billion, a 26% increase from 2018, the US Treasury reported.

Corporate tax revenues totaled $230 billion, up 12%, because of a bounce back in the second half of the year. Meanwhile, individual tax revenues rose 2% to $1.7 trillion. Receipts totaled $3.4 trillion, up 4% through September, but while federal outlays rose 8%, to $4.4 trillion.

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Tags: audits, IRS, Larry Summers, tax collection