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ESG Briefing: FTSE Russell teams up with Sustainalytics on ESG indices

The latest ESG market developments

Environmental

FTSE Russell, the index and data group has partnered with Sustainalytics, the ESG research company to develop a new series of ESG indices for companies in the Russell 1000, 2000 and 3000 rankings. The new FTSE Russell ESG indexes will be based on Sustainalytics’ recently-launched ESG Risk Ratings, which look at what it terms as unmanaged, financially ’material’ ESG risks at companies. The two firms say they are already working together to target a first product launch for the first half of 2019. Mark Makepeace, CEO, FTSE Russell, said: “This is an exciting development for our clients as it will provide new tools and benchmarks.”
Dutch scheme Pensioenfonds Metaal & Techniek (PMT) has reduced its CO2 intensity by almost a quarter over the past three years according to European Pensions. Elsewhere, PMT has reportedly announced it will divest fur and pornography after a member survey. It will also cut investments in tobacco and weapons sector. It follows the creation of its own criteria for its €16bn developed markets equity allocation including ESG requirements.
Amundi has teamed up with asset-management consultancy CREATE-Research to publish its annual European Pensions Survey,, which finds that governance continued to trump environmental and social issues for investors looking at ESG. The survey of 149 pension funds in Europe, with €1.89trn under management, also found that ESG was among the top themes of interest to investors, at 51%.
Outgoing Californian Insurance Commissioner Dave Jones, who has strongly championed the divestment of thermal coal during his tenor, has released a follow-up report to his landmark 2016 Climate Risk Carbon Initiative, revealing that an additional 57 insurers in the state have since committed to divesting some or all of their thermal coal investments. Jones, who was last month replaced by Democrat Ricardo Lara after serving the maximum of two terms as commissioner, said the latest survey shows that Californian insurers are “moving in the right direction” but added that there “more work to be done”.
French car leasing firm ALD Group has issued its first positive impact bond. Proceeds from the bond, which has a second party opinion from Vigeo Eiris, will be used to increase the number of‘clean’vehicles, such as electric, it finances. The bond is worth €500m with a four-year maturity. ALD Group is 80% owned by Société Générale.
Vancouver’s transit authority TransLink has reportedly issued the largest muni green bond in Canada. The oversubscribed C$400m green bond, which is claimed to have prioritised investors with a strong green mandate, will be used to finance sustainable transit projects. TransLink is expected to issue more green bonds in the future.h6. Social

Business are making sustainability changes in their supply chain to improve their bottom lines, finds a new HSBC survey. ‘Navigator: Now, next and how for business’ quizzed 8.500 companies in 34 markets. It finds 31% plan to make sustainability-related changes to their supply chains over the next three years. Cost efficiencies (84%) and improved revenues and financial performance (84%) are the main motivations for this.
Construction companies are failing to protect migrant and refugee workers in Jordan and Lebanon, a study by the Business and Human Rights Resource Centre has found. The companies, often working on projects funded by international donors such as the IFC and EBRD, has no clear policies protecting workers.
Elsewhere, a new report by KnowThe Chain, a benchmark that measures companies’ efforts to address forced labour, finds clothing and footwear companies are failing to tackle the exploitation of workers in their supply chain. While the 2018 benchmark shows improvement from the sector since KnowTheChain’s previous benchmark in 2016, the majority of the companies scored poorly with more than two-thirds of companies scoring below 50/100. Industry-wide progress is uneven and lacking on key issues such as responsible recruitment — one of the areas with the most direct impact on vulnerable workers’ lives.

Governance

Stewardship specialist Hermes EOS has called on Germany to introduce reporting requirements on engagement implementation for institutional investors and asset managers and a binding vote on remuneration policy as the country debates a draft bill on the implementation of the EU Shareholder Rights Directive.
The first Global Stewardship Forum of the International Corporate Governance Network (ICGN), held in London yesterday, took the pulse of current investors’ duties trends. The audience heard from ICGN advisor Chris Hodge that disclosure of voting records by investors is “patchy” and too often lacks the rationale for abstentions and votes against. Paul Lee, former Head of Corporate Governance at Aberdeen Asset Management and now ICGN’s Policy Advisor, said that Stewardship Code reporting is “not good enough” with some “well-ranked” investors producing verbatim disclosures on key issues year after year. 
Regarding the issue of ESG reporting fragmentation, Mirte Bronsdijk, Senior Corporate Governance Specialist at APG Asset Management, said annual reports are becoming “puzzles” and expected companies to connect the dots themselves. 
Jennifer Sisson, Investor Liaison of the Financial Reporting Council, said the EU Shareholders Rights Directive II has introduced minimum level provisions across Europe for matters a Stewardship Code would cover. As the FRC reviews its own Code, she said the UK consultation (expected soon) will explore how far the UK would like to go from that EU minimum. 
Australian institutional investors are reportedly stepping in finance the country’s emerging social infrastructure sector, which is backed by the government and forecast to become a A$5bn asset class. Australian banking group Macquarie and boutique investment house Lighthouse Infrastructure are reported to be involved in the scheme backed by the government’s National Disability Insurance Scheme, which aims to support the development of specialised accommodation for people with disabilities.