ESG round-up: Oregon Public Employee Pension Fund commits to net zero

The latest developments in sustainable finance: EU asset managers less carbon-intensive than US peers; ISS launches voting preference solution.

The Oregon Public Employee Retirement Fund (OPERF) has made a commitment to reach net zero by 2050 amid rising anti-ESG sentiment in the US. State treasurer Tobias Read pledged his support on Wednesday for decarbonising the fund’s investment portfolio in alignment with the Paris Agreement goals. “Our investment decisions must be driven by financial considerations and investment returns, not politics,” he said. OPERF will aim to achieve 50 percent decarbonisation across the total portfolio by 2035. Read said plans to implement this goal will be presented to the Oregon Investment Council in early 2024.

European asset managers are “marginally less carbon-intensive” than their US counterparts, according to research from MSCI. The research analysed the 10 largest global asset managers – of which US firms counted for seven – on their Scope 1 and 2 carbon emissions. It found that the European fund managers were clustered around 150 tonnes of CO2/USD million sales, while US firms were closer to 200 tonnes of CO2/USD million. The research found that European asset managers were generally more exposed to strategies focusing on European companies, which are usually better positioned to address environmental risk than those outside Europe.

Institutional Shareholder Services has launched a “vote preference” solution for asset managers to offer investors various voting choices. The solution was created in response to increasing demand from clients for greater control over voting decisions. The product will enable asset managers to offer ISS policy choices including benchmark, sustainability, Taft Hartley, SRI, public fund, board-aligned and faith-based, as well as custom voting policies.

Staying with ISS, its ESG data provider arm has found that 14 percent of FTSE AllShare constituents have not met any of the diversity targets proposed by the Financial Conduct Authority last April. The new rules, set to take effect on 1 April next year, require companies to have 40 percent female representation on their boards, at least one woman in a senior board position, and at least one board member from an ethnic minority background. ISS ESG found that, as of 1 November, 40 percent of constituents had met the target of at least 40 percent of women on the board, 53 percent have at least one senior board position held by a woman, and 64 percent have at least one director from an ethnic minority background – an increase of eight, five and five percentage points respectively since late April.

WTW has collaborated with the United Nations Children’s Fund (UNICEF) on its new initiative to protect children from cyclone risk. The sustainable disaster and climate change initiative, dubbed “Today and Tomorrow”, is projected to benefit 15 million children, young people and mothers every year. The initiative will invest in climate resilience and anticipatory action for improved cyclone preparedness in climate-vulnerable countries. It will be financed through a pre-arranged parametric insurance policy, designed by WTW and funded with support from the German and UK governments. The project, which is expected to provide $100 million of protection over its first three years, will focus on eight UNICEF countries including Bangladesh, Comoros, Haiti, Fiji, Madagascar, Mozambique, Solomon Islands and Vanatu.

Staying with WTW, the investment consultant has collaborated with Indonesia to launch a sovereign risk management programme to help the country implement a long-term low carbon transition. The project, announced at the G20 Leaders’ Summit in Bali, will be funded by Agence Française de Développement. WTW will work alongside Indonesia’s government, Bank Indonesia and the local Financial Services Authority to evaluate the impact a global climate transition will have on the country’s finances. They will seek to ensure economic stability is maintained throughout the decarbonisation process.

Microsoft has published its first report on sexual harassment and gender discrimination in response to a shareholder proposal that was backed by 78 percent of investors. The proposal, led by investment manager Arjuna Capital, asked Microsoft to “assess the effectiveness of the company’s workplace sexual harassment policies, including the results of any comprehensive independent audit/investigations, analysis of policies and practices, and commitments to create a safe, inclusive work environment”. The report, produced by law firm ArentFox, found that Microsoft’s policies are “consistent with best practices”, but said the company needs to clearly define sexual harassment and discrimination in its policies. Microsoft has outlined an implementation plan, which is due to be completed by the end of FY2023 in response to the findings, and has pledged to publish an annual report.

New Zealand financial institutions are lagging on climate issues, according to a survey on climate action by the Aotearoa New Zealand Investor Coalition for Net Zero. The coalition – comprising the Investor Group on Climate Change (IGCC), the charity Mindful Money, and the Toitū Tahua Centre for Sustainable Finance – received 50 responses from asset owners, fund managers and wealth advisers with a collective NZ$331 billion in assets. The research found that asset owners are not setting mandates for fund managers to incorporate climate risk and opportunities, that top-down governance from investors is lacking, and that investment in climate solutions is low.

The Modern Slavery and Human Rights Policy and Evidence Centre has issued a funding call for research on links between modern slavery and climate change. The centre has allocated a budget of £100,000 for the project, which will be led by either a UK higher education institution, an approved research organisation eligible to receive UK Research and Innovation funding, or a charity registered in the UK. It aims to generate evidence to influence investors’ ESG policies and strategies, as well as look at how modern slavery can be integrated into UK government climate change policies. Applications will close on 12 January.

Data limitation and a lack of standardised reporting frameworks in asset classes are the biggest challenges for investment managers in relation to ESG, according to a Russell Investments survey. The research, which received responses from 236 asset managers, found that 68 percent identified climate change as their clients’ top ESG concern, but that portfolio carbon intensity is underreported due to data limitations and non-standardised reporting frameworks. Less than 30 percent of firms allocating to asset classes, outside of listed corporate securities, have reported on carbon-related metrics of their respective portfolios.