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ESG Briefing, May 31: New EFAMA stewardship code, hedge funds, FAIRR index, gender on boards and more

The round-up of the latest ESG developments

Environmental

The $5.9trn investor network, Farm Animal Investment Risk & Return (FAIRR), has launched its latest index ranking the world’s biggest intensive farming firms on health, environmental and social issues. 36 of the 60 meat and fish producers in the index – worth $152bn and including major suppliers to fast-food giants McDonalds and KFC – are categorised as ‘high risk’. Low ratings were down to a lack of transparency on greenhouse gas emissions (72%) and antibiotic use (77%).
S&P Global has revealed that most of its low-carbon indices have outperformed their benchmark over five years. The S&P500 returned 15.79%, compared with the following, tailored, versions: Carbon Efficient Index (15.83%), Carbon Efficient Select Index (16%), Fossil Fuel Free Index (16.79%), Fossil Fuel Free Carbon Efficient Index (16.77%) and the Fossil Fuel Free Carbon Efficient Select Index (16.36%). The results were disclosed in the latest annual S&P Dow Jones Indices Carbon Scorecard.
Brazil has become the first insurance market in the world to commit to climate risk transparency, expressing support for the TCFD’s recommendations in a declaration signed in Rio de Janeiro. The declaration states: “Left unchecked, climate change poses a serious threat to the sustainability of insurance markets and the financial system, and of communities and economies around the world.” It says that “managing risk is the core business of the insurance industry,” adding that climate risk transparency is vital for managing climate-related risks associated with the industry’s underwriting and investment activities. Brazil is Latin America’s largest insurance market.
More than half of hedge fund firms have seen more investor demand for responsible investment – especially in the North America – according to a new survey of asset managers. The report, conducted by Alternative Investment Management Association (AIMA) and the Cayman Alternative Investment Summit (CAIS), surveyed 80 asset managers with $550bn in hedge fund AUM. Around 40% of respondents said they are already investing ‘responsibly’, with at least $59bn of those assets already allocated to responsible investment. Read the full report here.
Multinational firms need to “manage the risk that regulatory or investor expectations leap ahead of their practices”, according to a new report from the Cambridge Institute for Sustainability Leadership (CISL). The research, titled Sailing from Different Harbours; G20 approaches to implementing the recommendations of the Task Force on Climate-related Financial Disclosures, finds that around two thirds of G20 member states have “actively engaged” with the Task Force on Climate Related Financial Disclosures (TCFD) recommendations.h6. Social

Banks doing business in or with Israeli settlements are directly contributing to serious human rights violations, Human Rights Watch (HRW) has alleged. According to an investigation published this week, Israel’s largest banks are engaging in such activities in West Bank settlements, including financing the construction of settlements and providing loans to settlement councils. The investigation reads: “Settlements are unlawful under international humanitarian law. They contribute to a discriminatory regime in which Israeli authorities restrict and stunt Palestinian economic development, while subsidising and supporting Israeli settlements built on land unlawfully seized from Palestinians.”
UK Local Government Pension Scheme (LGPS) pools should increase their investment in housing, local government minister Rishi Sunak has urged. Sunak suggested, at the recent Pensions and Lifetime Savings Association (PLSA) local government conference, that the private rented sector provided an opportunity for long-term returns whilst helping solve the housing crisis. However, Sunak said he would not set central targets for investment, calling such targets “arbitrary”.

Governance

The European Fund and Asset Management Association (EFAMA) has updated its Stewardship Code, known as the Principles for Asset Managers’ Monitoring of, Voting in, Engagement with Investee companies. The document is a revision of the 2011 Code of External Government, updated to align it with the revised Shareholder Rights Directive published by the EU last year for implementation by 2019. EFAMA’s stewardship code is a ‘comply or explain’-based document aimed at its members, which in total represent €15.6trn in assets under management. “EFAMA believes it is not only part of an asset manager’s fiduciary duty to protect and enhance clients’ assets, it also encourages long-term value creation and long-term sustainability,” the body said in a statement.
The UK Government has published a list of “some of the worst explanations [FTSE] firms have made for not having women among their top employees”. The excuses include: “‘There aren’t that many women with the right credentials and depth of experience to sit on the board – the issues covered are extremely complex” and “Most women don’t want the hassle or pressure of sitting on a board’. Around 30% of FTSE350 companies have few or no women in senior leadership roles or on their boards.