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ESG Briefing, May 8: Mirova claims equity holdings are now aligned with 1.7℃

The round-up of the latest ESG developments

Environmental

Mirova, a French responsible investor, has announced a reduction of its carbon footprint across its consolidated equities portfolio from 3.5℃ to 1.7℃ in just over two years. The responsible investment house developed a methodology to measure the climate footprint of its investments by taking into account positive impacts (renewable or efficient energy) and negative (fossil fuels), allowing it to more precisely manage and reduce emissions.
Chevron’s new CEO, Michael K Wirth, has been sent a letter by a group of 36 institutional investors – representing $109bn of assets collectively, urging him to address an ongoing dispute with communities in the Ecuadorian Amazon over extensive environmental damage caused by Texaco, acquired by Chevron in 2011. In 2013, Ecuador’s highest court ruled in favour of the plaintiffs, awarding $9.5bn in damages although this has not been enforced as the oil giant has no assets in the country. However, subsequent attempts to collect on the judgement in the US were blocked as the courts determined that the initial ruling was tainted with fraud, bribery and evidence tampering. The case is now making its way through the Canadian court system, as the plaintiffs continue to seek legal recourse.
Climate Alliance Switzerland has called for a “stress test” of the Swiss financial system, after a study by one of its members revealed that emissions produced by as a result of Swiss National Bank (SNB) equity investments are equivalent to those produced by Switzerland. Climate Alliance Switzerland’s Managing Director, Christian Lüthi, has said that the findings “clearly go against” the emissions goals set by the 2015 Paris Climate Agreement. The report also argues that had the SNB divested $7.4m from carbon-intensive companies and reinvested in “climate-friendly companies”, it would have improved its financial performance by $20bn over three years.
Australian leasing firm FlexiGroup has returned to the green bond market with an asset-backed security. The notes are tied to rooftop solar systems and equipment, and the bond – which was part of a larger transaction – offered two green tranches, both with a three year tenor. One has a coupon of 1.07%, while the other offers 1.65%. The bond received certification under the Climate Bonds Standard, and assessment was performed by DNV GL.

Social

MSCI ESG Research has released a study examining the relationship between ESG and financial performance, which found that companies with higher ESG scores had higher average returns on capital and were valued at a premium compared to peers with lower ESG scores. This was based on an analysis of 100 companies already screened for value creation. According to the report, ESG was positively correlated with financial performance due to improved management of industry-specific environmental and social risks, and not due to better governance.The UNEP Principles of Sustainable Investment (PSI), the largest collaboration between the UN and insurance industry, is working on a major initiative to develop global guidance to manage ESG risks in non-life insurance underwriting. To accomplish this, the PSI is carrying out a three-step global consultation, with the first and second stages already completed. These consisted of engagement with underwriters and various industry stakeholders, and discussion of the initiative at a regional level. The final phase is a global survey, accessible here and due to expire on the 30th of June. The completed guidance is due to be launched in the first quarter of 2019.
Gresham House has announced plans to buy FIM Services Limited, combining the two asset managers’ expertise in UK commercial forestry management and renewables. Post acquisition, Gresham House would have a total of £1.5bn under management across five strategies: forestry, new energy, UK housing & infrastructure, private assets and strategic public equity. Gresham House is offering an initial consideration of £21m and there will be a deferred consideration of £4m, subject to the meeting of performance targets over a two year period. The acquisition is expected by Gresham House to provide returns in excess of 15%.

Governance

Deutsche Bank will integrate ESG into company research for the EuroStoxx50, it has announced. Research notes will now include a section dedicated to investment factors relating to environmental, social and governance topics. Each company will be assigned an ESG rating, measuring risk and opportunity potential in comparison to other holdings in the index. Deutsche Bank will also provide an ‘opportunity rating’ which will weigh the opportunities against the risk.
ISS-oekom has released its tenth Corporate Responsibility Review 2018, an annual report on sustainability in corporate management, which explores the perceived improvement of corporate sustainability over recent years. The report found that, for the first time, the proportion of companies rated as ‘medium’ is larger than that of companies rated ‘inadequate’, the former at 43.6% compared to the latter’s 39.2%. In its assessment of ESG performance by sector, Household and Consumer Goods was judged the best, while Real Estate was the worst performer for the second year running.