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Environmental Social Governance

Rapid evolution in the investment world continue to develop. And the Environmental social governance have found their way ( ESG ) criteria have found their way leading to the investment mainstream.  One estimate in mid-2020 put the value of assets under management (AUM) applying ESG principles at more than US$40 trillion. There are some understandable questions raising regarding the rapid growth recently happened in the ESG, how likely sustainable will this upward trend be? If or not the investors will keep pushing towards ESG investment or will there be the same enthusiasm? And many more arguments about the multiple factors which might continue to underpin the case for ESG. In the context three main factors can be highlighted.

The first factor is the increased levels of ESG interest in geographic areas such as Asia.

The second factor is the deepening (figuratively and literally) of ESG investment to include such areas as the “blue economy” and new investment vehicles.

The third factor relates to the impact of COVID-19 on government finances; with these under increasing pressure due to the coronavirus pandemic, private ESG investment may help to counteract shortfalls in areas previously funded by governments or multilateral institutions.

In the recent years there are variations seen in the sustainable investment principles and investor interest in ESG all around the world. Europe being the first and the United states being the second leaders. ESG is broadening out, not just within individual markets but across geographies. There is an increased interest in ESG investment in Asia, growing fast, confounding old “received wisdom” about why ESG would be less applicable in the region. But the applications of ESG many vary according to the regions and some find difficult than other regions.  Many emerging economies, for example, have a growing middle class that may have an increasingly positive attitude towards sustainable investing. And the possible and obvious dangers are visible to these populations. Rising sea levels increasingly concern not only small islands but also some highly developed economies. Another advantage for many Asian economies is the region’s strong technology base, which could help implement much ESG investment (and also provide data to assess its impacts).

The broadening of the investment universe to address the growing interest in new areas such as the “blue economy” and including new financial instruments are the second argument for ESG investment. Biodiversity and nature’s contribution to the global economy has been one factor behind the greater interest in the “blue economy” (defined as economic activity directly or indirectly connected to oceans, coastal areas, lakes and rivers). According to one estimate, so-called “ecosystem services” are worth US$125-140 trillion each year—more than 1.5 times the value of conventionally measured global GDP. In 2019, according to the Climate Bond Initiative, the total issuance volume for green bonds was $257 billion (a new world record), but this is still a small share of the overall bond market. The sub-sector of “blue” finance is even smaller, albeit with some interesting initiatives such as recent fundraising by the Nordic Investment Bank for wastewater treatment, pollution and climate-change adaptation. Meaning that there is a plenty of room for growth in both “green” and “blue” investment. Of course, the ESG-investment path will not be a completely smooth one; debate will, quite rightly, continue around its performance measurements versus those of other investments

Green and blue investment might change, with private-sector funding increasingly complementing that from official national or multilateral sources.

The growing technology in all the three factors will help boost the knowledge on multiple levels from the profound level to profane. Like investing in better suiting long tern needs of the population. . Altogether, we really are living in “environmental times”.

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LexisNexis risk solutions study reveals sharp rise of financial crime compliance costs

Decision makers inside banks, investment firms, asset managers and insurance firms identify the drivers impacting financial crime compliance. LexisNexis® Risk Solutions revealed that the results of its annual True Cost of Financial Crime Compliance Study for the U.S. and Canada. The total projected cost of financial crime compliance for the region is approximately $49.9 billion. The survey illustrates the sharp increase in financial crime compliance costs.

The study projects the average annual cost of financial crime compliance for U.S. financial institutions with $10 billion. Pandemic Continues to Spur Growth. The pandemic continues to negatively impact compliance operations. Sixty eight percent of U.S. respondents report longer times required to complete due diligence. Fifty five percent of U.S. respondents report reduced productivity compared.

More U.S. financial institutions now rank real estate and hospitality as top money laundering risk segments. Crime involving digital payments, trade-based money laundering and money mule schemes are on the rise. Digital currency is a growing problem for Canadian firms. Crimes involving digital payments have the greatest impact on compliance costs. Cryptocurrency crimes have the greatest impact on compliance costs for Canadian firms. The survey results demonstrate that financial institutions are battling a broader set of issues.

Survey respondents indicate that a lack of current and extensive data tops the list of Know Your Customer (KYC). Leslie Bailey, vice president of financial crime compliance strategy for LexisNexis Risk Solutions stated that the study shows clear linkages between the pandemic, digital crime and increasing regulations. Hence, financial institutions need to prepare for expanded compliance obligations and risks from emerging financial crime. Bailey added that digital transformation is a game-changer for financial crime compliance operations.

This will require a sophisticated approach that incorporates insight into digital behaviors. This study surveyed 145 decision-makers in the U.S. and Canada. Responses were collected in June 2019, August 2020 and June 2021. Organizations such as banks, investment firms, asset management firms and insurance firms. The total annual cost of compliance across firms was calculated using survey data. The spend amount was generated by multiplying the average percent allocated to financial crime costs.

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COP26 delegates agree on need to deliver on $100 BLN climate finance pledge

Delegates heading to the COP26 U.N. climate summit in Glasgow. These delegates agreed that they must deliver on the $100 billion per year pledge. COP26 president Alok Sharma said that, it is to help most vulnerable nations for tackling the climate change.

After many days of meetings at the pre-COP26 climate event, which happened in Italy, Sharma said that there was a consensus to do more. Which is to keep the 1.5 degrees Celsius target within reach, adding more needed to be done collectively in terms of national climate plans.

The COP26 conference in Glasgow aims to secure more ambitious climate action. This is from nearly 200 countries, those all that have signed the 2015 Paris Agreement for limiting the global warming, well below 2.0 degrees Celsius. And to 1.5 degrees, above pre-industrial levels.

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City’s exposure to Evergrande is very minimal-Hong Kong finance Chief

Hong Kong’s exposure to debt-laden developer China Evergrande Group is very minimal at 0.05%. This is of banking assets, South China Morning Post reported, citing the city’s finance minister. Financial Secretary Paul Chan told the newspaper that it is very minimal and won’t cause them any systemic risks. He added that he had arrived at the conclusion after a recent audit of the local banking sector’s exposure to the company.

Chan also said that the Hong Kong’s stock market was inevitably subject to some volatility. This is amidst a recent mainland crackdown on some industries. But still he believed any setback would be temporary. With liabilities of $305 billion, Evergrande has sparked concerns its cash crunch could spread through China’s financial system. This may reverberate globally and that is a worry that has eased with the Chinese central bank’s vow, to protect homebuyers’ interests. Evergrande has missed two bond interest payments. Bondholders have said this and its offshore debt, amounting to about $20 billion, trades at distressed levels.

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