- In this week's newsletter: The impact of ESG investing; Hong Kong's status as a financial center; the future of trading shares in private companies; the Texas two-step; and much more. All in 1,792 words, a 7-minute read.
Illustration: Aïda Amer/Axios
It's not enough to invest in sustainable businesses. Instead, asset managers sometimes have a legal responsibility to actively influence the sustainability outcomes of the businesses they invest in. That's the message of new analysis from law firm Freshfields Bruckhaus Deringer.
Why it matters: Large investors at insurers, pension funds, and non-ESG mutual funds are understandably very conservative when it comes to changing the way in which they invest the trillions of dollars under their control. A sober 564-page presentation from a major law firm is exactly the sort of thing to help them change their ways.
Background: Freshfields conducted the definitive legal study on environmental, social, and governance investing in 2005. In an era when many lawyers and compliance officers were worried that ESG investing might conflict with fiduciary duties, Freshfields showed that legally it was nearly always permitted, and was sometimes required.
The big picture: Investing for sustainability impact means that investors understand themselves and their money to be an integral part of a complex global system in need of radical change.
What they're saying: "If it was once possible to approach the goal of earning a financial return in isolation from other valued goals, that time is not now," write Freshfields lawyers David Rouch and Juliane Hilf.
The bottom line: Investing for sustainability impact is always going to be a subset of broader ESG investing. Not all ESG investors will do it, in part because it involves extra expense. But at least it's largely settled now whether it's legally permissible.
Illustration: Sarah Grillo/Axios
Given its assault on democracy, imprisonment of publishers, and a slew of human rights violations, "stable" might not be the first word that springs to mind with respect to Hong Kong. But amid social and political turmoil, one key part of the economy has remained unfazed: its legendary financial services sector.
Why it matters: Beijing's increasing control and influence over Hong Kong is seen by many banks and investors as more of a feature than a bug. While there are certainly downsides to staying, for the time being the upside seems to be even greater.
Where it stands: Western investment banks are hiring thousands of new employees in Hong Kong, many of them hailing from mainland China.
The other side: Recent moves by Beijing are weakening some of the core transparency tenets that have provided a foundation for Hong Kong's financial services sector.
Threat level: Hong Kongers and foreign bankers are openly talking about leaving the country, for fear of the new national security law or just of not receiving a balanced and honest education for their children.
The bottom line: Hong Kong has comfortably retained its top-tier status as a global financial center s0 far — it's in fourth place in the latest Z/Yen ranking, behind only New York, London and Shanghai.
Illustration: Aïda Amer/Axios
It's one of the biggest competitions out there: Who will be the go-to platform for buying and selling stock in private companies? A consortium of giant banks is now teaming up with Nasdaq to try to ensure that the answer is to be found on Wall Street, rather than in Silicon Valley.
Why it matters: No matter how many companies go public, the total valuation of private companies only ever seems to go up. Which means there's big money to be made in trading stakes in those companies.
The big picture: More than $2 trillion in wealth is tied up just in the equity of unicorns — private companies worth more than $1 billion. Many early employees and other shareholders would love to sell at today's valuations, while a long list of investors is desperate for any opportunity to buy some of the world's hottest and fastest-growing companies.
Flashback: The company with the greatest-ever volume of pre-IPO share trading was almost certainly Facebook. Its shares were traded on a platform called SecondMarket, which was later sold to Nasdaq and became Nasdaq Private Market.
Where it stands: There's a lot of competition in the space. Retail investors are served by companies like OurCrowd, MicroVentures and EquityBee, while institutions use platforms such as EquityZen — when they're not negotiating directly with companies or going via big investment banks.
By the numbers: One of the largest institutional players, Carta, recently raised money at a $7.4 billion valuation.
The bottom line: It's not too late for one platform to dominate the asset class. Most buyers and sellers will naturally gravitate to the venue with the greatest liquidity and the deepest client book, creating a winner-takes-all dynamic.
Illustration: Aïda Amer/Axios
Johnson & Johnson just managed to release itself from all legal liability for distributing opioids by paying $5 billion as part of a bigger $26 billion settlement with state attorneys general. Now, per Reuters, it's looking to Texas to help it cap its liabilities with respect to distributing asbestos in its baby powder.
Why it matters: If J&J successfully attempts what's known as the Texas two-step, that would effectively allow it to declare bankruptcy just for the purposes of its talc liabilities and nothing else. The rest of the company could sail on with no further risk of talc-related lawsuits down the road.
By the numbers: The potential size of such lawsuits is mind-boggling: Just one suit with 22 claimants resulted in an award of $2.12 billion, reduced from an initial jury award of $4.69 billion.
How it works: J&J would effectively split in two. All of its talc-related liabilities would be in one company that would then file for bankruptcy, while the rest would carry on as normal, listed on the stock exchange.
The big picture: J&J would have to put billions of dollars into the subsidiary declaring bankruptcy. But the exact amount would be determined by a judge carefully jurisdiction-shopped by J&J. And then the company would never need to worry about any future talc-related lawsuits.
Illustration: Annelise Capossela/Axios
The controversy-laden, no fans, no fun Olympic Games in Tokyo begin Friday with the opening ceremony, writes Axios' Hope King. (Although the U.S. women's soccer team has already lost, 0-3, to Sweden.)
Why it matters: More than half of the Japanese public oppose the delayed summer Olympics, fearing that officials won’t be able to control coronavirus infections. Tokyo organizers haven’t ruled out canceling the games last minute.
Athens Indoor Hall was constructed in 1995 and then extensively rebuilt by Spanish starchitect Santiago Calatrava for the 2004 Olympic Games.
It's far too big for the Athens suburb of Marousi, and stands as a monument to the way in which the Olympics haven't made financial sense in decades.