U.K.-based publication Treasury Today hosted a webinar yesterday entitled, "Short-term investments, long-term thinking: how ESG positively impacts value," which featured Aviva Investors' Senior Portfolio Manager Demi Angelaki and Aviva's Global Head of ESG Investment Solutions Marte Borhaug. The two "discuss how the principles of responsible investment can positively impact investment outcomes for short-term investors" and "explore the unique challenges faced by liquidity portfolio managers." The webinar's description explains, "Investors in money market funds and ultra-short duration bond funds have traditionally focused their attention on liquidity, yield and capital preservation. Increasingly however, investors in such strategies are realising the positive impact the integration of environmental, social and corporate governance (ESG) factors can have on investment outcomes."

Treasury Today's introduction continues, "As well as providing an important risk management tool, being a provider of short-term funding presents an opportunity to influence corporate borrowers to act responsibly and in a sustainable manner. It is therefore important to establish a robust framework to embed ESG considerations into the investment process. However, integrating ESG considerations into liquidity strategies possess unique challenges.... We also look at live examples from France, where principles of Socially Responsible Investing (SRI) are government endorsed and integrated into the French short-term investment market."

Borhaug comments, "A lot of people talk about ESG factors as non-financial factors. For us, the way we look at it is, that the factors might be seen as non-financial because they tend not to be the typical financial factors that you see on a corporate balance sheet, but all of these factors will have a direct impact on the bottom line of a company. There's an increasing amount of research that shows that that is the case.... Is ESG investing the same as ethical investing? I think our answer for that is that they are fairly separate."

Angelaki explains, "In the first half of 2019 we have seen ESG money market funds grow by 15 percent. It's not just European funds, but also U.S. dollar denominated funds managed out of the U.S. This shows there is a global trend emerging, with not only new funds launching, but also conversions of existing funds. More and more public sectors organizations are strongly encouraged to choose an ESG variant where there is one when investing. And more and more private sector entities are under increasing pressure to show shareholders, employees ... that they are trying to align investments with their corporate values."

She continues, "In several countries regulators and authorities have already stepped in, calling for greater ESG disclosure.... France ... accounts for about 88 percent of total ESG money market funds…. In 2016, the French government launched the SRI label as a tool to help investors choose sustainable and responsible investments and increase the visibility of SRI products. The label is issued at the end of a strict process led by an independent party, and in order to qualify a money market fund must meet very specific criteria.... In addition to that, the French regulator has the authority to control all funds that are sold as SRI or ESG, whether they have the official label or not, to ensure that active managers really do what it says."

The Aviva PM tells us, "Cash funds need to offer, above all, security of capital and liquidity, with yield being a very important, but slightly secondary consideration. Money market funds are highly regulated products, and because of the very conservative nature of the portfolio a rigorous risk assessment is a factor. As we have seen, ESG rates can cause credit impairment and reputational concern and some of these risks can materialize really quickly. But you can be hit even if you are a holder of a short-term commercial paper, which is a common instrument used in money market funds."

She adds, "For portfolio managers, using an ESG filter in the investment decision process can help not only define if we can invest in a name or not, but also what the investment horizon, the maximum maturity should be or whether we should be underweight on a specific name or not. Ultimately, as portfolio managers and responsible investors, we do want to see an improvement in the companies we invest in.... An important thing to keep in mind is that, although money market funds are a short-term product ... the reality is, most of the time we do roll these over, ending up being longer-term investors."

In other ESG MMF news, a press release entitled, "Fitch Affirms Rating of Morgan Stanley Money Market Fund on ESG Conversion," tells us, "Fitch Ratings has affirmed the 'AAAmmf' rating assigned to the Morgan Stanley Institutional Liquidity Funds ESG Money Market Portfolio following the conversion of its investment strategy to incorporate an environmental, social and governance (ESG) focused mandate."

It explains, "On Oct. 31, 2019, the Morgan Stanley Institutional Liquidity Funds - Money Market Portfolio revised its name to the Morgan Stanley Institutional Liquidity Funds - ESG Money Market Portfolio and modified its investment strategy by adding an ESG focused mandate.... The net assets of the fund will be invested in securities issued or guaranteed by issuers that adhere to Morgan Stanley's ESG investment criteria. The fund's investment process will incorporate ESG considerations into Morgan Stanley's standard portfolio management framework. Morgan Stanley will utilize a proprietary ESG scoring methodology, combined with third-party data, to assign individual issuers with ESG scores."

Fitch adds, "The ESG overlay applied to the issuers during the screening process will exclude corporations that generate revenue in certain sectors, such as tobacco, firearms and coal, among others. After applying these exclusion screens, Morgan Stanley will consider its proprietary ESG scores for the remaining issuers and prioritize issuers with high ESG scores, while taking into account other portfolio construction considerations, such as yield, credit quality, and duration. The ESG tilt of the fund is a neutral factor in Fitch's rating analysis." (See also: SustainableInvest.com on ESG MMFs (11/5/19) and UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund (11/4/19).)

Finally, Crane Data published its Weekly Money Fund Portfolio Holdings statistics and summary yesterday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection. The latest cut (with data as of Nov. 1) includes Holdings information from 67 money funds (down 17 from a week ago), which represent $1.485 trillion (up from $1.973 trillion) of the $3.885 trillion (38.2%) in total money fund assets tracked by Crane Data.

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $507.8 billion (down from $690.7 billion a week ago), or 34.2%, Treasury debt totaling $468.9 billion (down from $621.5 billion) or 31.6%, and Government Agency securities totaling $300.9 billion (down from $365.7 billion), or 20.3%. Certificates of Deposit (CDs) totaled $77.0 billion (down from $96.7 billion), or 5.2%, and Commercial Paper (CP) totaled $74.3 billion (down from $99.0 billion), or 5.0%. A total of $29.2 billion or 2.0%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $26.6 billion, or 1.8%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $468.9 billion (31.6% of total holdings), Federal Home Loan Bank with $219.5B (14.8%), Fixed Income Clearing Co with $75.8B (5.1%), BNP Paribas with $57.0 billion (3.8%), Federal Farm Credit Bank with $44.5B (3.0%), RBC with $37.9B (2.5%), Mitsubishi UFJ Financial Group Inc with $30.0B (2.0%), Federal Home Loan Mortgage Co with $28.2B (1.9%), JP Morgan with $26.3B (1.8%) and Wells Fargo with $25.7B (1.7%).

The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($150.0), Fidelity Inv MM: Govt Port ($139.8B), Goldman Sachs FS Govt ($107.6B), Wells Fargo Govt MMkt ($85.1B), Fidelity Inv MM: MMkt Port ($71.3B), JP Morgan 100% US Trs MMkt ($68.2B), Morgan Stanley Inst Liq Govt ($66.3B), State Street Inst US Govt ($59.3B), Goldman Sachs FS Trs Instruments ($58.4B) and Dreyfus Govt Cash Mgmt ($58.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

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