WRIT340 - AMDP Investment Proposal Memo

 From: Thomas Beaudet, Research and Development

To: Clark Hansen, CEO

Subject: The Dirty Dozen

Date: February 22, 2023

Summary

You asked me to recommend a business worthy of receiving a divestment from Anima Mundi Development Partners. After extensive research, I recommend AMDP divest from 12 megabanks, commonly referred to as “the Dirty Dozen.” This dozen includes Barclays, JPMorgan Chase, Citi, Wells Fargo, Toronto Dominion, Royal Bank of Canada, Deutsche Bank, Credit Suisse, Bank of Tokyo Mitsubishi, Mizuho Bank, BBVA, and Credit Agricole. 

I call for the divestment of this set of assets, for the reason that they do business with a destructive disregard for the “planet” strand of the triple bottom line we do business by, which will also lead to a fall in their “profit” over time, so our returns, to refer back to the model.

For your convenience, I go into more detail below, starting with the terminology.

Terminology

Triple Bottom Line: The triple bottom line is a method of combining a company's social and environmental goals with its financial goals. The three elements of the triple bottom line are people, planet and profit. (“Triple Bottom Line (TBL): What It Is and How It Works”)

Corporate Social Responsibility: Corporate Social Responsibility (CSR) is commonly defined as a business model in which companies integrate social and environmental concerns in their business operations and interactions with their stakeholders instead of only considering economic profits. (“What Is Corporate Social Responsibility (CSR)?”)

Social Enterprise: A social enterprise refers to a business with certain social objectives as its primary goal while using a commercial structure to run the organization. Social enterprises usually attempt to make a strong societal impact while maximizing their profit. (“Social Enterprise”)

Carbon Footprint: Refers to the total amount of greenhouse gases a person, business, household or group emits. Greenhouse gases (GHG) trap heat in the atmosphere, making the planet warmer in the "greenhouse effect", and contributing to man made climate change. Most GHG occur when fossil fuels are burned, which creates carbon dioxide, or CO2. Because emissions are measured both directly and indirectly, it is difficult to capture a corporation’s total emissions impact. So, different types of emissions are divided into 3 scopes:

• Scope 1 emissions: These are everything that a company directly uses and controls to operate e.g. fuel for your fleet.

• Scope 2 emissions: These measure what a company uses indirectly, such as the energy you buy to run your facility or create your products. 

• Scope 3 emissions: These emissions relate to the entire value chain of a business, such as waste disposal.

Reducing business carbon footprint may save money, tracking emissions will help identify inefficiencies, and customers may prefer businesses with lower emissions. 

(“What Is a Business Carbon Footprint & Why Does It Matter? - Ferguson”)

Background 

“Include: What the 12 companies do, how old they are on average, how they are perceived in their field, and something about their financial track record (growth, profit, loss, etc.)

The description should include a summary of the company’s own claims regarding its business practices in the areas AMDP is interested in. Please provide a citation of your source (I might use 1 or 2 banks from the dozen to represent the whole, e.g. JP Morgan Chase, the biggest one)”

Expert Opinions (to sort/choose)

Expert Opinion 1: NAME, ROLE at ORGANISATION

Expert Opinion 2: NAME, ROLE at ORGANISATION

““Wall Street’s climate impact is a huge part of our country’s climate impact,” said Jason Opeña Disterhoft, climate and energy senior campaigner at Rainforest Action Network. As a result, big banks are “really important and potentially high-yield targets for the climate movement.”” (Cohen)

“A report released in March 2021 by Rainforest Action Network in partnership with several other environmental and financial accountability organizations revealed that the world’s 60 biggest banks provided $3.8 trillion worth of financial support for fossil fuel projects in the five years since the international Paris Agreement (2016-2020). Such projects included the controversial Line 3, Mountain Valley, and CoastalGas Link pipelines.

Last December, a report from the Center for American Progress and the Sierra Club found that together, eight major US banks and 10 major US asset managers financed the equivalent of nearly 2 billion tons of carbon dioxide in 2020—that’s more than is emitted annually by Russia and almost as much as emitted by India, respectively the world’s fourth- and third-largest emitters. Such action undermines stated commitments like that of JPMorgan Chase (the largest fossil fuel financier, to the tune of $317 billion from 2016–20, according to the RAN report) to drive “sustainable economic development that leads to a greener planet and critical investments in underserved communities” and of Bank of America ($198 billion of fossil fuel funding from 2016-2020) to “accelerate the transition to a net-zero global economy”.” (Cohen)

“Divestment can make good financial sense for your portfolio. Over the long term, as the effects of climate change become more apparent, and as more and more governments adopt policies to limit carbon pollution, the carbon resources that fossil fuel companies currently count as assets will shift to liabilities. Studies by numerous analysts, including the London School of Economics, the Aperio Group, HSBC, and Impact Asset Management, demonstrate that fossil fuel companies may be overvalued by as much as 40 to 60 percent. Financial analysts call this overvaluation the "carbon bubble" and explain that it could cause similar financial turmoil to previous overvaluations (like the 2007 "housing bubble") when it bursts. Divestment now could protect your assets in the future. But what to do with the money you divest from the fossil fuel companies? Answer: Reinvest in the clean energy future.” (“Steps to Divest & Reinvest: From Fossil Fuels to Clean Energy | Green America”)

In their Environmental Policy Framework, Goldman Sachs explained that as a “global financial institution”, they “serve clients in all industries, including those in carbon intensive sectors of the global economy. For the foreseeable future, carbon-intense energy sources will continue to be part of” Goldman’s “global energy mix”, even with “increasing policy and regulatory constraints.” (“Goldman Sachs | Environmental Policy Framework”)

Recommendation

AMDP invests in companies that are committed to doing business according to the Triple Bottom Line: People, Planet, and Profit.

I recommend AMDP divests from the “Dirty Dozen”. This will ensure stable, increasing, and long term return on investments, and simultaneously protect the planet and AMDP’s portfolio from the burst of the “carbon bubble”. This will lay the foundations for greener investments at AMDP, as “a divest-invest strategy is the most financially responsible path for institutional investors” such as AMDP (Report: Invest-Divest 2021 – Global Fossil Fuel Commitments Database) 

Works Cited

Cohen, Ilana. “Why I Divested My Bank Account and You Should Too.” Www.thenation.com, 19 Jan. 2022, www.thenation.com/article/environment/bank-divestment-climate/. Accessed 27 Feb. 2023.

“Goldman Sachs | Environmental Policy Framework.” Www.goldmansachs.com, www.goldmansachs.com/s/environmental-policy-framework/#climateChangeGuidelines. Accessed 27 Feb. 2023.

Report: Invest-Divest 2021 – Global Fossil Fuel Commitments Database. divestmentdatabase.org/report-invest-divest-2021/.

“Social Enterprise.” Corporate Finance Institute, 14 Dec. 2022, corporatefinanceinstitute.com/resources/esg/social-enterprise/.

“Triple Bottom Line (TBL): What It Is and How It Works.” Indeed Career Guide, 15 Feb. 2021, www.indeed.com/career-advice/career-development/the-triple-bottom-line.

“What Is a Business Carbon Footprint & Why Does It Matter? - Ferguson.” Www.ferguson.com, 8 Feb. 2018, www.ferguson.com/content/trade-talk/business-tips/what-is-a-business-carbon-footprint-and-why-does-it-matter.

“What Is Corporate Social Responsability (CSR)?” HEC Paris, www.hec.edu/en/faculty-research/centers/society-organizations-institute/think/so-institute-executive-factsheets/what-corporate-social-responsability-csr.