SUSTAINABLE INVESTING HIGHLIGHTS - SEPTEMBER 2021 - Pathstone
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SUSTAINABLE INVESTING HIGHLIGHTS
SEPTEMBER 2021Sustainable Investing Highlights
Who is Elizabeth Holmes, and why is she on trial in the Theranos scandal?
The Theranos scandal underscores the need for businesses to foster ESG values and maintain a culture of ethical behavior to manage risk. 1
Bad actors can lead a company into a scandal, with major adverse consequences. 2 Other companies that have been adversely impacted by
orchestrated efforts of bad actors include Wells Fargo, with its account opening fraud, and Volkswagen with its diesel-gate fraud. 34
Elizabeth Holmes, the founder and former executive director of now-defunct Theranos, is on trial for wire fraud. 5 She is accused of
misleading patients, doctors and investors regarding the effectiveness of Theranos technology. 6 Holmes began studying chemical
engineering at Stanford University in 2002. 7 As a sophomore, she dropped out of Stanford University at the age of 19 to focus on
founding Theranos. 8 Holmes’ stated goal was to change the health system by making blood tests more convenient, more affordable, and
more accessible to people. 9 Theranos received widespread media attention and hundreds of millions of dollars in investments from
investors such as Rupert Murdoch, former Minister of Education Betsy Deworth and the Walton family, to name a few. 10
Theranos' fraudulent behavior was revealed in 2015, when the Wall Street Journal published an investigation by John Carreyrou, exposing
how Theranos failed to use their own equipment to test personal blood samples. 11 Carreyrou discovered that Theranos was using ordinary
test equipment instead of their proprietary “Edison” machine, and did not notify its customers or investors. 12 Accuracy was also lacking,
Theranos presented patients with inaccurate test results for diseases such as HIV and cancer. 13
After John Carreyrou’s article, the Security and Exchange Commission launched an investigation and charged Holmes and former
President Ramesh Balwanian with orchestrating an “elaborate, years-long fraud” that raised more than $700 million from investors, who
were led to believe the Theranos portable blood analyzer could conduct comprehensive blood tests from a drop of blood. 14 If convicted,
Holmes faces up to 20 years in prison. 15
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Many climate funds fall short of Paris Agreement targets, according to new research.
A recent study surmised that approximately 70% of funds with a broad “ESG” (environmental, social and governance) mandate are
inconsistent with the goals of the Paris Agreement. 16 The Paris Agreement is a goal promoted by the United Nations to encourage
governments and businesses to cooperate on a global scale to reduce carbon dioxide emissions and help stem global climate change. 17
According to a report by InfluenceMap, “593 equity funds falling into the broad ESG category, some 421 of them – or 71% – scored
negatively on Paris Alignment suggesting their portfolios were contrary to global climate targets.” 18
Even though most of the 130 funds in the “climate issues” category appeared to be better aligned, the majority also lagged, with 55% of
the funds “misaligned” based on their rating scheme. 19 One perspective suggested that many institutional managers focus on tracking error
relative to a benchmark as a risk, and as a result may be better positioned than the benchmark in relative terms. It is worth noting that the
performance of the ratings within the “climate issues” category varies greatly, ranging from an Impax Asset Management strategy receiving
a positive 91% score to two strategies run out of China that received scores of negative 42%. 20 Three products that were specifically
labeled “Paris Aligned” had weak scores that ranged from -19% to -40% 21
InfluenceMap researchers estimated the overall alignment of each fund’s holdings with the Paris Agreement. 22 This score is based on the
Paris PACTA program, which collects production information from more than 3,000 companies in the real estate, fossil fuel, energy, and
automotive industries. 23
The results of InfluenceMap have magnified concerns about “greenwashing”. 24 The US Securities and Exchange Commission ("SEC")
and the German financial market regulator BaFin have increased their scrutiny of asset management firms in recent months. 25
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Remnants of Ida on Household, Energy, Supply Chain, Seafood and Insurance
Companies
For many living at the bottom of the economic ladder in New York City, the storm Ida delivered a scene straight out of the movie
“Parasite”. Many residents in basement apartments and neighborhoods prone to flooding found their toilets turning into waterspouts. For
too many of these unfortunate souls, their apartments turned into a deadly trap. 26
Hurricane Ida delivered a devastating blow on the 16th anniversary of Hurricane Katrina. 27 Before leaving, massive rainfall from Ida
caused some of the worst urban floods in the history of the Northeastern United States. 28 The storm and its aftermath killed more than 40
people, most of whom were killed in floods in New Jersey, New York, Pennsylvania, and Connecticut. 29 Due to abnormally heavy rainfall,
some residents drowned, many of whom lived in basement apartments with limited avenues for exiting. The death toll caused by Hurricane
Ida will likely rise, and the lives of millions of people have been adversely impacted. 30
Individuals are not the only ones affected by Hurricane Ida. Companies, especially those in the energy, seafood, construction, and insurance
sector, have been hit hard. 31 For example, Ida has compounded problems that already plagued the global supply chain, which has been
stretched thin by COVID19, as evidenced by the cost of construction materials, which had increased by about 30% since the outbreak. 32
Hurricane Ida affected the plastic sector, manufacturers who are responsible for the production of approximately 13% of containers and
20% of plastic polyethylene. 33 Due to increasing demand as the economy emerges from the COVID19 lockdown, any continued
disruption of industrial operations in the region could push up costs substantially, in an already tight market. 34 In the short term, Hurricane
Ida may well exacerbate this supply bottleneck. 35 36
The energy sector was also impacted, Hurricane Ida caused a major interruption to the production and distribution of electricity and
natural gas to households hit by the storm. 37 Approximately one million consumers in Louisiana and Mississippi have lost power. 38 Not
only was the power supply affected, the Gulf Offshore Oil Company, which accounts for approximately 17% of US oil production and 5%
of natural gas production, had to leave its facilities due to flooding. 39 The fisheries sector may also be severely affected by Hurricane Ida, if
history is a guide. 40 If the damage of Ida is similar to that of Hurricane Katrina, the seafood industry may suffer huge economic and
financial losses, as fish, shrimp, crabs and other aquatic organisms are adversely impacted. 41
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Remnants of Ida on Household, Energy, Supply Chain, Seafood and Insurance
Companies (Continue )
The insurance industry will also suffer heavy losses from Hurricane Ida is the insurance industry. 42 According to CoreLogic data, damaged
houses in the three states of Mississippi, Louisiana and Alabama are expected to cause insured and uninsured losses of between 27 billion
and 40 billion US dollars. 43 The aftermath of Hurricane Ida has shown how people striving to make ends meet are most vulnerable to the
physical impact of the changing environment. 44
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Amnesty International Report Shows Most Venture Capital Firms Don’t Care about
Human Rights.
According to an international human rights survey conducted by Amnesty International, most venture capital investment companies do not
seek to ensure that their investments will not violate human rights. 45 Amnesty International reported that only one of the world’s largest
venture capital companies has incorporated the UN Guidelines for Business and Human Rights and the OECD Guidelines for
Multinational Enterprises within their due diligence process. 46
The Amnesty International report cites, “Overall, we were not able to find any evidence of human rights due diligence policies for 83% (44
of a total of 53) of the VC firms and accelerators surveyed. Only one firm (Atomico) potentially had human rights due diligence processes
in place that met the standards set forth by the UN Guiding Principles on Business and Human Rights. An additional eight VC firms and
accelerators (15% of all firms surveyed) state that they conduct human rights and /or environmental, social and governance (ESG) due
diligence, though they did not provide sufficient information to allow us to determine whether their policies and processes actually met the
minimum standards set forth in the UN Guiding Principles.” 47
The lack of human rights due diligence emphasized the harsh reality that the products of companies funded by venture capital firms are
often sold to authorities that cause or contribute to human rights crimes. 48 For example, in the nightmarish surveillance infrastructure of
the Uyghur population in Xinjiang, venture capital technology companies are providing spyware hardware and software to the Chinese
government. 49
Pathstone.com | 5Sustainable Investing Highlights
About the SDGs, Targets, and Indicators
The SDGs
The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for
peace and prosperity for people and the planet, now and into the future. At its heart are the 17 Sustainable Development Goals ("SDGs"),
which are an urgent call for action by all countries - developed and developing - in a global partnership. They recognize that ending poverty
and other deprivations must go together with strategies that improve health and education, reduce inequality, and spur economic growth –
all while tackling climate change and working to preserve our oceans and forests. 50
Targets
The SDGs targets are set to be achieved by 2030. There are approximately 169 targets covering a broad range of sustainable development
issues. 51
Indicators
The SDGs indicators are used to measure progress made by the United Nations member states towards the achievement of SDGs targets.
There are approximately 232 indicators set by the United Nations to measure SDGs progress. 52
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Citations
1 Megan Mccluskey. “Silicon Valley Investors Haven’t Let the Theranos Scandal Change the Way They Do Business.” Time Magazine. September 9,
2021. Accessed September 16, 2021.
2 Id.
3 Jody Godoy and Chris Prentice. “ Ex-Wells Fargo execs square off with U.S. regulator in trial over phony account scandal.” Reuters. September 13,
2021. Accessed September 16, 2021. https://www.reuters.com/business/finance/ex-wells-fargo-executives-set-face-civil-trial-scandal-over-phony-
accounts-2021-09-13/
4 Karin Matussek. “VW Diesel Fraud Trial Starts Over Scandal That Won’t Go Away.” Bloomberg. September 16, 2021. Accessed September 16, 2021.
5 Jody Godoy. “Theranos founder's defense may turn on state of mind, experts say.” Reuters. September 7, 2021. Accessed September 7, 2021.
https://www.reuters.com/business/healthcare-pharmaceuticals/theranos-founders-defense-may-turn-state-mind-experts-say-2021-09-07/
6 Chris Morris. “Everything you should know about Theranos CEO Elizabeth Holmes’s federal trial.” Fortune. August 30, 2021. Accessed September 7,
2021. https://fortune.com/2021/08/30/theranos-elizabeth-holmes-trial-date-watch-online-fraud-ramesh-sunny-balwani/
7 Louis Hansen. “Theranos founder Elizabeth Holmes’ mental health records to be released.” East Bay Times. August 26, 2021. Accessed September 7,
2021. https://www.eastbaytimes.com/2021/08/26/theranos-founder-holmes-mental-health-records-to-be-released/
8 Id.
9 Robert Zafft. “Theranos: Elizabeth Holmes’s Witting And Unwitting Accomplices.” Forbes. September 1, 2021. Accessed September 7, 2021.
https://www.forbes.com/sites/robertzafft/2021/09/01/theranos-elizabeth-holmess-witting-and-unitting-accomplices/?sh=65a03e1a69c3
10 Yasmin Khorram. “Theranos founder Elizabeth Holmes will face jury of seven men and five women in fraud trial.” CNBC. September 2, 2021.
Accessed September 7, 2021. https://www.cnbc.com/2021/09/02/theranos-founder-elizabeth-holmes-faces-jury-of-seven-men-five-women.html
11 Daniel Thomas. “Theranos scandal: Who is Elizabeth Holmes and why is she on trial?” BBC News. September 2, 2021. Accessed September 7, 2021.
https://www.bbc.com/news/business-58336998
12 Id.
13 Bobby Allyn. “Elizabeth Holmes Promised Miracles By A Finger Prick. Her Fraud Trial Starts Tuesday.” NPR. August 30, 2021. Accessed September
7, 2021. https://www.npr.org/2021/08/30/1031314018/elizabeth-holmes-theranos-fraud-trial
14 U.S. Security and Exchange Commission. “Theranos, CEO Holmes, and Former President Balwani Charged With Massive Fraud.” U.S. Security and
Exchange Commission. March 14, 2018. Accessed September 7, 2021. https://www.sec.gov/news/press-release/2018-41
15 Michael Liedtke. “Elizabeth Holmes’ trial to dissect downfall of a tech star.” SeattleTimes. September 7, 2021. Accessed September 7, 2021.
https://www.seattletimes.com/business/elizabeth-holmes-trial-to-dissect-downfall-of-a-tech-star/
16 Saijel Kishan and John Ainger. “UBS, State Street Among Firms Whose Green Funds Miss Paris Goals.” Bloomberg. August 26, 2021. Accessed
September 7, 2021. https://www.bloomberg.com/news/articles/2021-08-26/ubs-state-street-among-firms-whose-green-funds-miss-paris-goals
17 Id.
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18 Jamie Gordon. “ ESG and climate funds fall short of Paris Agreement goals, report warns.” ETF Stream. September 1, 2021. Accessed September 16,
2021. https://www.etfstream.com/features/esg-and-climate-funds-fall-short-of-paris-agreement-goals-report-warns/
19 Jamie Gordon. “ESG and climate funds fall short of Paris Agreement goals, report warns.” ETF Stream. September 1, 2021. Accessed September 7,
2021. https://www.etfstream.com/features/esg-and-climate-funds-fall-short-of-paris-agreement-goals-report-warns/
20 Id.
21 Id.
22 Margaryta Kirakosian. “Majority of ESG and climate funds are misaligned with Paris, report claims.” Citywire Selector. August 27, 2021. Accessed
September 7, 2021. https://citywireselector.com/news/majority-of-esg-and-climate-funds-are-misaligned-with-paris-goals-report-claims/a1547203
23 Id.
24 Karrie Gordon. “Increasing Pressure on ESG Managers to Prove Funds Reflect Sustainability Values.” ETF Trends. September 2, 2021. Accessed
September 7, 2021. https://www.etftrends.com/esg-channel/increasing-pressure-on-esg-managers-to-prove-funds-reflect-sustainability-values/
25 Hazel Bradford. “Many climate funds fall short of Paris Agreement goals – report.” Pension & Investment. August 27, 2021. Accessed September 7,
2021. https://www.pionline.com/esg/many-climate-funds-fall-short-paris-agreement-goals-report
26 Bob Henson and Jeff Masters. “Northeast pummeled with colossal flooding, destructive tornadoes.” Yale Climate Connections. September 2, 2021.
Accessed September 8, 2021. https://yaleclimateconnections.org/2021/09/northeast-pummeled-with-colossal-flooding-destructive-tornadoes/
27 Matt Haines. “Six Major Contrasts Between Hurricanes Ida, Katrina.” VOANEWS. September 1, 2021. Accessed September 8, 2021.
https://www.voanews.com/usa/six-major-contrasts-between-hurricanes-ida-katrina
28 Id.
29 Vivian Ho. “First Thing: remnants of Hurricane Ida hits north-eastern US, killing over 40.” The Guardian. September 3, 2021. Accessed September 8,
2021. https://www.theguardian.com/us-news/2021/sep/03/first-thing-remnants-of-hurricane-ida-hits-north-eastern-us-killing-over-40
30 Jan Wesner Childs. “As Ida's Death Toll Rises in Louisiana, 7 Nursing Homes Have Licenses Revoked.” The Weather Channel. September 7, 2021.
Accessed September 8, 2021. https://weather.com/news/news/2021-09-07-hurricane-ida-louisiana-nursing-homes-power-outages
31 Ariel Cohen. “Hurricane Ida Puts America’s Energy Security To The Test.” Forbes. September 1, 2021. Accessed September 8, 2021.
https://www.forbes.com/sites/arielcohen/2021/09/01/hurricane-ida-puts-americas-energy-security-to-the-test/?sh=59c620864c99
32 Martha C. White. “Rebuilding after Hurricane Ida will be costly. Experts blame the pandemic and climate change.” NBC News. September 7, 2021.
Accessed September 8, 2021. https://www.nbcnews.com/business/business-news/rebuilding-after-hurricane-ida-will-be-costly-experts-blame-
pandemic-n1278621
33 Kevin Crowley. “Record Plastic Prices May Go ‘Stratospheric’ on Hurricane.” Bloomberg. August 27, 2021. Accessed September 8, 2021.
https://www.bloomberg.com/news/articles/2021-08-27/record-plastic-prices-may-go-stratospheric-on-gulf-coast-storm
34 Peter S. Goodman. “Hurricane Ida could make the supply chain disaster even worse.” New York Times. August 31, 2021. Accessed September 8,
2021. https://www.nytimes.com/2021/08/31/business/hurricane-ida-supply-chain-shortages.html
35 Id.
36 Peter C. Earle. “Hurricane Ida Threatens Global Plastic Markets.” American Institute for Economic Research. August 30, 2021. Accessed September
8, 2021. https://www.aier.org/article/hurricane-ida-threatens-global-plastic-markets/
37 Christopher M. Matthews. “Hurricane Ida’s Fallout Continues to Cripple U.S. Oil Production.” Wall Street Journal. September 8, 2021. Accessed
September 8, 2021. https://www.wsj.com/articles/hurricane-idas-fallout-continues-to-cripple-u-s-oil-production-11631104257
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38 Jason Samenow, Matthew Cappucci, Hannah Knowles, Brittany Shammas and María Luisa Paúl. “Nearly 1 million customers without power as
Hurricane Ida charges inland.” August 29, 2021. Accessed September 8, 2021. https://www.washingtonpost.com/weather/2021/08/29/hurricane-ida-
live-updates/
39 Collin Eaton and Jennifer Hiller. “Oil Industry Surveys Damage After Hurricane Ida Slams Louisiana.” Wall Street Journal. August 30, 2021.
Accessed September 8, 2021. https://www.wsj.com/articles/oil-industry-surveys-damage-after-hurricane-ida-slams-louisiana-11630333238
40
Deepa Shivaram. “Divers Are Investigating The Source Of Oil Spill Off The Coast Of Louisiana.” NPR. September 5, 2021. Accessed September 8,
2021. https://www.npr.org/2021/09/05/1034458509/divers-are-investigating-the-source-of-oil-spill-off-the-coast-of-louisiana
41 Id.
42
Pippa Stevens. “Hurricane Ida’s damage tally could top $95 billion, making it 7th costliest hurricane since 2000.” CNBC News. September 8, 2021.
https://www.cnbc.com/2021/09/08/hurricane-idas-damage-tally-could-top-95-billion-making-it-7th-costliest-hurricane-since-2000-.html
43 Id.
44 Leah Willingham and Jay Reeves. “As Ida hit, homeless, other vulnerable people left behind.” AP News. September 2, 2021. Accessed September 8,
2021. https://apnews.com/article/lifestyle-d0294780c92b14ac1be2da3cdc13abe0
45
Michael Kleinman. “Venture capital undermines human rights.” Tech Crunch. August 4, 2021. Accessed September 8, 2021.
https://techcrunch.com/2021/08/04/venture-capital-undermines-human-rights/
46
Edward Ongweso Jr. “Venture Capitalists Don’t Care About Human Rights Abuses, Amnesty Report Shows.” Vice. August 4, 2021. Accessed
September 8, 2021. https://www.vice.com/en/article/g5gk9b/venture-capitalists-dont-care-about-human-rights-abuses-amnesty-report-shows
47 Amnesty International. “ Risky Business: How leading venture capital firms ignore human rights when investing in technology.” Amnesty
International. July 30, 2021. Accessed September 8, 2021. https://www.amnesty.org/en/documents/doc10/4449/2021/en/
48
Id.
49 Id.
50 United Nations Statistics Division. "SDG Indicators: Global indicator framework for the Sustainable Development Goals and targets of the 2030
Agenda for Sustainable Development." N.d. Accessed September 8, 2021 https://unstats.un.org/sdgs/indicators/indicators-list
51 Id.
52 U.S. National Statistics for the U.N. Sustainable Development Goals. "SDG Targets and Indicators." U.S. National Statistics for the U.N. Sustainable
Development Goals. N.d. Accessed September 8, 2021. https://sdg.data.gov/
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Disclosures
The information provided in this commentary is intended to be educational in nature and not advice relative to any investment or portfolio
offered through Pathstone. The views expressed in this commentary reflect the opinion of the author based on data available as of the date
this commentary was written and is subject to change without notice. This commentary is not a complete analysis of any sector, industry
or security. Individual investors should consult with their financial advisor before implementing changes in their portfolio based on
opinions expressed. The information provided in this commentary is not a solicitation for the investment management services of
Pathstone. The graphs and tables included herein have been provided by commercial databases and, while we believe the information to be
reliable, we assume no responsibility for any error or omission. The recipients of this communication assume all risks in relying on the
information set forth herein. Past performance of any investment, industry, asset class or investment strategy is no guarantee of future
performance.
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