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RI ESG Briefing, June 21: Norges Bank, Korea’s NPS, AP3, Morgan Stanley, KLP

The round-up of the latest ESG developments

Environmental

Norges Bank Investment Management has participated in the UN Global Compact’s new Sustainable Ocean Business Action Platform, a three-year programme dedicated to advancing a sustainable ocean economy. “The initiative is linked to the Sustainable Development Goals, and especially number 14 on oceans,” NBIM said.

Greenpeace recently staged a protest at the offices of AP3, the Swedish buffer fund, calling for divestment of coal, oil and gas stocks. The environmental organisation argues that through its holdings, the fund was in contravention of the Paris agreement on climate change and other domestic laws. A revised mandate which will take effect next year includes legal requirements for the fund to be managed in an “exemplary manner” with regard to responsible investment and responsible ownership.

Norway’s parliament will decide next year whether to allow its sovereign wealth fund to invest in unlisted renewables, after a parliamentary finance committee reportedly instructed the country’s government to do so. In March, the minority government said that it was too early to present a bill to parliament on that subject despite broad political support. Svein Roald Hansen, the opposition lawmaker who leads the committee said that they were seeking to balance the “fund’s return and risk”.

Twenty-two global asset owners worth $1.8trn (€1.55trn) have contributed to a guide
on climate-related investments launched by the Asset Owners Disclosure Project (AODP), the body which ranks the climate-related financial disclosures of the world’s largest asset owners. It includes contributions from Aviva, New York State Common Retirement Fund, and Sweden’s Elo Mutual Pension Insurance Company. AODP was taken over by campaign group ShareAction last year.

Companies and cities need to step up their climate-related action and disclosure efforts, the co-chairs of the upcoming Global Climate Action Summit urged earlier this month. California Governor Gerry Brown and UN Climate Chief Patricia Espinosa called for ‘at least 300 more companies and cities’ to start reporting environment and climate data by the time of the landmark summit this September.

KLP has announced four exclusions in its latest investment review in accordance with its responsible investment guidelines. Canadian Natural Resources, MEG Energy Corp, and Athabasca Oil Corporation were excluded because of a prohibition on investments in companies deriving 30% or more of their revenues from oil sands, or oil sands and coal-based businesses combined. Innophos Holdings was excluded because of its reliance on phosphate rock exported from the Western Sahara by Canadian company Nutrien. The Norwegian asset manager has previously excluded 185 other companies for breaching KLP’s guidelines.

Social

Ceres and CookESG Research have released a new resource which identifies potential human rights violations among a database of more than 5,000 US and foreign company filings (10-K, 20-F and 40-F) to the SEC between 2015-18. Disclosures are categorised into four types: human rights policies and practices, equal employment and anti-discrimination, workers’ rights and workplace practices, and social license to operate. According to Ceres, disclosure of human and workers’ rights-related risks, including the financial implications, should be included in annual shareholder reports.

Aviva has released a report looking at three “investor blind spots” ‒ antibiotics, oceans and pollinators, which are key to the global food system. According to Mark Wilson, Aviva CEO, failure of all three elements would cause a “global catastrophe” with potential losses “running into trillions of pounds”. The report explores the risks faced by investors with exposure to each element and outlines approaches for shareholder engagement with issues of governance, strategy, risk management and metrics/reporting. Link. Governance

Korea’s National Pension Service (NPS) has instructed the management of the country’s flag carrier, Korean Air, to resolve scandals involving the owning family. The NPS is the second largest shareholder of the ailing airline and could theoretically force a change in management if it rallied other minority shareholders to its cause. In a statement, the NPS cited reports of “illegal smuggling, evasion of customs tax, hiding assets abroad” involving the owners and requested that management come up with a “practical solution”. This is the first time the investor has openly exercised its shareholder rights.

Large UK companies will have to disclose and justify their worker-boss pay gap from 2020 according to unprecedented new government plans. Earlier this month business secretary Greg Clark set out new laws in Parliament which would see all UK-listed companies with more than 250 employees having to annually report and justify the pay difference between employees and directors.

The PRI has found that difficulties in modelling and capturing data interdependencies are seen as the biggest obstacles to ESG consideration in credit risk and ratings. The findings come in a new report, which also found that a formal framework to ensure that credit analysts systematically consider ESG factors is still a work in progress.

A survey conducted by Morgan Stanley has found that 84% of 118 institutional investors polled are already pursuing sustainable investment policies or “actively considering” them at the very least. Respondents included sovereign wealth entities, insurance companies and other large asset owners, 60% of which had assets over $10bn. Risk management and driving returns were cited as the top motivations, although the reliability of ESG data quality and investment information were identified as obstacles to greater uptake.

RBS is to stop financing certain projects in the mining, power, and oil and gas sectors, as part of its new policies to support the low carbon transition. Under the policy changes, the bank will no longer provide project-specific finance to: new coal-fired power stations; new thermal coal mines; oil sands projects; arctic oil projects; and unsustainable vegetation clearance projects. It will also tighten restrictions on lending to companies involved in coal. The TCFD-supporting RBS says the move forms part of a wider approach to tackling climate change, which has included “substantial reductions in fossil fuel exposures and growth in renewables in recent years”. In March, the bank announced that it would commit £10bn (€11.4bn) of sustainable energy sector funding between 2018 and 2020.

European stock exchange Euronext and Vigeo Eiris have completed a half-year review of their seven ESG indices. As a result, they are removing 44 companies from the family, including Air France (KLM), Unilever, Iberdrola, Allianz SE and Engie. The exclusions were made for a variety of reasons, with companies excluded based on exposure to allegations and failure to report on corrective measures; having scores that do not pass the requisite filters; and no longer being listed on the underlying reference index. Given that high-performing companies can be added to an index resulting in others being ‘pushed out’, firms falling off the index do not necessarily demonstrate negative ESG performances. Decisions took effect from June 1.

Aon has announced that it has signed the Principles for Sustainable Insurance, becoming the first risk advisor and broker to do so. According to the company, the decision represents the company’s commitment as a “responsible and socially and environmentally aware business”, demonstrated by recent initiatives including the recently launched Aon Weather & Climate Risk innovation network which allows clients to evaluate climate risks. According to Butch Bacani, leader of UN Environment’s Principles for Sustainable Insurance Initiative (PSI), insurance brokers play a “fundamental role” within the industry’s value chain and Aon’s decision demonstrates the industry’s support to the building of sustainable communities and economies. Amended: an earlier version of this itm referred to the PRI.