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How Workplace Culture Enables Investment Firms to Do Better

Last updated: 06-09-2021

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How Workplace Culture Enables Investment Firms to Do Better

How Workplace Culture Enables Investment Firms to Do Better
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How Workplace Culture Enables Investment Firms to Do Better
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The following content is sponsored by Wells Fargo Asset Management .
Workplace Culture Enables Investment Firms to Do Better
In today’s highly competitive business environment, workplace culture is becoming increasingly recognized as a source of competitive advantage.
What does this mean for the investment industry, and how can asset managers use it to improve performance?
To find out, this infographic from Wells Fargo Asset Management explores the elements of a healthy culture, then shares four insights regarding the workplace of tomorrow.
The Top Cultural Edges to Develop
Workplace culture was gaining traction for several years prior to COVID-19 , but after the disruptions experienced in 2020, its perceived importance has quickly escalated.
In light of this situation, the Thinking Ahead Institute, a non-profit dedicated to improving the efficacy of the investment industry, surveyed 27 asset managers on what they believe are the most important cultural edges to develop.
#1: Diversity, Equity & Inclusion (DE&I)
92% of respondents
DE&I was the top cultural priority by a wide margin, and it’s easy to see why given the industry’s well-documented lack of diversity. Boosting DE&I isn’t just about optics, however.
In a 2018 study , the Boston Consulting Group (BCG) surveyed 1,700 companies globally to learn how diversity affected their performance. They found that firms with above-average diversity on their management teams reported average innovation revenue of 45%, while those with below-average diversity reported it to be about 26%.
#2: Innovation
62% of respondents
Asset managers frequently apply innovative techniques within their portfolios. When it comes to business and operating models, however, innovation is much harder to come by.
The Thinking Ahead Institute identifies a number of characteristics that an innovative culture should possess:
Characteristic
The degree to which innovation is rewarded
Time scales
Whether the long time horizon associated with innovation is recognized and honored
Judgement capacity
Leadership is willing to challenge the status quo and make uncomfortable changes
Structure
Whether roles and organizational design allow innovation to flourish
#3: Transparency
42% of respondents
In a recent survey of 300 asset owners, trust was identified as the most important factor for choosing an asset manager, even coming ahead of performance and fees.
Factor
10%
*Question: Why did you originally select your financial advisor?
By fostering a culture of transparency, asset managers will find themselves better positioned to build deeper, more meaningful relationships with clients and prospects.
Four Insights Regarding the Workplace Culture of the Future
Lessons learned during the COVID-19 pandemic are likely to have a lasting impact on the way businesses operate. To get an idea of what this may look like, here are four insights regarding the workplace culture of the future.
#1: Health and wellness determine business success
Disruptions to normal life were a drain on U.S. workers, with 46% reporting mental health issues during the pandemic—an 18% increase over the prior year.
Moving forward, businesses that focus on wellness may find themselves with a more effective and resilient workforce. In one 2017 study , participation in employee wellness programs was found to increase productivity by 5% to 11%.
#2: Remote work continues to play a role
Over the course of the pandemic, businesses have learned that many of their normal operations can be conducted remotely.
To understand this operating model better, McKinsey & Company analyzed each industry’s potential for remote work. This was defined as the % of time spent on activities that can be done remotely, without any losses in productivity.
Industry
Effective Potential (no productivity loss) 
Theoretical Maximum
18%
28%
The Finance & Insurance industry has the highest potential for remote work, which is understandable given the industry’s large reliance on office jobs. Sectors such as Retail, which rely heavily on in-store workers, were among the least likely to benefit.
#3: Accelerated adoption of digital strategy
Lockdowns during the pandemic appear to have fundamentally changed the way businesses and consumers interact, resulting in a greater reliance on technology.
To compensate, executives from a variety of industries have reported making larger investments in digitization, particularly in terms of automation and employee communications.
#4: ESG investors pay greater attention to culture
As the benefits of culture become more well-known, investors are likely to give it a more significant weighting when analyzing the environmental, social, and governance (ESG) aspects of a business.
In a 2020 survey on responsible investment, 53% of respondents agreed that after the events of COVID-19, companies should disclose more details about their workplace culture and other social factors.
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ESG Municipal Bonds: The Next Sustainable Opportunity
ESG municipal bond issuance has had a CAGR of over 70% from 2011 to 2020. Here’s how to identify which bonds are sustainable.
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ESG Municipal Bonds: The Next Sustainable Opportunity
When you think of sustainable investing, does your mind immediately go to stocks? Sustainable investing may have started in equities, but it’s now expanding into a variety of specialized asset classes—including municipal bonds.
In this infographic from Wells Fargo Asset Management , we highlight the growth of ESG (environmental, social, governance) municipal bonds and how investors can identify them.
A Growing Shift to ESG Bonds
Over the past decade, ESG municipal bond issuances have had a compound annual growth rate (CAGR) of more than 70%.
Year
Green and social municipal bond issuance
2011
$19.7B
Source: Morgan Stanley Research, Bloomberg
Issued by state and local governments, these bonds often have a positive impact on society or the environment. For example, ESG municipal bonds can be used for affordable housing or renewable energy.
Which factors are propelling their growth?
COVID-19
Amid pandemic-related volatility, credit rating agencies have highlighted the importance of non-financial risk factors. From April to November 2020, 33% of credit rating actions among U.S. public finance entities were related to ESG. To mitigate risks, a growing number of investors are adopting sustainable strategies.
Social movements
Calls for equity have put a focus on investing in underserved communities, such as those with low-income populations or higher proportions of people of color. ESG municipal bonds can help finance initiatives such as accessible education, access to basic services, and quality healthcare.
Climate change adaptation
Many municipalities are exposed to physical risks such as flooding and fires, but few currently disclose them. As a result, there is a push for issuers to provide more disclosures, and explain how their bonds will mitigate these risks. For example, a municipality facing flood risk could issue a bond to upgrade storm water management.
It’s clear that global trends are accelerating the shift to ESG municipal bonds. But how can investors determine which bonds are sustainable?
Identifying ESG Municipal Bonds
Traditionally, investors can seek green or social-labeled bonds—but these securities only make up 2% of the market. Investors who follow this approach have been missing substantial opportunities, as many sustainable bonds don’t have a green or social label.
Fortunately, there’s another option. Investors can follow Wells Fargo Asset Management’s (WFAM) positive impact framework, which includes sustainable bonds if they meet at least 1 of 3 main criteria.
Use of proceeds: Are the bond’s proceeds used for a project that offers tangible environmental or social benefits?
Issuer ESG Impact: Does the bond issuer provide environmental or social benefits through their services or operations?
Underserved population: Does the bond issuer serve an underserved population group?
By applying the positive impact framework to an existing municipal bond portfolio, more than two-thirds of the bonds demonstrated positive sustainability attributes.
How does this approach work in practice? Consider two bonds issued by the same county.
 
Yes
No
*General obligation bonds are backed by the credit and taxing power of the issuer, rather than from the revenue of a specific project.
While both are general obligation bonds, only the bond expected to drive sustainable outcomes (Bond A) is included.
New Opportunities
Using this framework, investors can go beyond labels to identify a wide array of ESG municipal bonds. Not only that, the ESG municipal bond market is expected to grow, from a total issuance of $19.7 billion in 2020 to a projected $30.0B in 2021.
Issuance of ESG municipal bonds is likely to increase to supplement federal financing. The Biden Administration has pledged a $2 trillion dollar investment in sustainable infrastructure, including water systems and roads & bridges. New, greener opportunities are on the horizon.
Visualizing the Copper Intensity of Renewable Energy
The world is moving away from fossil fuels, towards large-scale adoption of clean energy technologies.
Building these technologies is a mineral-intensive process. From aluminum and chromium to rare earths and cobalt, the energy transition is creating massive demand for a range of minerals.
Copper is one such mineral, which stands out due to its critical role in building both the technologies as well as the infrastructure that allows us to harness their power.
The above infographic from Trilogy Metals highlights the role of copper in renewable energy, and how the adoption of wind and solar energy will affect its demand going forward.
Copper’s Role in Renewable Energy
Copper has one of the highest thermal and electrical conductivity of all metals. As a result, it’s the most widely-used mineral among energy technologies and is essential for all electricity-related infrastructure.
According to Navigant Research , here’s how much copper wind and solar farms use per megawatt:
Technology
10.54
9.56
Solar photovoltaics (PV) primarily rely on copper for cabling, wiring, and heat exchange due to its efficiency in conducting heat and electricity. Wind energy technologies make use of the red metal in their turbines, cables, and transformers. Offshore wind farms typically use larger amounts because they are connected to land via long undersea cables that are made of copper.
In addition, copper is also a key part of the grid networks that transmit electricity from power plants to our homes. With the increasing adoption of renewable energy, the demand for copper will only grow.
Copper Intensity of the Energy Transition
According to the International Renewable Energy Agency (IRENA), solar and wind energy installations need to scale up significantly under their REmap scenario, in which efforts are made to limit global temperature rise to less than 2 degrees by 2050.
Based on the copper content figures from Navigant Research and IRENA’s required capacity projections, here are the copper requirements for annual solar and wind installations in 2020 and 2050:
Technology
45,000 MW
432,000
Copper content figures were calculated by multiplying copper content per MW in tonnes with annual installed capacities in 2020 and 2050.
Relative to 2020 levels, annual copper demand from solar PV installations could more than double by 2030, and almost triple by 2050. The largest percentage increase in copper requirements comes from offshore wind farms. IRENA’s REmap scenario requires 45,000 MW of annual offshore wind installations in 2050, which translates into 432,000 tonnes of copper—a 648% increase from 2020 levels.
By 2050, annual copper demand from wind and solar technologies could exceed 3 million tonnes or around 15% of 2020 copper production. However, it isn’t clear whether we will have enough supply of copper to meet this growing demand.
Will Supply Meet Demand?
According to Citigroup , the global copper market is expected to be in a 521,000 tonne deficit in 2021—and the transition to renewables is still in its early stages.
While the demand for copper comes from a range of industries, the majority of its supply comes from a few regions, making the supply chain susceptible to disruptions. Mine shutdowns in 2020 exemplified this, as copper production fell by around 500,000 tonnes.
Additionally, average ore grades in Chile, the largest producer of copper, have fallen by 30% over the last 15 years, making it more difficult to mine copper.
Although copper is available in abundance, declining ore grades and concentrated production are a cause for concern, especially as demand rises. Therefore, new sources of copper will be valuable in meeting the growing material needs of the clean energy transition.


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