RI ESG Briefing, April 2: Pension funds have ‘primary responsibility’ over executive pay – report

The latest ESG market developments


Canada: Public pensions manager Caisse de dépôt et placement du Québec has added almost C$10bn (€6.7bn) low carbon assets to its portfolio in 2018 according to its Stewardship Report — bringing its total low-carbon holdings to $28bn, exceeding its 2020 targets. As a result, this has been revised upward to $32bn.

Netherlands: A group of 22 high net worth individuals have signed a pledge to remove approximately €200m of capital from the top 200 fossil fuel companies and to reallocate them to sustainable assets within the next three to five years. The four publicly named ambassadors of the group are Frank van Beuningen and Margaret McGovern from Pymwymic, Jan Willem Nieuwenhuysv, Director of Fair Capital Partners and Leonard van Oord of the Van Oord dredging family.

Anglo-Dutch oil giant Shell has announced it is cutting ties with American Fuel & Petrochemical Manufacturers (AFPM) for what it calls “material misalignment” between its own climate-related policy position and that of the lobby group. It comes as Shell today published the review of its 19 trade associations that it pledged to undertake following engagement with the Church of England Pension Board and Dutch investment manager Robeco last year as part of the Climate Action 100+ initiative. The review also found “some misalignment” with nine other associations. 2019 will see Shell introduce a “set of governance principles” to improve its management of its trade associations.

NGOs have reacted positively to news that QBE, Australia’s biggest coal insurer, is to phase out its entire thermal coal business by 2030 in addition to not underwriting any new mines, power plant or transport network from July 1 this year. The announcement was made after a long-running pressure campaign coordinated by Australian NGO Market Forces. However, the insurer will continue to invest in and insure oil and gas companies and projects. Link


Pensioenfonds Werk en(re)Inegratie (PWRI), the €9bn Dutch pension fund for disabled workers, has introduced a bespoke index which tilts toward companies with better health and safety, labour, and climate ESG scores. The new index, which was created with the fund’s fiduciary manager BMO Global Asset Management and will cover its entire equity allocation, includes a €2bn developed market portfolio and a €1bn emerging market portfolio. Index provider MSCI provides all the data on the companies that make it into the passive universe, while the strategies are run by UBS and DWS in an equally split mandate.

Global sustainable investing assets in the five major markets stood at $30.7trn at the start of 2018, a 34% increase in two years, according to a new report from the Global Sustainable Investment Alliance, the group of worldwide social investment forums.

Omidyar Network, a “philanthropic investment firm”, has reportedly announced it will be spinning off its financial inclusion initiative into a venture firm called Flourish after two other recent spinoffs, its government and citizen engagement initiative (Luminate) and emerging technology effort (Spero).

Kommunal Landspensjonskasse (KLP), the Norwegian pension fund for local authorities, has announced
the exclusion of Texwinca Holdings, Washington H Soul Pattinson & Co (WHSP) and Turning Point Brands on the advice of the Council of Ethics – the advisory body for Norway’s sovereign wealth fund. This involved divesting €0.3m in WHSP and roughly €10,031 in Texwinca Holdings. The fund did not have a stake in Turning Point Brands prior to this.h6. Governance

“The primary responsibility” for changing the environment on executive pay rests with pension funds. That’s the message from a new report from the UK Parliament’s Business, Energy and Industrial Strategy Committee. Speaking of the “underpowered and passive” Financial Reporting Council, the report adds: “A tougher, more proactive regulator is needed because we do not have confidence in remuneration committees, or institutional investors in exercising their stewardship functions, in a way that consistently bears down on executive pay.” The MPs called for greater transparency in the way pension funds set investment objectives, including on executive pay “and that the regulator is given powers to take effective action against those who do not meet their responsibilities under a revised Stewardship Code”.

South Korea’s National Pension Service (NPS), the third largest national pension fund globally with $560bn of assets, has played a crucial role in the ouster of scandal-ridden Korea Airlines head, Cho Yang-ho, from the board. The NPS announced it would be voting against the reappointment of Cho Yang-ho – who is also facing trial on charges of embezzlement and breach of trust – over his “record of undermining corporate value and infringing upon shareholder rights”, and received sufficient support from other shareholders to prevent the vote passing. This has been seen as the start of a crackdown on chaebol, or family-run conglomerates, which formed part of the manifesto for the current Moon administration.

Allianz Global Investors has found that although interest in sustainable finance has increased across Europe, adoption continues to be slow. In a survey of 10,000 Europeans, 75% agreed that sustainability aspects are important in investment decisions although only 35% of UK-based respondents believe sustainable investing improve financial returns. Additionally, only 20% of respondents with financial advisors have discussed sustainable investing with them.

Investors representing more than $2.5trn have contributed to a consultation on corporate tax transparency by global reporting standards body, GRI. Norway’s Norges Bank Investment Management and the UK’s Legal & General were among the investors who responded to the proposals for a first global standard on taxes and payments, which were put forward by the GRI’s Global Sustainability Standards Board (GSSB).

The GRI has also been working with Sri Lanka and Bangladesh’s stock exchanges to ramp up sustainability reporting by companies. The global standard setting body has provided “technical input” to guides produced by the Dhaka Stock Exchange (DSE) and the Colombo Stock Exchange (CSE) that will advise more than 500 companies on sustainability reporting best practice.

The consultation “Sustainable Finance in Emerging Markets and the Role of Securities Regulators”, issued by the International Organization of Securities Commissions (IOSCO), closed yesterday (1 April).
The World Federation of Exchanges, responding to the consultation, made three main suggestions. First, the consultation’s scope should include “developed markets” and not just “growth and emerging” ones. Second, it recommended against “a wholesale rush to regulation”, as a mandatory reporting approach could have also unintended consequences in terms of quality of reporting. Third, there should be harmonisation of approaches and standardisation of terminology, as “the terms ‘ESG investment’, and ‘sustainable instruments’ are used somewhat interchangeably and that ESG disclosure is sometimes equated with sustainable investment.”

MP Pension, the Danish pension scheme for academics and psychologists, has reportedly put additional investments in Swedbank on hold after CEO Birgitte Bonnesen was ousted prior to the bank’s AGM last week over a billion-dollar money laundering scandal. The scheme owns a €1.8m stake in the bank.