Responsible Funds, May 5: Norges Bank to engage with Italy’s Eni over “severe corruption”

The round-up of the latest responsible funds news.

Norges Bank Investment Management has said it will follow up with Italian oil & gas giant Eni SpA about allegations of “severe corruption”. NBIM, the arm of the Norwegian central bank that runs the assets of the giant Pension Fund Global, said it would employ “active ownership” [engagement] with Eni, which has been embroiled in allegations of corruption linked to its operations in Nigeria (see RI coverage) and Algeria. The Council of Ethics, which advises NBIM, says that it engaged with Eni from June 2015 until October 2016 in which the company stressed it has not been found guilty. “However,” the panel says, “on the basis of that which is now known about all the corruption allegations, the Council believes that previous internal systems seem to have failed, and that defects in the company’s internal control systems seem to have allowed corruption to have taken place within the organization.” NBIM will also exclude India’s Bharat Heavy Electricals Ltd., based on an assessment of the risk of “severe environmental damage” following a recommendation from the Council on Ethics. The influential investor would place PetroChina and Leonardo SpA under observation over “severe corruption”, and also follow up with Saipem SpA, Eni’s former subsidiary.

Index and ESG data firm MSCI has announced a 17% increase in ESG revenues in its first quarterly results for 2017. MSCI cites higher ESG Ratings product revenues as the driver behind the $1.8m increase.

Per Bolund, Minister for Financial Markets and Consumer Affairs, Deputy Minister for Finance, has been quoted as saying at a conference by Dagens Industri that sustainability and ethical demands on the AP funds’ portfolios will increase. 
He is quoted saying: “We are looking at the legislation for the AP funds and heighten general demands on sustainability work and sustainable investments. This is on the environmental side, but it also applies to keeping international agreements that Sweden has closed.” He didn’t specify whether this will impact the AP funds’ shares of companies with strong links to nuclear weapon producers, which currently amount to almost SEK5bn, and which other big pension funds in Sweden have chosen to turn their back on. Bolund said that there is already a broad agreement with the six parties in the pension group on the new demands, and that he believes that they will be able to deliver them in the fall this year.

The UK’s first emerging market ‘impact’ trust, The Impact Investment Trust has reportedly been launched this month. The new fund, which is initially looking to raise £116m, will hold 10-15 locally managed private equity investment funds, each investing in small-to-medium-sized enterprises (SMEs) in developing economies. Managed by Swiss based impact specialist asset manager Obviam AG, the fund hopes to launch its initial public offer (IPO) next month, and expects to be up and running within 18 months of listing on the London Stock Exchange.

Swedish asset manager Ohman is launching a global, passive ESG fund. It will screen stocks on conventional ESG grounds and exclude companies that extract fossil-fuels and utilities involved in coal-based electricity production. Ohman says this will result in “a significantly lower CO2 intensity”, with an average of around 40% decarbonisation.Swiss asset manager Lombard Odier has launched a new global responsible equities fund, LO Funds – Global Responsible Equity. The new fund, which launches with $83m in assets under management, aims to “deliver quantifiable social and environmental impact hand-in-hand with excess financial performance”. Managed by Alexandre Déruaz, Head of Systematic Equities, and Nicolas Mieszkalski, Co-Portfolio Manager, with a management fee of 0.60%, the fund will seek to avoid companies that are engaged in non-ethical businesses, exposed to structural regulatory risks, and/ or are the subject of severe controversies.

Every £1 invested in a UK social impact bond has been supported by at least £1.15 of government money, finds a new report from Social Spider CIC supported by the Centre for Public Impact. The report, An Overview of the Global Market for Commissioners and Policymakers, estimates that the total subsidy into the UK social impact bond market between 2010 and 2016 has been £45m, exceeding investment estimated at £39m. The majority of the subsidy is not directly to the investment itself but includes development grants and outcome ‘top-ups’ to pay returns to investors in successful social impact bonds. The report, which also includes an overview of social impact bonds around the world, also finds that in the US 5 out of 10 social impact bonds received 100% of their senior investment from commercial investors, but in all cases it has been subsidised by some combination of guarantees, grants or (riskier) subordinate investment from philanthropic sources.

Calvert Investment Management, the SRI firm, has reportedly settled with the Securities and Exchange Commission over charges that it improperly used mutual fund client assets to cover nearly $18m in marketing expenses. Pensions & Investments, citing a settlement agreement filed this week, said the SEC also charged Calvert with having material mis-statements about payments in fund prospectuses. Calvert will pay a total $22.6m that will be paid for by former parent Ameritas. A new firm, Calvert Research and Management, now owned by Eaton Vance, was not a party to the SEC action.

The Builders Fund, a US private equity fund, has announced that it has closed on $30m in fund commitments and expects to hold a final closing for the vehicle by the middle of 2017. The announcement was made as the fund, managed by Tripp Baird, Mike Dutton and Eric Jacobsen, reported that it has made a minority investment in Traditional Medicinals, a leading provider of ‘wellness tea’ in the US.

Rhode Island’s Treasurer Seth Magaziner has announced that the state’s pension sytem is withdrawing $340m from hedge funds that “have failed to meet expectations while charging unacceptably high fees”. The move is part of Magaziner’s ‘Back to Basics’ investment strategy, unveiled last year after an intensive review process involving some of the State’s leading investment experts. It is anticipated that the fund, which achieved a one-year return of 10.81%, beating its own benchmark of 9.96%, will announce additional hedge fund redemptions in the coming months as the new strategy is rolled out.