ESG – environmental, social and governance – is one of the hottest trends in the investing world, but some investors are calling it a gimmick.
ESG is a new industry of funds launched by companies like BlackRock, Vanguard and Fidelity that are invested in companies that meet certain criteria.
These ideals pertain to standards of diversity, equity and inclusion, pollution and carbon emissions, and data security, among others.
But attacks on ESGs have come from all over. New York City Comptroller Brad Lander recently sent a letter to BlackRock CEO Larry Fink demanding the company bolster its climate disclosures and publish a plan to establish a commitment to net-zero greenhouse gas emissions across its portfolio.
Republican politicians, on the other hand, have accused BlackRock of boycotting energy stocks. On Wednesday, Louisiana announced it would pull $794 million out of BlackRock’s funds, citing the firm’s embrace of ESG investment strategies.
BlackRock did not immediately respond to a request for comment.
A recent New York Times op-ed by New York University Stern School of Business professor Hans Taparia said that, while ESG investment can create incentives for companies to be more socially and environmentally cautious, many investors falsely believe their portfolios are benefiting the world when ESG investing is designed mainly to maximize shareholder returns.
Nearly 90% of stocks in the S&P 500 are in an ESG fund that uses MSCI ratings.
The op-ed further argued that Wall Street needs more stringent rating systems, especially when companies that have received high ESG scores have been criticized for contributing to environmental or social issues.
Arne Noack, head of systematic investment solutions for the Americas at DWS, told Bob Pisani on CNBC’s “ETF Edge” that ESG investing is “most definitely not a sham.” He believes that the idea behind the strategy is that companies generate profits in healthy and sustainable ways.
“What ESG investing is, is very simply put, an incorporation of publicly available data into investment processes,” Noack said. “None of this is done opaquely. All of this is done very transparently.”
Small but controversial
Some investors like Noack have pointed out that debates surrounding ESG investing may be getting more attention than they deserve. ESG funds make up just 6% of exchange-traded funds by number and 1.5% by ETF assets. However, grouping all ESG funds into one classification is too wide-ranging, Todd Rosenbluth, head of research at VettaFi, said in the same segment.
Noack said there is still plenty of room to improve upon ESG scores. The Xtrackers S&P 500 ESG ETF (SNPE), for instance, doesn’t target the 25% worst S&P 500 companies from an ESG perspective of each industry group. This excludes companies that manufacture or invest in tobacco and controversial weapons.
But some investors believe these ESG funds are pushing a social agenda. Vivek Ramaswamy, executive chairman of Strive Asset Management, said in the same segment that his firm has pushed back against “woke capitalism” in part through two ETFs: the Strive U.S. Energy ETF (DRLL) and the Strive 500 ETF (STRV). He told Pisani that companies need more diverse perspectives and should leave politics to politicians.
Ramaswamy has focused on bringing attention to “green smuggling,” the broader range of ETFs that are not marketed as ESG but use linked voting guidelines and shareholder engagement principles to engage with companies and vote their shares.
“If you’re an owner of capital and you want, with your money, to tell companies to pursue environmental agendas or social agendas, it is a free country and you are certainly free to invest your money accordingly,” Ramaswamy said.
“But the problem that I see is a different one,” he continued. “Where large asset managers, including the Big Three, are using the money of everyday citizens to vote their shares and advocate for policies in corporate America’s boardrooms that most of those owners of capital did not want to advance with their money.
ESG ‘sleight of hand’
Leading figures in the stakeholder capitalism movement have argued that, because society gives benefits to corporations and shareholders like limited liability, corporations are obligated to take social interests into account. But recently, asset managers have started saying that many corporations are instead trying to maximize long-run value.
Rosenbluth asserted that there are no purely sustainable firms, so “the fact that we have an anti-ESG couple of firms out there is ironic because there is no ESG-only firm of any size and scale.”
Ramaswamy said this claim was inaccurate, since firms are using ESG principles to vote all of their shares, even though just 2% of assets under management for firms like BlackRock are ESG funds.
“The heart of the problem, in my opinion, is that it’s not just the 2% but the 100% that lives by this firm-wide commitment that some clients demanded but other clients didn’t necessarily want,” Ramaswamy said.
He cited examples of Chevron’s Scope 3 emissions reduction proposal and the racial equity audit at Apple, both of which carried majority shareholder support, that used capital of all funds they manage.
“I have a problem with using the money of somebody else who invested in funds, with the expectation that the person who’s voting those shares is only going to take pecuniary interest into account, actually taking these other social factors into account instead,” Ramaswamy said. “That’s the sleight of hand.”
The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.
Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.
In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.
“No Man’s Land”
Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.
Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.
While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.
Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.
First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.
“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.
A News-Driven Environment
Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.
Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.
BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.
The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.
None of the ETFs recorded outflows for the day.
Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan
According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.
Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.
A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.
What’s Next For Bitcoin?
Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.
But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.
Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.
“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”
PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.
The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.
Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.
LI.FI Issues Warning After $8 Million Exploit
LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.
According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.
Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.
Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.
“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.
This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.
But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.
Recent Exploit Mirrors March 2022 Attack
Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.
The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.
“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.
Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.
LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.
