• Is crypto a commodity?…

  • What’s the outlook on biotech?…

  • Can we make technology immune to misuse?…

Dear Reader,

As we’ve explored some interesting dynamics in the world of energy this week, I’d like to end the week on a larger, related topic… that of ESG investing.

ESG stands for Environmental, Social, and Governance. And ESG investing is one of the hottest trends in the financial services industry, because there is incredible demand to appear to be investing in “sustainable” investments that are environmentally sound.

Plus, it’s a massive, profitable business, offering financial products that have an ESG sticker on them.

How big is the market? This year, ESG-labeled assets will exceed $40 trillion. And exchange-traded funds that proclaim to hold only ESG assets held about $360 billion worth last year. 

It’s a massive business… And ESG “compliant” products tend to come with higher fees. That’s why financial services firms love to sell them: More money.

But there’s a problem… There are no clear definitions and no specific regulations around what is considered to be an “ESG” investment.

Last year, the U.S. Securities Exchange Commission (SEC) woke up a bit and started to increase its rhetoric around the need to ensure that financial services companies are meeting their commitments, related to ESG products, that were claimed in the marketing of ESG investments. 

Today, it’s the individual financial services firm that actually defines the criteria of what is an ESG investment. It’s not hard to imagine all of the positive, superfluous, feel-good language that is used to virtue signal how sustainable their funds are. But let’s take a look…

Goldman Sachs is now being investigated by the SEC over its ESG funds. In 2020, it made a bold move to rename its Blue Chip Fund to the “Equity ESG Fund.”

Sounds great, right? Well… the top three holdings are Microsoft, Apple, and Alphabet (Google).

Really? These are three of the largest fossil fuel-based corporate energy consumers on the planet.

The products that they have manufactured, and those that they procure to run their businesses, are built-in factories that are powered by fossil fuels. And their data centers are largely powered by the same.

I don’t care how many carbon credits they buy to “greenwash” themselves, their businesses run on carbon and would collapse if they didn’t.

Let’s take another example: The SPDR MSCI EAFE Fossil Fuel Reserves Free ETF. Sounds perfectly clean right? 

Yet, it has five holdings from the coal industry (miners, coal services), 10 holdings in the oil and gas industry, two holders of coal-fired utilities, and 18 additional holdings of utilities that burn fossil fuels to produce power.

Not so fossil-fuel-free after all?

If all this weren’t comical enough, Sanford Bernstein Research conducted a survey this month on ESG funds. The question was, “Has your organization changed its exposure to fossil fuel / nuclear due to the conflict?”

And to state the obvious, how is it even possible that an ESG fund holds any fossil fuel or nuclear investments? These investments have carbon emissions and radioactive waste as byproducts, which are both obviously bad for the environment.

The results? 32% of ESG funds have increased exposure to fossil fuels / nuclear. That compares to “only” 15% earlier this year in March. 

In other words, these organizations are significantly increasing their exposure to fossil fuels and nuclear investments. It shouldn’t be possible, but it is… because the individual financial services firms can use their own discretion as to what they do – and don’t – call an ESG investment.

Making matters worse, many corporations that try to “greenwash” themselves – so that they can be included in ESG funds (this increases stock purchases) – buy carbon credits to do so. They use electricity produced by carbon-based fuels to run their business, but they buy carbon credits to “offset” their usage.

It’s a topic for another day, but carbon credits are a financial product. If a farmer agrees to plant 1,000 trees in a deforested area, he or she can receive and sell carbon credits. Those are sold on financial exchanges.

Financial services make a nice profit… And corporations get to say that they are sustainable. But there are few checks and balances in place: Were all the trees planted? Did they receive water and fertilizer? Have they grown enough to process the amount of carbon dioxide that the original carbon credits were based on?

Who knows? The corporations buying the credits certainly don’t, but at least they get to check the box.

It’s a shell game.

My strong preference is that we, as a society, stop toying around at the periphery with financial products that enrich financial institutions, not investors, and do little to nothing about improving the environment.

I don’t want us to appear to be doing good, I want us to actually be doing good. The state of North Carolina has a great state motto – Esse quam videri – a Latin phrase that means “to be, rather than to seem.” Such a fantastic saying… substance over appearance.

Let’s build clean, sustainable energy to fuel our power grids, the kinds that we explore in The Bleeding Edge created by nuclear fusion technology. Then we can all know that we are environmentally sustainable, rather than just seeming to be…

Meta just opened the AI floodgates…

There is yet another huge development on the artificial intelligence (AI) front. I know that regular readers of The Bleeding Edge will have the same sense that I do, that the frequency of these major developments is increasing. This portends a radically different future.

Meta – the company formerly known as Facebook – just made one of its large AI language models freely available. Anyone can now download the AI model and put it to work.

The model is called Open Pre-trained Transformers (OPT). It utilizes neural networks, and Meta trained it on 66 billion parameters. Less than a year ago, this would have been considered bleeding edge.

Today, this isn’t Meta’s largest language model. It trained another one on 175 billion parameters, which it is keeping in-house. But we can still think of OPT as similar to OpenAI’s GPT-3.

Like GPT-3, OPT is text generation software. It can take inputs from humans and write stories or manuals. It can also write software code and solve math problems. And it can even answer questions like AI-based assistants Alexa, Cortana, Google Assistant, and Siri.

This is extremely powerful software. And that’s why these language models haven’t been available to the general public before.

Even OpenAI only provides access to GPT-3 to a small number of applicants. That way it knows exactly who is using the AI and what their application is. This also enables OpenAI to cut off access to anyone using GPT-3 for nefarious purposes.

Well, Meta isn’t taking the same cautious approach. It just threw OPT over the fence for anyone to pick up and use. And I have no doubt that smaller companies, research organizations, universities, and early stage startups will put this AI to work.

This is going to further accelerate the adoption and proliferation of AI. We’ll see OPT built directly into all kinds of products and services… and consumers won’t even know it’s in there.

So this is certainly a radical move. And one has to wonder – what’s the catch? What’s in this for Meta?

Of course, Meta wants to position this as if it is a magnanimous gesture of goodwill. But I have to believe that some data is flowing back to Meta in there somewhere.

This company simply doesn’t do anything if it doesn’t lead to additional data collection. I’m just speculating here – but I suspect that’s what’s happening.

If OPT is widely adopted, it could provide Meta with flows of new data that the company could never extract through its social media and chat applications.

Regardless, the genie is out of the bottle. We are now entering into a world in which AI will be ever-present among us.

Pretty soon, it is going to be hard to tell if we are communicating with a human or an AI.

Shopify is taking NFTs mainstream…

Shopify just made a really interesting announcement regarding non-fungible tokens (NFTs).

The company is rolling out what it’s calling NFT-gated e-commerce shops. This is a great application for NFTs that most people haven’t thought of before.

For the sake of newer readers, Shopify became one of the most valuable tech companies in the world by building e-commerce technology for small- and medium-sized businesses. Shopify’s tech allows these smaller players to quickly and easily launch e-commerce stores that have the same functionality as larger sites like Amazon.com.

What Shopify did was revolutionary. And it spread so quickly that it completely changed the e-commerce landscape.

And that’s what this endeavor will do for NFTs. Here’s how it works…

Shopify’s customers now have the option to launch NFT-gated shops. These are e-commerce storefronts that are only available to consumers who own a specific NFT.

So to access the store, consumers must connect their digital wallets to prove that they own the required NFT. Those who do not have the proper NFT are turned away.

It’s very much like a gated community for small- and mid-sized businesses. And Shopify handles all the functionality for them.

We have talked before about how NFTs can be used to convey special access to concerts or private meetups. This creates an aura of exclusivity around the NFT, which in turn increases its value.

Well, brands can now convey special access merchandise, and other goods and services, through exclusive NFT sales. This also allows brands to engage directly with their best customers. It’s a fantastic idea.

And to me, this is largely an expansion of the “digi-fizzy” concept we’ve talked about before. A digi-fizzy offering is where consumers who purchase a particular NFT also receive a corresponding physical item in the mail.

In this case, consumers who purchase or receive the NFT “passes” also get access to a range of goods and services… not just a single item.

I’m sure we’ll see many companies, in the Web 3.0 space, adopt this NFT-gated shop idea very quickly. I expect it to grow to other brands from there… and eventually, we’ll see this model applied to physical storefronts. That’s when we’ll know that NFTs have truly gone mainstream.

So I’m very excited about this announcement from Shopify. I think it will catch on very quickly.

And while I know NFTs and crypto have slumped this year, the fact that we’re still seeing moves like this shows that the downturn is just temporary. The technology behind Web 3.0 isn’t slowing down.

In fact, right now will prove to offer a good entry point for investors who are willing to be contrarians against the current market sentiment… If anyone wants to learn how to access this space, you can find out more here.

How to hear the voice of deceased loved ones…

We’ll wrap up today with a great tech development from Amazon that may make some of us uncomfortable.

Amazon’s Alexa is being developed in a way to mimic anybody’s voice with just one minute’s worth of audio input. The idea here is that Alexa will be able to “preserve” the voice of any individual even after they have long passed away.

Here’s how it works…

Users can provide Alexa with a one-minute-long voice recording of anyone they want. The AI will ingest the data, process it, and then synthesize that voice so that it can read text in the future.

For example, one of Amazon’s executives said they used this technology to capture the voice of a grandmother who had passed away. Then they had Alexa read The Wonderful Wizard of Oz to a child in the grandmother’s voice. This allows the child to hear her grandmother read to her again, even though she is no longer with us.

I know this is a discomforting thought for some of us. But I also know that this is something that many consumers would adopt. The thought of hearing a passed loved one’s voice would be very soothing to many… even though they know it’s not real.

So I think we’ll see this catch on quickly. In fact, I wouldn’t be surprised to see Google and Meta roll out their own versions of this technology as well.

That said, this absolutely reminds me of some episodes of Black Mirror.

As the TV show depicted, this technology would enable us to recreate a dead person’s likeness by incorporating their social media history. That would allow the AI to mimic not only the person’s voice but also potentially their personality and opinions as well – much like we talked about with Somnium Space’s “Live Forever” project back in April.

I’m curious – how many readers of The Bleeding Edge would be interested in this kind of technology? Or do you think that this is way out of line with what should be socially acceptable?

Let me know your thoughts by writing to me right here. I’ll publish some of the answers in a future Friday mailbag.


Jeff Brown
Editor, The Bleeding Edge