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RI ESG Briefing, July 21: Mercer, Big Society Capital, Fidelity, Warren Buffett, BMO Global Asset Management

The round-up of the latest ESG news

Environmental

Hollywood star Matt Damon, co-founder of non-profit developmental aid organisation Water.org, has estimated that the charity has delivered water and sanitisation solutions to 4.6 million people, thanks to its “water credit” system. Answering a Q&A on Reddit, Damon revealed that a micro-finance loan system enables borrowers who finance water infrastructure projects to face barely any costs. He added: “It’s this virtuous circle: rather than spending $25 to do a well project and give someone clean water for life, in our most mature loan programmes we are down to about $5 per person. That system has driven down the philanthropic cost of capital per person substantially”.

Vatican Bank board members have been found to have financial links to the fossil-fuel industry, despite Pope Francis’ climate encyclical issued last year, calling for climate change to be addressed. According to an investigation by Greenpeace’s EnergyDesk, board president, Jean-Baptiste de Franssu advises the Carmignac Gestion fund, which has stock worth $675m in Anadarko Petroleum, as well as holdings in Shell and Exxon. Fellow board member Michael Hintze is CEO of a hedge fund with more than $8m invested in energy companies, including Anadarko Petroleum and fracking heavyweight Devon Energy. Hintze was reported in 2012 to be a donor to Nigel Lawson’s Global Warming Policy Foundation – a climate sceptic pressure group.

Australia’s Swinburne University has selected Mercer Investments as its new investment manager in a bid to reduce its fossil fuel exposure. Chief Financial Officer Andrew Field, says he expects all equity-invested funds will be moved to Mercer’s management before the end of the year. “Following this transition, I expect Swinburne’s fossil fuel exposure in its equities portfolios to have substantially reduced,” he added.

Social

Access – the Foundation for Social Investment, which was set up by the UK government to help provide more affordable social finance to charities and social enterprises, has made its first investment. It has backed a new fund supporting health and social care organisations. The Health and Wellbeing Challenge Fund South West, managed by social investor Resonance, will make small, unsecured loans. The new deal is part of the £45m Growth Fund initiative that provides a blend of loans from Big Society Capital and grants from the Big Lottery Fund in a bid to allow social investors to offer smaller loans and take much greater risk than other lenders, such as banks.

The UK’s social investment wholesaler Big Society Capital, Social Finance and Big Issue Invest have called on the new government to move responsibility for social enterprise, social investment and mutuals to the new Department for Business, Energy and Industrial Strategy (BEIS). Following new Prime Minister Theresa May’s government reshuffle, social enterprise and social investment policy has moved to the Department for Culture, Media and Sport.h6. Governance

A coalition of CEOs of the world’s largest companies and investment managers led by Warren Buffett, Larry Fink and JPMorgan Chase’s CEO Jamie Dimon have proposed a set of corporate governance guidelines for US companies. Titled the “Commonsense Corporate Governance Principles”, the document sets out several measures for companies to be run in a way that prioritises their long-term financial health. Key points in the code include maintaining independent and diverse corporate boards, abolishing quarterly earnings guidance and the need for “constructive engagement” with stakeholders, which includes a recommendation for proxy voters to develop their own voting guidelines rather than to rely on proxy advisors.

“We will be particularly critical of remuneration committees which choose to ignore investor views.” That’s the view of BMO Global Asset Management (EMEA), the former F&C Investments, in a commentary on executive pay and other issues which have attracted shareholder discontent this year. It said the high level of votes ‘against’ are a “defining moment” for shareholders and UK boards. But, it added: “It remains to be seen whether this is the new normal or a ‘flash in the pan’”.

A “healthy” corporate culture is vital to the long-term health of a company, a report from UK regulator the Financial Reporting Council (FRC) has found, with boards who identify clear values, strategies and business models the most likely to protect long-term value. Based on interviews with more than 250 chairs, CEOs and industry experts, the FRC also said that successful stewardship should include engagement on cultural issues, and that investors “should challenge themselves about the behaviours they are encouraging in companies”. Values should inform how incentives are determined and be measured throughout a company, the report’s authors also suggest.

Fidelity has publicly backed new Prime Minister Theresa May’s plan to introduce binding votes on pay. The Independent reports that Dominic Rossi, global chief investment officer of equities, said the fund giant had first called for an annual binding vote in 2012. “Extending shareholder powers even further will add significant moment to our efforts to better align executive pay rewards with shareholder interests,” he said.

Cornerstone Capital has released a guide to voting proxies aimed primarily at asset owners – endowments, foundations, family offices, individuals or others – who are long-term stewards of capital on behalf of themselves and others. A Voice in the Boardroom can be found here.

CGI Glass Lewis, the Australian subsidiary of proxy firm Glass Lewis has announced that Sustainalytics will now provide the E&S ratings and research underpinning CGI Glass Lewis’ E&S Advisory Paper. The E&S Advisory Papers review the key E&S issues relating to ASX200 companies, including both quantitative and qualitative analysis. Beginning in July 2016, the content of the E&S Advisory Papers has been updated to feature ratings and insights from Sustainalytics.