Just two SWFs looking to renewables despite fossil fuel revenues: report

One year on from Santiago Principles, transparency also lacking on corporate engagements.

Just two of the world’s huge sovereign wealth funds (SWFs) – many of which derive their assets from oil and fossil fuel revenues – have taken steps to diversify into renewable energy, according to a report by RiskMetrics Group. It found that with the exception of the Norwegian Government Pension fund [GPFG ] “none of the SWFs so far has committed to a strategic set of social and environmental investments, though there are a few isolated ‘green shoots’. The Norwegian fund announced plans in April 2009 to commit $3bn to responsible investments. The Qatar Investment Authority has invested “sporadically” in environmental initiatives such as a $150m contribution to the joint carbon reduction fund.
RiskMetrics said: “Overall, especially for the petroleum-based SWFs, a diversification of their capital away from oil and into renewable energy seems to be a route worth considering. However, none of the SWFs have shown a combination of strategic intent and systematic action in this area.” The report, titled: “ An Analysis of Proxy Voting and Engagement Policies and Practices of the Sovereign Wealth Funds” found that only Norway’s GPFG had adopted explicit environmental and social engagement policies: “The majority of the SWFs do not have an environmental, social and governance strategy. With few exceptions, the majority of the SWFs do not engage with the companies in their portfolios to improve their ESG performance.” However, the report noted that according to GPFG’s proxy voting records for 2008 there were 52 cases where even it had voted against seemingly positive environmental and social initiatives and/or more disclosure in the area.Outside of ESG issues, the report found that few SWFs disclose their engagement policies or performance data for individual investments in which they take large stakes and engage with the investee companies. It found evidence of active engagement with companies by most of the SWFs. The Norwegian fund is the only one of the world’s 10 largest SWF’s that has signed on to codes such as the United Nations Principles of Responsible Investments (UN PRI). The report said: “Given the SWFs’ stated long-term investment outlook, joining such institutional investment communities focused on long-term investing issues would seem logical. It might also improve the global image of SWFs.”
The study was commissioned by the Investor Responsibility Research Center (IRRC) Institute to mark the anniversary of the Santiago Principles, a voluntary code on transparency, which did not include any provisions for ESG, which was developed by 26 SWFs in Chile in September 2008. Jon Lukomnik, program director for the IRRC Institute, said: “At this milestone, the report provides encouraging indications that some funds take disclosure and the principles seriously, but much work remains for other funds. Perhaps this report will spur action for funds that have failed to meet their self-imposed code of conduct.”
The report indicates that although the aggregate size of the ten largest SWFs is approximately $2.2trn, the actual impact of the investments on international equity markets is only about $1trn.
Link to report