ESG Round Up: Swiss EM fund awards $800m mandate to responsAbility

The latest developments in sustainable finance: MSCI downgrades Russia and Belarus ESG rating, CalPERS and CalSTRS face Russia divestment legislation

Switzerland’s emerging markets investment fund SIFEM, which is 100% owned by the government, has awarded an $800m investment mandate to responsAbility Investments. The Swiss impact specialist, which M&G recently acquired a majority stake in, saw off three other bids for the €62m contract, according to tender documents. The mandate will commence on 1 September 2022, and will last for five years, with the option to extend it for five more if both parties agree.  The fund told RI that it would not be able to comment on the award until three weeks after it was announced, but on SIFEM’s website, the fund expresses its gratitude to incumbent manager Obviam AG, which over the last 10 years and more has “skillfully developed the SIFEM portfolio and has ensured the solid reputation of SIFEM among Development Finance Institutions”. 

Two thirds of fixed income investors and credit ratings agencies are using information disclosed in company TCFD reports in their credit risk analysis, according to a survey by the PRI. Most companies are at an early stage of their reporting, the PRI said, but asset owners and investment managers are beginning to include climate-related disclosures in their in-house ESG scoring systems. Credit ratings agencies say that TCFD has not significantly affected their credit ratings, but “has encouraged analysts to incorporate the impact of carbon pricing, such as carbon taxes and emissions trading schemes, in their corporate profit calculations”. Two thirds of respondents also said that they used information from TCFD reports in their engagement with issuers. 

The UK’s Financial Conduct Authority (FCA) has told credit rating firms that it expects them to put in place “robust governance arrangements and oversee the interactions between regulated and unregulated activities,” such as ESG ratings. The financial watchdog, which is the latest to comment on the issue following concerns raised by the US SEC and EU’s ESMA, made the statement in a letter to rating firms’ CEOs last week. “Environmental, Social and Governance (ESG) is a growing area of focus across the portfolio, with increasing investor focus on ESG risk factors and some firms expanding their product offerings to include ESG ratings, scores and data,” FCA wrote. “For those products which are not credit ratings and sit outside of our current regulatory remit, it is important that CRAs make this distinction clear to prevent investor confusion.” 

Norges Bank Investment Management, the manager of Norway’s trillion-dollar sovereign wealth fund, is looking for the provision of an IT service to automatically collect publicly available ESG data on companies in its portfolio. The value of the contract, which runs for four years, is €2.5m. Bids for the tender must be submitted before 1 April.

Californian lawmakers plan to introduce a bill in the next few days to force CalPERS and CalSTRS to divest their Russian assets. CalPERS has no sovereign bond holdings, but has around $1bn of investments in Russia across public and private equity and real estate, while CalSTRS had fewer than $500m in Russian holdings as of February the 23rd, with the value dropping since the invasion due to market volatility. The two funds, which declined to provide detail on their divestment plans when asked by local press, are also facing a proposed bill to force them to ditch fossil fuel divestments. 

Most Shariah-compliant finance professionals (72%) believe that the introduction of a global standard for ESG and Shariah would boost demand for fund launches, according to a survey from Malaysia-based banking group Maybank. The faith investing sector has struggled to leverage surging Western demand for ESG investing over the past few years, despite the two styles sharing parallels. The same survey finds that only around a third of practitioners believe that there will be dramatic growth in the sector over the next two years. 

MSCI has reduced Russia and Belarus’ sovereign ESG rating by one level each in response to the invasion of Ukraine. Russia’s rating has been lowered from BBB to B, the second lowest rating, while Belarus has fallen from BB to B, with both countries given a negative outlook. The ratings reflect a country’s exposure to and management of ESG risk factors which may affect the long-term sustainability and competitiveness of its economy. Ukraine retains its BB rating but has been given a negative outlook.