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Global Warming and the Future of Investing

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On January 14th, the world’s largest investor, BlackRock, sent two historic letters, one addressed to “Clients” (basically the world’s wealthiest individuals and their financial advisors) and the other to “CEOs” (the heads of the firms in which the world’s largest investor invests), and they both announced the now inevitable earthquake that’s coming to global capitalism. The letter didn’t say precisely when it will hit, but did say, “In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.” Here’s more from the two letters:

A Fundamental Reshaping of Finance

Dear CEO,

As an asset manager, BlackRock invests on behalf of others, and I am writing to you as an advisor and fiduciary to these clients. …

I believe we are on the edge of a fundamental reshaping of finance.

The evidence on climate risk is compelling investors to reassess core assumptions about modern finance. …

Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk. …

In the near future – and sooner than most anticipate – there will be a significant reallocation of capital.

As a fiduciary, our responsibility is to help clients navigate this transition. …

Over the next few years, one of the most important questions we will face is the scale and scope of government action on climate change, which will generally define the speed with which we move to a low-carbon economy. …

We don’t yet know which predictions about the climate will be most accurate, nor what effects we have failed to consider. But there is no denying the direction we are heading. Every government, company, and shareholder must confront climate change. …

Sustainability as BlackRock’s New Standard for Investing

Dear Client,

Since BlackRock’s founding in 1988, we have worked to anticipate our clients’ needs to help you manage risk and achieve your investment goals. As those needs have evolved, so too has our approach, but it has always been grounded in our fiduciary commitment to you. …

The most significant of these factors today relates to climate change, not only in terms of the physical risk associated with rising global temperatures, but also transition risk – namely, how the global transition to a low-carbon economy could affect a company’s long-term profitability. …

As your fiduciary, BlackRock is committed to helping you navigate this transition and build more resilient portfolios. …

These models will use environmental, social, and governance (ESG)-optimized index exposures in place of traditional market cap-weighted index exposures. …

• Reducing ESG Risk in Active Strategies – In heightening our scrutiny on ESG issues. …

• Putting ESG Analysis at the Heart of Aladdin – We have developed proprietary measurement tools to deepen our understanding of material ESG risks. For example, our Carbon Beta tool allows us to stress-test issuers and portfolios for different carbon pricing scenarios. …

• Doubling Our Offerings of ESG ETFs. …

• Working with Index Providers to Expand and Improve the Universe of Sustainable Indexes. …

• Expanding Sustainable Active Investment Strategies. …

Our Commitment

Our role as a fiduciary is the foundation of BlackRock’s culture. …

We invest on your behalf, not our own. …

While the low-carbon transition is well underway, the technological and economic realities mean that the transition will take decades. Global economic development, particularly in emerging markets, will continue to rely on hydrocarbons for a number of years. As a result, the portfolios we manage will continue to hold exposures to the hydrocarbon economy as the transition advances.

A successful low-carbon transition will require a coordinated, international response from governments aligned with the goals of the Paris Agreement, including the adoption of carbon pricing globally, which we continue to endorse. …

The steps we are taking today will help strengthen our ability to serve you as a fiduciary. Sustainability is becoming increasingly material to investment outcomes. …

Basically, the world’s largest investor, BlackRock (manager of about $7 trillion in funds), is predicting that as the 90%+ consensus of climate scientists increasingly impacts the relative prices of renewable as compared to non-renewable energy-sources, the “ESG” premium on the renewable (such as solar, wind, etc.) will inevitably cause the non-renewable (coal, oil, and gas) energy-sources to need to become ever-cheaper in order to remain competitive — and this will drive down the values of stocks in the non-renewable category, and drive up the values of stocks in the renewable category.

These two letters are saying that this will be evident “In the near future – and sooner than most anticipate,” but “the technological and economic realities mean that the transition will take decades.”  There is an obvious tension between those two assertions. The “In the near future – and sooner than most anticipate,” is addressed to “CEOs,” but the “the technological and economic realities mean that the transition will take decades” is addressed to “Clients” — BlackRock’s customers, mainly the world’s billionaires and centi-millionaires, but also the investment-managers for large organizations. The “Clients” naturally have a preference for low perceived risk in their investments; and BlackRock is, in that letter, providing its clients the sense that there will be no earthquake to their investments. If one happens, BlackRock will be able to say to its clients, “We told you that this is coming, but it came faster than we and our competitors expected,” and they’ll be right about that. As regards the letter to “CEOs,” it’s telling them to transition as fast as is reasonably possible out of fossil-fuel investments and into renewable-fuel ones, in order to become less vulnerable to the shock, when it does hit. This makes good sense: keeping the clients comfortable, while telling the CEOs: “Make major moves on this ASAP!” 

Investigative historian Eric Zuesse is the author, most recently, of They’re Not Even Close: The Democratic vs. Republican Economic Records, 1910-2010

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Bringing cultural and creative industries back in the game

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The lockdown and social exclusion interventions have highlighted the value of arts and culture for people’s mental wellbeing – and, likely, health, due to the increasingly recorded psychosomatic effects of cultural access. But their benefits do not stop there. In terms of economic impact and jobs, the cultural and creative fields are important in and of themselves. They encourage creativity all around the economy and lead without any doubt to a variety of other socially beneficial networks, such as education, inclusion, urban regeneration just to name a few. Despite their vital role in our societies, culture and creatives industries are among the hardest hit since the outbreak of the Covid-19 pandemic, with major cities also having the highest concentration of work openings.

In these unprecedented times, with multiple crisis emerging almost on a daily basis, one after another, people – and local actors are for most, all round the world, turning to public support, desperately hoping for strong actions. Economy recovery plans announced by governments have been a first very encouraging sign. But despite all efforts, following a review of the overall landscape of the cultural sector across the globe, policies to help businesses and employees during the pandemic may not be well-suited to the sector’s non-traditional business models and modes of employment. Policies should harness the economic and social impacts of culture in their wider recovery packages and efforts to transform local economies, in addition to short-term funding for artists and businesses from both the public and private sectors.

According to the OECD report ‘’Culture shock: COVID-19 and the cultural and creative sectors’’, Cultural and Creative Sectors (CCS),including tourism, are among the most impacted by the present situation, with job losses varying from 0.8 to 5.5 percent of total employment across the creatives sector. It has been witnessed that social distancing policies have the greatest impact on venues-based industries (such as museums, performing arts, live music, concerts, cinema, and so on). The sudden decline in sales has put their financial stability in jeopardy, resulting in lower-wage earnings and layoffs, with ramifications for their suppliers’ value chain, both innovative and non-creative.

Because of a variety of factors, the consequences can last a long time. In the coming months, if not years, the effects of the recession and a decline in cultural sector investment might have an impact on the development of cultural products and services, as well as their diversity. Lower levels of international and domestic tourism, a drop in purchasing power, and reductions to public and private funds for arts and culture, especially at the local level, may accelerate this worrying growth in the medium term. And unfortunately, this is only the tip of the iceberg.

And it goes without saying that the downsizing of cultural and artistic industries would have a detrimental effect on cities and regions in terms of employment and revenues, levels of innovation, public well-being, and the richness and inclusion of communities in the absence of responsive public funding and recovery strategies. This though is inspiring dread. With vaccination programs promising us to get our ‘’normal lives” back in a near future, can we imagine actually living in a place with less theatres, less museums, less creativity? At a time when some major cultural institutions are on the verge of bankruptcy, having to choose between keeping their loyal employees or selling a master piece, this horror script is closer than ever. On top of that, the crisis has brought to light the financial vulnerability of some of the sector’s producers. Indeed, microbusinesses, non-profit organizations, and artistic practitioners make up the majority of the cultural and creative industries, which are frequently on the edge of financial viability. For the provision of innovative goods and services, broad public and private cultural institutions and companies depend on this diverse cultural ecosystem.

The dysfunctionality of public assistance programs that are inadequately applied to cultural and creative sectors business models and job opportunities has created more trouble for this sector. In view of the pandemic, national and local governments around the world have indeed adopted a slew of initiatives to support workers and companies, but many of them, especially those not aimed at CCS, are unsuited to the industry’s peculiarities. Jobs and state benefits programs are not always available or tailored to the modern and non-standard types of work that are more unstable and prevalent in the CCS. And this is how we fail at bringing back to life such a vital sector. From an economic point of view, but also societal.

But there is hope. There are solutions. Proposals. Specific policies, targeting the core of the problem, can be implemented at corporate and government level to enhance the cultural sector’s growth. Indeed, first of all, both private and public sectors need to work hands in hands if we want to give a chance to the creative industries to recover from this pandemic, and be part of the global recovery we are all craving for. In the short term, it should be made sure at government level that public support for COVID-19 relief does not discriminate against cultural and creative sector businesses and employees because of their non-traditional business models and job contracts. Furthermore, initiatives shall be taken to increase the effectiveness of policy initiatives, CCS network organizations, self-employed workers, small cultural and innovative enterprises, and sectoral employer organizations were consulted. By simplifying eligibility requirements and making them open to hybrid types of jobs, gaps in self-employment support systems can be filled. In addition, non-profit organizations should be included in funding programs aimed at helping small companies retain workers along with assurances that the funding for cultural organizations exceeds artifacts. On the medium and long term, private and government bodies should promote greater complementarities between culture and other policy sectors. For instance, advances in the cultural and creative sectors can also benefit education, especially in the use of new digital tools based on gaming technology for example and new forms of cultural material. Greater collaboration between health care and the cultural and artistic sectors will help to enhance well-being, prevent disease, or postpone its occurrence, encourage the development of healthier behaviors, and prevent social isolation. Development of new local cultural tourism strategies that resolve several large-scale or intensive tour operators’ socially and environmentally unsustainable practices. There is indeed a very wide range of possibilities. Endless possibilities within our reach. The potential is unlimited if only we decide to seriously consider it.

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Innovative ways to resume international travel

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International travel was predictably impacted as a result of covid 19 and the tourism industry suffered severe losses.

According to the UNWTO (United Nations World Tourism organization) barometer, the period from January-October 2020 witnessed a whopping 72% drop in tourist arrivals (international tourist arrivals dropped by 900 Million when compared to the January-October 2019 period). The loss in export revenues, year on year, from the tourist sector were a staggering 945 Billion USD. Tourist arrivals across regions witnessed a drop. According to the UNWTO barometer, the drop in tourism would cause a loss of 2 Trillion USD to the global economy.

Countries looking to resume international flights

During the midst of the pandemic, agreements were signed to facilitate essential travel between various countries (priority was given to workers, students or individuals who had to travel for emergency purposes).

Countries which have been successful in dealing with the pandemic have been looking to gradually resume international flights. Since October 2020, Singapore whose economy is significantly dependent upon tourism  had signed agreements with certain countries to ensure that travel for important purposes was less restrictive — either the quarantine period was reduced, or in some cases was not required at all.

New Zealand will be allowing quarantine free travel from Australia for the first time from April 19. New Zealand PM, Jacinda Ardern:

‘The Trans-Tasman travel bubble represents a start of a new chapter in our COVID response and recovery, one that people have worked so hard at’

Australia has been permitting travellers from New Zealand to enter most parts of the country without quarantine, though this has not been reciprocated.

A travel bubble has also opened between Taiwan (which has reported a little over 1,000 cases and 10 deaths) and the Island of Palau (which has reported 0 deaths) where travellers need not quarantine themselves (there are a number of other restrictions though).

Vaccine Passports, Digital Pass and differing perspectives

As countries get ready to open up travel, there has been a debate with regard to using ‘vaccine passports’ (these are documents which show that travellers have been vaccinated against Covid-19 or recently tested negative for the virus).

One country which is using this experiment domestically is Israel. It has issued a document known as ‘Green Pass’ to those who have been vaccinated or if they have developed immunity. This Green Pass can be used  for entry into gyms, hotels,  restaurants and theatres. The UK and US too are mooting the idea of introducing such an arrangement. This idea has faced fervent opposition in both countries. In UK, opposition parties Labour, Liberal Democrats and the Scottish National Party (SNP) have opposed the idea of such a covid certification document. The reasons cited for opposition are concerns with regard to ‘equity, ethics and privacy’.  The UK government has stated that a covid status certificate would not be introduced before June, and trials of various schemes to ensure safe opening up of the UK economy would carry on.

In the US, Republicans are opposing the idea of a vaccine passport saying that such an idea would be an attack on personal freedoms. Donald Trump’s son Donald Trump Jr urged Republicans to ‘vocally and aggressively’ stand up against vaccine passports.

If one were to look at international travel, International Airport Transport Association (IATA) has introduced a travel pass, a digital certificate, which will confirm a flyer’s COVID-19 test result and vaccination status. Singapore will be accepting travellers using this mobile digital pass from May 2021.While the pass has been tested by Singapore Airlines, 20 airlines (including Emirates and Malaysia Airlines) are in the process of testing the pass.

While one of the pitfalls of a covid status certificate or Vaccine passport is the impingement upon privacy, it has also been argued that developing countries will be at a disadvantage given the relatively slow rate of vaccination in the developing world. While remarking in the context of Africa,Dr. John Nkengasong the head of the Africa Centers for Disease Control and Prevention, said:

‘We are already in a situation where we don’t have vaccines, and it will be extremely unfortunate that countries impose a travel requirement of immunization certificates whereas the rest of the world has not had the chance to have access to vaccines.’

Conclusion

In conclusion, it is important for innovative ways to resume international travel. Safety needs to be balanced with equity, for this it is imperative that all actors engage in a constructive manner. A number of observers have suggested that vaccine passports/covid status certificates should be made optional, and that there is nothing wrong in using technology per se but it should not be thrust on anyone. The fight against the pandemic and revival of international travel are a golden opportunity for countries to reverse the increasing sense of insularity and inequity which has risen in recent years.

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Will the trade war between China and the United States come to end?

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USA China Trade War

Authors: Raihan Ronodipuro& Hafizha Dwi Ulfa*

The recent trade conflict between the United States and China has had a direct effect on some of the world’s economic players. These two countries are attacking each other with declarations and a trade war; the relationship between the two countries can be defined as a love-hate relationship because the two countries have a lot of mistrust for each other, but they still need each other.

The United States requires China as a global source of low-wage labor as well as a market for marketing American products, and China requires the United States as an investor in its companies as well as a market for marketing Chinese products known for their low-cost. What makes these two countries to be so cold to one another? To answer the question, let’s go back to when this trade war saga started.

Donald Trump is a successful businessman who owns enterprises and corporations all over the world. His candidacy for President of the United States in 2016 poses several concerns, including whether Trump is eligible to run for office. Trump replied by becoming the 45th President of the United States, succeeding Obama.

Trump adopted a protectionism agenda in order to shield the US economy from what he referred to as the “robber from China.” Trump has released a law stating that all steel and aluminum products entering the United States from Europe, China, Canada, and Mexico would be subject to 25% and 10% tariffs, respectively. Of course, China is outraged that the United States issued this order, as well as a related policy on all tribal products. Automobile components, as well as agriculture and fishery products, are manufactured in the United States.

In addition to the tariff battle, President Trump has expressly demanded that the TikTok and WeChat apps be prohibited from running in the United States. We know that these two technologies are very common in the larger population. Giant corporations, such as Huawei, have not survived Trump’s “rampage,” with the Chinese telecommunications giant accused of leaking US national security data to China through Huawei’s contract with US security authorities.

As a result, many US firms were forced to cancel contracts with Huawei or face sanctions. Google is one of the companies impacted by this contract termination, which means that all Huawei smartphone devices manufactured in 2019 and after will lack any of Google’s services such as the Google Play Store, Gmail, and YouTube.

Many of the world’s economic organizations predict a 0.7 percent drop in GDP in 2018 and a 2% growth in 2020. Coupled with the Coronavirus pandemic, the global economy has become increasingly stagnant, with global economic growth expected to be less than 0%.

Amid the tough trade negotiations between the United States and China, COVID-19 pandemic is also affecting their relationship. The United States domestic pressure to contain the pandemic, has led Trump to accuse China of being the virus spread source.  As a consequence, Trump put the US-China future relations at stake with his “China’s Virus” label. Besides, the United States absence from World Health Organization (WHO) during Trump administration along the pandemic, that become a new opportunity for China to expand its influence.  China uses the Covid-19 pandemic issue as an opportunity.

China’s successful in controlling the pandemic,  has also made China confident in facing the United States. Meanwhile, the United States is increasingly threatened by its position. Moreover, the United States dependence on overcoming Covid-19 which requires relations from many parties, including China, makes the United States’ position weak as a superpower.

This is what we hoped for when Biden took office. Many consider President Joe Biden to be willing to “soften” the United States’ stance on the trade war with China. After his inauguration on January 20, 2021, Biden has made many contacts with Beijing to address a variety of issues, one of which is the continuation of the trade war.

The United States and China agreed to meet in Anchorage, Alaska, on March 18-20, 2021, to discuss this issue. The meeting produced no bright spots in the escalation of the US-China trade war, but rather posed questions concerning the Middle East, Xinjiang, North Korea, and Taiwan.

The Biden administration stressed that it does not plan to abolish various regulations passed during the Trump administration’s term in the trade war with China, but it also does not intend to employ the same negotiation strategies as the Trump administration, which seemed to be very offensive. Besides, the Biden administration must be careful, If Biden prioritizes domestic challenges then China has room to push its agendas, including in the field of technology and territorial issues

Furthermore, the Biden administration’s policy has shifted from imposing tariffs on China to investing in industries that Biden believes are less competitive with China, such as nanotechnology and communication networks.

In conclusion, the trade war between the United States and China has ushered in a new age in the global economy, one in which China is going forward to replace the United States’ status as a world economic force, something that the United States fears.

The door to investment is being opened as broad as possible, the private sector is being encouraged to participate (under tight government oversight, of course), the cost of living is being raised, and the defense spending is being expanded. Today, we can see how the Chinese economy is advancing, becoming the world’s second largest economy after the United States, selling goods all over the world to challenge the United States’ status, and even having the world’s largest military after the United States.

The rise of China is what the US is scared of; after initially dismissing China’s problem as insignificant, the US under the Trump administration takes China and Xi Jinping’s problems seriously by starting a trade war that is still underway.

Will this trade war enter a new chapter in the Biden presidency, where the relationship with China will be more ‘calm’ and the trade war can be ended, or can it stalemate and maintain the stance as during the previous president’s presidency?

*Hafizha Dwi Ulfa is a Research Assistant of the Indonesian International Relations Study Center (IIRS Center) with analysis focus on ASEAN, East Asia, and Indo-Pacific studies.

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