RI ESG Briefing, July 10: Global Initiative for Sustainability Ratings is being dissolved

The latest ESG developments

Environmental

European Central Bank President Mario Draghi has suggested the ECB will look into conducting a climate assessment of its quantitative easing programme. In a response to Socialist MEP Neena Gill in a session at the European Parliament, he said: “To my understanding we don’t have analysis of our programme, or climate change considerations in our programme but I can certainly say we will look into this and see what’s the effect.” Link to video.

A new framework for sovereign wealth funds (SWFs) to address climate change risk suggests it should be integrated into “manager selection, mandates and investment strategies”. The voluntary framework, also aimed at other long-term institutional investors, recognises that “climate change will have an impact on financial markets” and urges SWFs to “identify, assess and manage portfolio risks” in a transition to a low-emissions economy. The One Planet Sovereign Wealth Fund Framework is being driven by French President Emmanuel Macron.

Luxembourg has passed a law establishing the legal framework for green covered bonds, seen as the world’s first. The new financial instrument will be used to finance facilities which generate renewable energy and the law contains stringent criteria to ensure the “green” nature of the equipment or infrastructure financed. Link

Crédit Agricole Corporate and Investment Bank has closed financing for the first utility-scale offshore wind farm project in Taiwan. The 128MW Formosa 1 project has a NTD18.7bn (€524m) facility, including a tranche guaranteed by Danish export credit agency EKF. Macquarie Capital bought a 50% stake in the project last year, for which it is reportedly looking for buyers.

Social

The European Parliament has voted in favour of creating a label for social enterprises by a 77% majority. MEP Jiří Maštálka (from the far left Confederal Group of the European United Left – Nordic Green Left), the ‘rapporteur’, told RI he was “very happy”. The report calls on the Commission to introduce an EU-level label for social enterprises; increase their visibility, encourage investment and facilitate funding; and for member states to actively promote the “European Social Economy Label. But Stephen Barnett, chief executive of the Euclid Network civil society body, said: “What we hear from our members is that there is no surety that a legal definition at whatever level is helpful: when you define something, you have to exclude as well as include.”

InvestEU, the EU’s successor to the Juncker Plan, will have a €4bn InvestEU ‘Social Window’, one of the recommendations from the High Level Task Force on Investment in Social Infrastructure led by former Italian Prime Minister Romano Prodi. InvestEU is a €15.2bn programme which will allow the EU budget to provide a €38bn guarantee facility to catalyse up to €650bn in investments for sustainable growth, job creation and innovation.

Sustainable and impact investment firm MainStreet Partners has published its 2017 Impact Report. It says its assets under advisement have reached €342m and its investments led to 69,000 tons of CO2 emissions reduced and 130 social housing units built.

French bank BNP Paribas is supporting an initiative where the Indian state of Andhra Pradesh is aiming to transition its 6m farmers to 100% chemical-free agriculture by 2024. The Sustainable India Finance Facility, a partnership between UN Environment, BNP Paribas, and the World Agroforestry Centre, will fund the transition through a mixture of commercial and development finance.

Small farmers non-profit GRAIN has said 2017 was one of the deadliest years for land defenders. It was also a bad year for several land grabbers with a significant number of big farmland deals collapsing.h6. Governance

The Global Initiative for Sustainability Ratings (GISR), a seven-year initiative to “drive transparency and excellence in environmental, social, and governance (ESG) research, ratings and indices”, is being dissolved and its website will cease operations on August 9. A statement from Founding Chair Allen White said: “To ensure the long-term stewardship of two key assets, the GISR Board of Directors has approved dissolution of the organization and relocation of: (1) the Ratings Hub to the World Business Council for Sustainable Development’s Reporting Exchange platform; and (2) the Culture of Health project to the Global Reporting Initiative.”

CalPERS has urged fellow shareholders to back a lobbying disclosure proposal at US healthcare company McKesson’s AGM on July 25 that was filed by the UAW Retiree Medical Benefits Trust. The California pension fund said it would vote in support of “this important request for disclosure of lobbying activities and expenditures”.

Illinois pension funds have recovered $20m from Royal Bank of Scotland stemming from the UK bank’s sale of residential mortgage-backed securities (RMBS) leading up to the 2008 economic collapse. A statement from state Attorney General Lisa Madigan said RBS would pay the sum to the Teachers Retirement System of the State of Illinois, the State Universities Retirement System of Illinois, and the Illinois State Board of Investment, which oversees the State Employees’ Retirement System. It’s the latest in a series of settlements relating to the financial crisis that Madigan has made.

Royal Mail Group, the UK postal operator that was privatised in 2013, could be facing a shareholder revolt at its annual general meeting on July 19, according to the Financial Times. It said governance advisory firms Institutional Shareholder Services and Glass Lewis have recommended rejecting the company’s pay report. The FT quoted Royal London Asset Management as saying it would vote against the remuneration report, citing “serious concerns” over the pay package of new CEO Rico Back’s pay.

Expert Corporate Governance Service (ECGS), the partnership of proxy firms, has advised clients to oppose four proposals at the AGM UK phone giant BT on July 11. It recommends opposition to: the re-election of Chairman Jan du Plessis (lack of gender diversity); the re-election of Tim Hottges (time commitments); special general meetings convened with a 14 day notice period; and the remuneration report (“unchallenging performance targets and non-alignment with performance”).

Investor reaction to news that Nestlé is facing ejection from the Roundtable on Sustainable Palm Oil (RSPO) has been measured. Dutch pension asset manager APG told RI that ongoing dialogue with the food giant would focus on “why their strategy for traceable supply chains would obviate the need for RSPO audits and certification”. Parent ABP divested from Posco-Daewoo earlier this year due to concerns over deforestation in palm oil plantations. Malte Kolb, Senior Analyst at ISS-oekom, said: “Should Nestlé’s membership in the RSPO be terminated and Nestlé does not come up with a different commitment that meets the requirements of the RSPO standard, the grade of the indicator (referring to Nestlé’s Corporate Rating) will be downgraded.” He also noted that Nestlé had not published any recent data with regards to its palm oil certification since 2015.

The UK Court of Appeal has overturned a High Court ruling that last year found government guidance to Local Government Pension Scheme (LGPS) funds about boycotts, sanctions and divestments relating to foreign and defence policy was unlawful. The case had been brought by campaign group the Palestine Solidarity Campaign and LGPS member Jacqueline Lewis. While the government guidance acknowledged that LGPS authorities were entitled to base decisions upon non-financial factors, it barred divestment policies directed “against foreign nations and UK defence industries”, other than where formal legal sanctions had been put in place by the government. However, UK Court of Appeal judges have overturned the High Court judgement ruling that LGPS funds “should not pursue policies that are contrary to UK foreign policy or UK defence policy”.

Campaign group Clean Clothes is asking eight-times Wimbledon tennis champion Roger Federer to use his influence at Japanese clothing retailer UNIQLO, who signed a $300m sponsorship deal, to press management to pay an employee $5.5m compensation claim stemming from a 2015 supply chain dispute (link). Prominent institutional investors are among the shareholders of UNIQLO’s parent company, Tokyo- and Hong Kong-listed Fast Retailing Co. Ltd., which normally holds its AGM in November.