Venture investors found lacking on human rights due diligence

Good morning from New York. We always hate to open the newsletter on a downer, but sometimes we have no choice. This is the last time I’ll be writing for Moral Money. Don’t worry, Moral Money isn’t going anywhere. Gillian, Patrick, Kristen and the rest of the gang will still be delivering everything you need to know about ESG twice a week. But I am leaving the FT to pursue a new career outside journalism.

I wanted to start today by thanking all of our readers. You have been amazing since day one. Without your support we would not have been able to build what we have in the past two years. It’s been great meeting some of you in person (back when we could still meet people in person), and we always appreciate your feedback — even if we don’t always have time to respond, we do read everything that comes in.

I also wanted to take a second to reflect on how far we’ve come. When we started Moral Money, we had an idea that ESG was going to be a hot topic (if we didn’t, we probably wouldn’t have bothered launching a newsletter), but I don’t think we had any idea how big it would be.

Already, we’ve seen trillions of dollars flow into sustainable investments and once-obscure acronyms like TCFD enter the mainstream. (That’s the Taskforce on Climate-Related Financial Disclosures, if you’re new here).

The zeitgeist — to use one of Gillian’s favourite words — has shifted.

But still, it’s clear that we are in the early innings and there are some serious questions that need to be answered about whether or not ESG actually delivers (both financially and otherwise).

Will corporate net-zero pledges ever translate into global emissions reductions? Despite all the talk, every passing year still brings a new record for greenhouse gases being pumped into the atmosphere. Or is sustainable investing actually detrimental to the climate as some have suggested? Is ESG a passing fad only fit for “dupes”? What will it take to convince companies to treat their workers better and fight inequality? The list goes on.

Our goal at Moral Money has always been to “illuminate not advocate” and I have no doubt the team will be shedding light on these issues and more. I will be reading every week to see what they uncover. — Billy Nauman

Exclusive: Venture investors found lacking on human rights due diligence

Human rights are a perennial risk that public companies must navigate, from the Uyghurs in Xinjiang to fair pay for gig workers. But private start-ups funded by venture capitalists have rarely seen such scrutiny — until now.

Amnesty International this year contacted the 50 largest venture capital firms and three start-up accelerators to ask if they reviewed human rights concerns during investment due diligence. Only six responded.

That’s according to a report Amnesty plans to release today alleging that venture capitalists “operate with little to no consideration of the broader human rights and societal impact of their investment decisions”.

“If they don’t even care enough to respond, how can we have any faith that they are taking any human rights into account when they are making investment decisions?” said Michael Kleinman, director of the Silicon Valley Initiative at Amnesty.

Only one firm, London-based Atomico, potentially had sufficient human rights due diligence processes in place to satisfy the UN’s guiding principles on business and human rights, Amnesty said. 

Still, Atomico had “not fulfilled the requirement to publicly account for how they address real and potential human rights impacts of their investments”, Amnesty said. Atomico declined to comment.

Amnesty’s report is a rare case of environmental, social and governance campaigners targeting venture capital firms, which play an important gatekeeper role in providing early funding to promising technology start-ups.

Of the 10 largest venture capital firms, Insight Partners and Norwest Venture Partners were the only ones that responded to Amnesty. It said both appeared to have a human rights due diligence process but could not determine whether they met the UN’s guiding principles. Insight declined to comment, and Norwest said its investments were consistent with the principles. 

The other top firms — Tiger Global Management, Sequoia Capital and Andreessen Horowitz among others — did not reply to Amnesty’s requests. Tiger Global and Sequoia declined to comment, and Andreessen did not respond to requests for comment.

Big endowments and pension funds in the US and Europe provide important funding for venture capital firms. Since these investors typically favour ESG disclosures, venture capitalists should be ready for increasing questions about human rights in the near future. (Miles Kruppa)

IFRS’s sustainability project: Who is in charge?

© Bloomberg

Earlier this year, we jokingly referred to the International Financial Reporting Standards’ sustainability reporting project as “one small step for man, one giant leap for ESG accounting standards”.

But a reference to the Apollo project turned out to be appropriate. On Thursday, a public comment period closed for the IFRS’s Sustainability Standards Board initiative, which Bank of America’s Brian Moynihan and others are supporting.

Dozens of companies and organisations worldwide wrote in and their comments underscore the Herculean effort IFRS faces to finish rigorous sustainability reporting standards. 

Commenters raised concerns about who would be in charge of the SSB. Part-time SSB board members, who are also employed elsewhere, “could give rise to independence concerns” and detract from the ultimate effectiveness of the project, said the Investment Company Institute, a lobbying group for asset managers.

Allianz, Europe’s largest insurance company, raised concerns that SSB “at-large” seats could go to people from regions “more advanced in this area” — such as Europe — and that might “compromise global acceptance” of the project.

More broadly, Allianz pushed for comprehensive ESG reporting standards and “strongly urge[d]” IFRS to reconsider SSB’s materiality perspective.

The ICI also called for rewrites. The IFRS proposal risks mixing material information with other titbits that activists are demanding, ICI said. “This approach could result in information provided to investors being non-investment relevant, non-material, and disproportionately targeting aspects that lead to confusing disclosures,” the group said.

These squabbles suggest a tougher regulatory approach might be needed for ESG disclosures — such as the regulations established by Europe and under consideration in the US. For now, a looser, standard-setting approach appears to be a moonshot bet. (Patrick Temple-West)

When will ESG standards blast off to space?

Jeff Bezos

The space forays of Jeff Bezos and Richard Branson this month marked the beginning of what could, by 2031, become a $2.58bn space tourism industry — one that stands in juxtaposition to both billionaires’ sustainability and climate change mitigation efforts. 

Branson’s Virgin Galactic, which used a hybrid rocket motor, said it had a focus on “environmental sustainability”. It likened the carbon footprint of its VSS Unity launch to a transatlantic flight. But, as our Lex colleagues point out, the journey produced 12kg of CO2 per passenger, per mile, versus 0.2kg of CO2 for a commercial airline flight.

Blue Origin claims its New Shepard rocket, which relies on liquid hydrogen rather than carbon-based fuel, is greener than VSS Unity, but this isn’t a fair comparison, said Eloise Marais, associate professor in physical geography at University College London.

“[It is] like comparing different types of fossil fuels. His comparison was also only for one aspect of the impact on the environment,” Marais said.

Bezos’s trip over the Kármán line released nitrogen oxide and water vapour. The negative impact of these emissions compound when released in the stratosphere. 

“They’re essentially being released directly into the layer where they can deplete ozone,” Marais told Moral Money.

Bezos has said he would split his time between Blue Origin and the Earth Fund, his $10bn fund to fight climate change. But these efforts, along with Amazon’s net-zero Climate Pledge, stand at odds. 

“They are potentially contradictory,” Marais said. “Unfortunately there are unavoidable pollutants that are emitted from his rocket launch so I definitely see it being steeped in irony,” Marais said of Bezos’ dual mission.

We’ll be watching for when ESG standards for the space tourism industry prepare for lift off. (Emily Goldberg)

The fight over an Alaskan mining project

Remote Alaska
© AP

Residents of the Alaskan town of Haines — population 1, 863 — are pushing back on a mining project over concerns it would threaten the local fishing industry as well as waterways used by the Chilkat tribe.

The Palmer project, led by Japanese mining company Dowa and Constantine Metal Resources, has since 2008 discovered 10m tons of copper and zinc during the “exploratory” phase of the project.

While this figure makes it a “relatively small” mine according to Constantine, residents are still worried about the potential water pollution effect on local fishing, which is fundamental to the culture of the nearby Chilkat Indian village of Klukwan.

“It’s modern-day colonialism,” Gershon Cohen, founder of the Alaska Clean Water Advocacy, said of the Palmer project. Cohen warned that even in the exploration phase, the project could significantly have an impact on the town’s source of food.

The story highlights the wider ESG risks that stalk mining groups these days — and draws parallels with last year’s Rio Tinto scandal, in which the mining group’s destruction of a 46,000-year-old sacred Aboriginal site resulted in swift backlash and executive resignations.

After the Supreme Court last year sided with clean water advocates in upholding the Clean Water Act, Constantine has had to rethink how the mine would dispatch water.

Constantine said the project offered an upside — once mining begins, the project could result in 200 to 250 full-time workers, plus contractors.

“We’re not interested in building something that would be a risk to the environment”, Garfield MacVeigh, chief executive of Constantine Metal Resources told Moral Money. (Kristen Talman)

Smart read

More than 50 large investors, including JPMorgan and M&G, are demanding companies publish details of efforts to tackle climate change and give shareholders a vote on their plans. The group is calling on companies to disclose a plan to cut their greenhouse gases, make a board director responsible for those actions and allow investors to vote annually on progress on the plan. The joint statement builds on the work done by billionaire hedge fund investor Chris Hohn, who popularised the concept of a so-called “say on climate” vote last year.

Further Reading

  • Passive ESG investors do not understand flaws, says CEO (Ignites)

  • Capitalists can play a vital part in saving US democracy (FT)

  • Activist hedge funds bet big on a new weapon: ESG (FundFire)

  • Column: Rio’s lithium project will test mining’s ESG credentials (Reuters)

  • Washington’s oil lobby pivoted on climate change — and made no one happy (WSJ)

  • Walmart now offering free college tuition and books to its 1.5 million US employees (Washington Post)

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