A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber? You can login exactly here. You can listen to an audio version of the newsletter by clicking the same link.
ESG funds — investments that evaluate companies based on environmental, social, and governance factors — have just weathered a tumultuous 2022. In doing so, they have also managed to move in line with the general market and attract new money – boding well for the future of responsible investing.
What’s up: Russia’s war in Ukraine has forced traders to reconsider investing in certain energy and weapons stocks. This heightened scrutiny also impacted policy differences around ESG investing, opening the floodgates to vocal critics.
Responsible investment funds also faced strong economic headwinds. These funds’ outsize investments in technology stocks and lack of energy stocks (which was the only positive sector last year) resulted in noticeable losses for ESG funds in general over the past year.
The energy sector was the best-performing market sector in 2022 at around 66%, while the broader technology sector lost 28%.
Nevertheless, sustainable investing generated returns similar to those of the market. The broad Morningstar US Sustainability Index fell 18.9% in 2022; the S&P 500 fell 19.4%.
Globally, ESG funds also attracted positive investment flows even as money was withdrawn from broader funds, according to data from Refinitiv Lipper, exclusively made available to Before the Bell.
Hedge funds and other institutional investors were selling stocks and holding cash instead. Goldman Sachs reports that the funds increased their cash holdings to about 2.5% of their total portfolio last fall. That’s a full percentage point up from late last year and the highest level since early 2020.
But ESG inflows remained strong, particularly abroad. ESG accounted for 65% of all flows into European ETFs in 2022, according to Morningstar data.
Take away: “The overall takeaway from 2022 is that ESG products delivered more consistent inflows and ended the year in positive inflows, while the broader fund market posted negative inflows for the year overall,” said Robert Jenkins, Lipper’s head of global research. “This is a good indication that despite some questions and debate surrounding ESG, the underlying trend has remained intact in one of the most difficult investment markets in a generation.”
There is no such thing as a free lunch, and there is definitely no platinum $1 trillion coin. But both would be nice.
The idea of this supercoin has become a popular hypothetical solution to the US debt woes as the country once again hits its self-imposed debt ceiling and faces the possibility of defaulting on its debt.
Here’s the idea floated by some Biden administration officials and Democrats: There is an obscure law that allows the US Treasury Department to mint and circulate platinum coins in any denomination. The Treasury could mint a $1 trillion coin, deposit it with the Federal Reserve, and allow the government to continue paying its bills.
Sounds easy enough, right? Experts disagree. Economists say this bold move to avoid a default would shake confidence in the dollar and the US Treasury as much or more than an actual default. Fueling inflation is also a real possibility, adding $1 trillion to the US economy out of thin air.
This weekend, Treasury Secretary and former Fed Chair Janet Yellen condemned all trillion-dollar coin plans to failure, saying the Federal Reserve was unlikely to accept it.
“It’s really by no means a given that the Fed would do it, and I think especially about something that’s a gimmick,” she said in a Sunday interview with the Wall Street Journal. “The Fed doesn’t have to accept it… It’s up to them what to do.”
The real impact: Yellen told CNN’s Christiane Amanpour on Friday that the impact of a debt default would be felt by every American.
“If that happened, our borrowing costs would go up, and every American would see their borrowing costs going up, too,” Yellen said. “Furthermore, a failure to make payments due, whether to bondholders or to Social Security recipients or to our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.”
Dire warnings about debt ceiling problems are not new, reports my colleague Alicia Wallace. Federal lawmakers have reached agreements in the past, and this Congress has some time — at least until early June, according to Yellen’s public estimates — to reach agreement on whether to raise or suspend the debt ceiling.
According to an article by Brazilian President Luiz Inacio Lula da Silva and Argentine President Alberto Fernandez, Brazil and Argentina are beginning preparations for a new common currency.
“We intend to break down the obstacles to our exchanges, simplify and modernize the rules and encourage the use of local currencies,” they wrote in the article, published this weekend by Argentine website Perfil.
“We also decided to advance discussions on a common South American currency that can be used for both financial and trade flows, reducing operational costs and our external vulnerability,” they said.
Lula also mentioned the idea of a common currency during his campaign, and politicians from both countries discussed the idea in 2019 but were rebuffed by the Central Bank of Brazil.
The inflation rate in Argentina was 94.8% in December.