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BlackRock Shows Resolve and Restraint in Public Climate Test (Advisor Perspectives, 4 min read) BlackRock screened 244 companies that weren’t doing enough for climate change. It voted against 53 directors and warned the rest to make progress on climate change in the coming 12-month issues or else their directors would be voted against as well. [Bullish ESG]
UU Department of Labor Proposes New Investment Duties Rule (DoL, 3 min read) The Department of Labor has proposed a rule that might ban the ability of corporate-sponsored retirement accounts (e.g. 401(k)s) from holding ESG funds. It also states that retirement plans are not vehicles for furthering social goals; rather, the focus should be on providing for the retirement security of the workers. Currently, 401(k)s hold $5.6tn AuM. [Bearish ESG]
A Theory of Social Impact Bonds (NBER, 23 page read) This paper shows that social impact bonds, which are a financing mechanism for public goods, can expand the set of implementable projects for government. Specifically, they do this if they are pessimistic about the success of an intervention or if they are averse to paying costs associated with a project that does not generate offsetting benefits.
Natural Disasters, Climate Change and Sovereign Risk (IFDP, 18 page read) This paper investigates how natural disaster can exacerbate fiscal vulnerabilities and trigger sovereign defaults. It extends a standard sovereign default model to include disaster risk and calibrate it to a sample of seven Caribbean countries that are frequently hit by hurricanes. The author shows that hurricane risk reduces a government’s ability to issue debt and that climate change may further restrict market access.