Is ESG Overrated?

Plus: And now a word from your Amazon Prime sponsor ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

June 8, 2023

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TOGETHER WITH

Good morning.

If you live in the Northeast, the world has looked and in many ways acted like something out of a low-budget post-apocalyptic movie these past couple days.

Clouds of smoke from Canadian wildfires have blown south, blanketing states along the coast, creating poor air quality and low visibility. Conditions are supposed to clear up today and tomorrow, but people should expect higher-than-normal activity for the rest of this wildfire season, which has already burned more than 3.7 million acres in Canada. To stay safe and avoid significant smoke inhalation, limit your time outside and wear a face mask when you do. Also, stock up on guzzolene, as Mad Max Rockatansky calls it. It will be the currency in the new wasteland.

Morning Brief

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Can the EU clean-up ESG ratings?

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A word from your Amazon Prime sponsor.

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New York goes after Hyundai and Kia.

ESG

The EU Wants to Regulate ESG Rating Agencies

Who watches the ESG watchmen?

They may be the newest kids on the block, but like most ratings agencies in the financial services world, the fresh crop of firms grading companies on their environment, social, and governance credentials are already being tagged with concerns over conflicts of interest. New EU rules set to be proposed by the European Commission next week aim to keep the ratings agencies in check — in a socially sound way with zero carbon footprint, we expect.

Underrated or Overrated?

The International Organization of Securities Commissions has been urging global regulators to keep a watchful eye on ESG data providers since 2021. And it’s easy to see why. Global ESG Investment could soar to as high as $50 trillion by 2025, according to a Bloomberg Intelligence estimate, roughly triple where it stood in 2014. And as investments continue to increase, just a small group of data firms came to virtually corner the ratings agency market, with groups like Institutional Shareholder Services and S&P Global launching influential ESG ratings divisions.

Meanwhile, deciding what does and doesn’t count as effective ESG investing can often appear arbitrary — with critics accusing groups of claiming borderline investments to “greenwash” their books. And ratings groups aren’t doing themselves any favors to defend against those charges. For example: At the end of April, a wave of ESG ratings downgrades from MSCI’s prominent ESG division were set to knock down the percent of funds earning its highest rating from 20% to just 0.2%. MSCI said it aimed to address a discernible “upward drift” in scores. At the same time, MSCI’s criteria for such judgments are often completely different from its industry peers.

That’s a big red flag for big green. The EU’s new rules could clean things up:

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The draft proposal cautions against the ratings agency industry’s “divergences, lack of transparency and absence of common rules,” according to the Financial Times. “Confidence in ratings is being undermined,” the legislation says, with language included that would push member states against introducing their own independent rules.

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The legislation would also require the roughly 60 ratings agencies operating in the EU to show their ESG ratings are appropriately firewalled from other business interests, such as auditing and consulting.

“Quite a number of [agencies] today provide consultation services and ratings, so they are not going to like that, but frankly it is good practice,” Thierry Philipponnat, chief economist at the NGO Finance Watch, told the FT.

Count US Out: While the EU looks to regulate its ESG industry, the rest of the world may be blowing it off entirely. In the recently published Global Asset Management Survey, data firm Linedata found that the percentage of the 265 buy-side institutions who claimed ESG as a high-priority jumped from 37% in 2021 to 40% — but only thanks to our zealously green friends in Europe, where support lept from 41% to 63%. In North America, support fell from 33% in 2021 to 22%. Hopefully Kermit the Frog has a passport.

– Brian Boyle

Media

Ads May Be Coming to Amazon Prime Video

(Photo credit: Glenn Carstens-Peters/Flickr)

Just think of it as Amazon trying to make sure you have plenty of breaktime during your favorite shows to, you know, grab a snack, use the bathroom, and maybe even make an impulsive online shopping purchase.

On Wednesday, The Wall Street Journal reported the e-commerce giant is considering adding an ad-supported tier to Prime Video. It’s just the latest attempt from streamers to bolster paltry revenue streams.

Prime Time Commercials

It’s been a little over a year since the great Netflix correction — when the streaming pack leader reported a decline in subscribers for the first time ever, sending investors into a tizzy and turning the streaming industry’s growth-over-everything philosophy on its head. “Wall Street woke up and said, ‘Actually, profitability is the only metric,’” one anonymous senior executive at a major streamer recently told New York Magazine.

To stabilize its suddenly-shaky subscription revenue, Netflix has introduced once-forbidden commercials on its platform via a cheaper ad-supported $6.99 subscription tier, which the service now claims is more lucrative on a per-subscriber basis than the standard $15.49 per month plan. Disney and Warner-Discovery quickly followed suit with their own streaming services, and now Amazon — an all-encompassing giga-giant for whom streaming remains more of a curio — appears to be doing the same:

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Amazon has already dipped its toes in streaming ads, via commercial breaks during its sports broadcasts, like the NFL’s Thursday Night Football, and via FreeVee, its free ad-supported streaming TV (FAST) service that rivals Tubi and Pluto.

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Prime Video is currently included with all Amazon Prime subscriptions and is available as a standalone service for $8.99 per month. The e-commerce giant is considering adding ads for all existing users and introducing a more expensive ad-free tier, sources told the WSJ.

Ads have already become an increasingly important piece of Amazon’s e-commerce business, generating $9.5 billion in the first quarter, up 21% year-over-year. Meanwhile, it spent $7 billion last year on original streaming programming, sports rights, and licenses to third-party shows and movies, CFO Brian Olsavsky said in February.

What Channel Is It On? Commercials aren’t the only alternative revenue model streamers are starting to explore. After spending billions to create new platforms to serve as the exclusive home for their back-library of content (often walking away from lucrative licensing deals in the process), entertainment conglomerates are once again interested in selling their content to third parties — meaning the next time you want to watch The Lion King, it may not be on Disney+. What exactly are we paying these streaming services for again?

– Brian Boyle

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Automotive

NYC Sues Hyundai and Kia Over Constant Car Thefts

The Big Apple thinks South Korean cars are a steal. And it’s taking legal action.

New York City is the latest metropolis to sue carmakers Hyundais and Kia because their vehicles are easy targets for thieves. The city claims the “virtual explosion” in carjackings recently “opened the floodgates to vehicle theft, crime sprees, reckless driving, and public harm.”

Easy as 1, 2, 3

The South Korean carmakers are known for producing some of the cheapest rides on the market. The 2022 Kia Rio sedan is priced at just $16,500 MSRP, and Hyundai’s latest Venue subcompact SUV is only $19,500. The problem is bargain prices like that often come with setbacks.

NYC blames Hyundai and Kia for failing to outfit the majority of their vehicles with immobilizers — anti-theft measures in key fobs and ignitions that keep crooks from hot-wiring cars. By 2015, immobilizers were standard in 96% of new vehicles on the market but only 26% of Hyundai and Kias, according to the Insurance Institute for Highway Safety. All of this, the city argues, led to an uptick in stolen car reports. The Financial Times reported that in the last quarter of 2022, Hyundai thefts surged from 12 to 104 in New York while Kia thefts jumped from 10 to 99:

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Despite what movies like “Gone in Sixty Seconds” would have you believe, most thieves aren’t looking for the big score. They’re looking for something easy to steal, and Hyundai and Kia are a walk in the park. The Kia Boys is a viral TikTok trend where teens steal Kias with nothing more than a screwdriver and a USB cable because they fit well in the cars’ ignitions.

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NYC joins other major cities that have sued the two companies including St. Louis, Cleveland, San Diego, Milwaukee, Baltimore, Seattle, and Columbus, Ohio. Last month, Hyundai and Kia settled a $200 million class action lawsuit that covered 9 million drivers in the US.

Bad Reputation: In addition to lawsuits and settlements, Hyundai and Kia are having to spend money upgrading people’s cars with new safety software and free wheel locks. “The issue will negatively affect the carmakers’ brand image, making some customers shun Hyundai and Kia cars,” Lee Hang-koo, adviser at Korea Automotive Technology Institute, told the FT. “The ballooning legal costs and compensation amount will also eat into their finances.” Maybe throw in some car fresheners. That might do the trick.

– Griffin Kelly

Extra Upside

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Biggest thing since grunge: Seattle is the US city with the most pickleball courts.

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You call this writing: Black Mirror creator asked ChatGPT to write an episode of Black Mirror. It was terrible.

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LIV free or dive hard: Lionel Messi rejects Saudi wealth, joins MLS.

Just For Fun

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Serious skill.

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