ESG Briefing, April 3: Tesla/SolarCity case to proceed after green light from Delaware judge

The round-up of the latest ESG developments

Environmental

New research by think-tank InfluenceMap details a two-year strategic lobbying plan by the Alliance of Automobile Manufacturers, a trade association funded by Ford, GM, Fiat Chrysler and Toyota, to significantly weaken US environmental standards with regards to vehicle emissions. The National Highway Traffic Safety Administration is expected to grant the auto sector’s request when it announces new rules in the coming months. The research alleges that climate change ‘disinformation’ was used to make the case for more lenient standards, with at least $49m spent on lobbying in 2017 alone.
Research from Bloomberg New Energy Finance (BNEF) has shown that continued reductions in costs for wind and solar technologies, in addition to battery storage, are threatening fossil fuels’ position in the world’s electricity generation mix. This conclusion was derived from the levelized costs of electricity for these technologies, which calculates the costs of generating a unit of electricity over the lifetime of a generating asset. While existing coal and gas power stations, with sunk capital costs, are anticipated to continue playing a role in electricity generation, the economic case for building new coal and gas capacity is “crumbling”, the report said.
Baltimore’s Department of Public Works is to raise $6m in environmental impact bonds to go towards paying for $10m of green infrastructure projects designed to reduce water pollution, according to local media reports. The projects will use trees and plants to absorb rainwater to prevent it from becoming polluted and flowing into streams and the Chesapeake Bay. Environmental impact bonds for green infrastructure projects were issued in Washington last year, with Calvert Impact Capital as one of the investors.
Berlin Hyp, a German bank, has been ranked an industry leader in sustainability according to its recently released 2017 Financial Report. The bank was ranked fifth out of 332 banks worldwide by Sustainalytics, and received a B-rating from oekom research, placing it on top of a total of 52 evaluated companies in the Financials / Mortgage & Public Sector peer group. The bank is a leading issuer of green bonds, with a portfolio totalling €2bn (£1.75m), and is targeting for green bonds to make up 20% of its overall loan portfolio by 2020. Other initiatives include converting its fleet to hybrid or electric vehicles and switching printer services for energy savings of 50%.h6. Social

Partners Group, the Switzerland-listed private equity house, claims it created an additional $8.2m of EBITDA through ESG factors in its investment portfolio last year, according to its 2017 ESG and Corporate Responsibility Report.
ESG factors are now firmly established within the asset management sector according to a report from Cerulli Associates, a global research and consulting firm. However, managers of alternative asset classes still face challenges in implementing ESG due to, for example, the lack of transparency in the alternatives space. The report suggests that alternatives managers should engage, rather than simply excluding stocks. It added that ESG-related due diligence is key for alternatives, which tend to be less liquid than conventional investments and therefore harder to exit after investments have been made.
Alternative investment strategies including ESG are among the fastest-growing sectors in asset management according to new research from Context Capital Partners. Based on a survey of more than 400 institutional investors and family offices, 51% of investors are planning on increasing allocations to ESG related strategies in 2018, while 38% already currently consider it a part of their overall investment strategy.

Governance

Tesla shareholders were handed a small victory after a Delaware judge reportedly refused to dismiss a lawsuit over Tesla’s $2.6bn acquisition of SolarCity Corp. The suit alleges that Tesla’s 2016 acquisition of cash-strapped solar panel installer SolarCity was pushed through on the basis of CEO Elon Musk’s influence over the board, and amounted to a “bailout”, which was not in the interests of shareholders. SolarCity was co-founded by cousins of Musk, and he was the biggest shareholder in both Tesla and SolarCity at the time.
CEO pay increases for 2017 are on track to become the the largest since 2010, according to early analysis by ISS, a provider of governance and and responsible investment information. Executive compensation in 2010 charted a significant increase following the years after the global financial crisis. According to filings through March 26, the median CEO pay increase from fiscal 2016 to 2017 stands at 9.5%, well above the 5% increase evidenced last year and second only over the past decade to the 15.4% jump in 2010.