Coronavirus Round-up: Norway’s GPFG to liquidate assets to fund state Coronavirus response

The latest news on the Covid-19 outbreak and investment

ESG-risk management software firm Datamaran has analysed how 1,400 US and EU companies have responded to the Covid-19 crisis in their formal disclosures. Using Artificial Intelligence, Datamaran found that so far in 2020, 41% of American companies and 37% of European ones reported it as a material issue in corporate filings. No European utility company has yet released any coronavirus-related information in their reports.

Datamaran is also compiling a tracker of corporate initiatives to fight against the pandemic. 

Norway's $950bn sovereign wealth fund is readying itself to liquidate assets to cover government expenses amid the Covid-19 crisis, according to media reports, which said the fund will likely need to offload a sizable chunk of its bond portfolio. Past withdrawals have been covered by the fund's cash flows, but with plummeting petroleum revenue and companies suspending dividends en masse, the fund looks set to need to sell assets as it withdraws historic sums to use on crisis measures. By way of contrast, in 2008, the Government Pension Fund Global (GPFG)’s manager Norges Bank used the global sell-off to buy up cheap stocks. 

Cyrus Taraporevala, President & CEO of State Street Global Advisors, provided stewardship engagement guidance to company directors in response to Covid-19. He wrote in a letter: “Many companies are considering reducing their capital spending, share buybacks, dividend payments and expenses. We recognize that balancing the diverse—and sometimes competing—needs of employees, customers, shareholders, regulators, and the broader community will differ by company, industry, and region. As we have invested in your companies, and engaged with you for many years, we are sensitive to those distinctions and committed to helping you think through the short- and long-term implications of those decisions.”

The Executive Committee of the Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines – coordinated by the International Capital Markets Association – has said that the principles are “immediately applicable” to social and sustainability bonds being issued to address the COVID-19 outbreak. “Illustrative examples for eligible social projects can include COVID-19 related-healthcare and medical research and development of vaccine, investment into additional medical equipment, or manufacturing facilities to produce more health and safety equipment and hygiene supplies, and specific projects designed to alleviate unemployment generated by the crisis,” the Committee said in a statement. “These should especially target specific groups directly impacted by the virus outbreak, although they may also seek to support a wider population affected by the economic crisis.”

The chair of ABP’s board has reportedly said that the financial effects of the coronavirus pandemic risk lowering pensions next year. Corien Wortmann is quoted in European Pensions as telling the Dutch pension funds members that, although it is a long-term investor, there is “cause for concern” over payments. It will decide whether future payments must be lowered at the end of the year. 

Ele Klein and Aneliya Crawford, from law firm Schulte Roth & Zabel, say Covid-19 can have an impact on active solicitations in shareholder activism campaigns. In a blog for the Harvard Law School Forum on Corporate Governance, they argued: “COVID-19 has spurred historic levels of market volatility and many market participants are focused on current portfolio valuations and trying to anticipate how future market behavior will affect their investments. This raises challenges in gaining the attention for an activist thesis (particularly a more long-term proposal), as well atypical challenges in convincing investors that suggested changes will deliver results.”

The Pensions and Lifetime Savings Association (PLSA) has released its “top tips for DB schemes and local government pension schemes” to respond to Covid-19-fuelled economic disruption, designed to help schemes tackle “a number of tough challenges around covenant strength, funding, investment, governance and communications to members”. The guide can be accessed here.

Investors will look critically at future remuneration and buybacks in the time of Covid-19, Robeco has said in a new article focused on sustainable investing and Coronavirus. The paper, written by Head of ESG Integration Masja Zandbergen, said that companies should act prudently in order to protect longer-term business. It also called on European governments to consider green stimulus packages to help them adhere to their emissions reduction targets, adding that public and private sectors could work together to contribute to achieving the UN Sustainable Development Goals, for example through issuing green and social bonds.

Companies should consider revising 2020 executive compensation programmes to include additional metrics on tackling COVID-19, suggests a new paper on the Harvard Law School Forum on Corporate Governance. It says original 2020 projections for executive pay is no longer realistic and that metrics need to be revised, including additional metrics aligned with current priorities. The paper also says where equity had been part of pay packages, companies will need to reassess in light of global stock price declines.

The American Retirement Association (ARA) has reportedly asked the Department of Treasury for changes to rules on employer contributions after warning more than 200,000 small defined contribution schemes risk closure due to the coronavirus pandemic. The ARA wants to allow scheme sponsors the right to reduce or suspend contributions immediately without having to give participants 30 days’ notice to reduce the risk of them terminating plans due to cash flow issues.

The equity markets may get a much-needed boost, as US pension funds look set to allocate some $400bn to stocks over coming months, according to analysts at JP Morgan. Schemes that had delayed rebalancing their portfolios because of the current crisis will likely do so over the next two quarters, said a note from strategist Nikolaos Panigirtzoglou.

The Securities Exchange Board of India has pushed back the deadline for funds to implement its stewardship code because of the coronavirus pandemic. According to local media, the code was slated to take effect today, but will now be delayed until July.