Presented by Charles Tyrwhitt

Hi John, here's what you need to know for November 18th in 3:12 minutes.

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• Company executives and investors have been discussing environmental, social, and governance issues
• Political machinations in the UK have left investors in telecoms firm BT unnerved

Arm-and-a-leg-ageddon

What’s Going On Here?

Last week, Goldman Sachs hosted a conference for companies and investors to discuss how their environmental, social, and governance (ESG) responsibilities would impact them – and how to make sure they don’t lose money if the apocalypse arrives.

What Does This Mean?

Climate change and its implications for the energy industry were front and center of the discussion, especially in light of a recent report estimating the crisis would cost the world’s biggest companies a combined $1 trillion. Some companies see renewable energy as the long-term solution, but they're still not sure how to store it. In the meantime, natural gas – which is less damaging than coal – appears to be their preferred alternative.

Investors weren’t necessarily having these conversations altruistically: research has shown that the top ESG funds are generating better returns than their less socially responsible peers.

Why Should I Care?

For you personally: Governance begins at home.
A recent report by the Wall Street Journal found that eight of the top ten ESG funds are invested in oil and gas companies – which may be at odds with what you’d expect from an “environmental” fund (tweet this). There’s not much oversight of ESG funds, partly because there’s no single definition of what actually qualifies as ESG. And because these funds typically aim to track the broader stock market, they still have to invest broadly – including in sectors that aren’t socially responsible.

For markets: Investors have been getting in on the action.
"Institutional" investors might be more worried about “ESG crowding”. That’s where companies that have high ESG ratings – and are therefore bought up by ESG-focused funds – see their valuations rise thanks to increased demand. According to Goldman Sachs, such companies are 40% more expensive than the stock market as a whole. That might dissuade would-be investors, who may instead look for cheaper opportunities elsewhere.

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Openreach Overreach

What’s Going On Here?

Elections can be a tricky time for investors, as political parties vying for office make big promises that might not actually happen. And one of Britain’s frontrunners did just that late last week, announcing that it’d partly nationalize telecoms company BT if it were to win.

What Does This Mean?

BT was owned by the UK government until the late eighties, after which its initial public offering allowed anyone to buy and sell its shares. Nationalization would mean taking the company out of public hands and putting it back into the government’s, like Saudi Arabia’s national oil company, Aramco.

In this instance, the conversation is around a partial renationalization of BT – specifically its Openreach business, which installs and maintains the cables that deliver internet services across the UK. That could hurt BT: Openreach contributed 10% of BT’s revenue last year, and a quarter of its profit. But it might benefit the Brits: if Openreach were government-owned, it could provide the entire country with free broadband.

Why Should I Care?

For you personally: The nationalization anthem.
BT’s investors – including the millions of people who own shares in the company directly or through their pensions – may worry they’ll be short-changed. The current proposal is to pay them with government bonds, which are safer than stocks but don’t offer as much potential for big gains. And by cleaving off a quarter of BT’s profit, prospective investors may be less willing to pick up the phone and dial into what’s left of the company itself.

For markets: Not clear what investors think.
BT’s stock initially fell 3% after Friday’s announcement, likely because investors are umming and ahhing about the company’s future. But that decline reversed somewhat throughout the day. On the one hand, that could suggest investors aren’t altogether optimistic about the political party’s chances of success in the upcoming vote. On the other, it could just reflect the fact that what happens next – as is often the case politically – is anyone’s guess.

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