RI ESG Briefing, April 28: PRI launches survey on credit rating agencies and ESG

The round-up of environmental, social and governance news

Environmental

German mortgage bank BerlinHyp has completed the sale of its inaugural “green” Pfandbrief (covered bond) raising €500m from investors, half of whom were from the sustainable sector. BerlinHyp said its seven-year Pfandbrief paying 0.175% in annual interest was four times oversubscribed. German investors accounted for 71% of the subscribers, followed by those in Scandinavia (13%), and Austria and Switzerland (8%). With the proceeds, BerlinHyp plans to construct buildings that meet high efficiency standards as well as renovate existing ones to meet such standards. The bonds have been assured as green by German ESG firm Oekom Research.

Allianz Climate Solutions (ACS), a unit of the German insurance giant that employs renewable energy experts, has teamed up with German think-tank Frauenhofer and electronic testing firm VDE to assess the viability of solar power projects for interested financial parties. “Solar projects must demonstrate a high level of quality and performance that can be relied on by investors, commercial banks and insurance companies. To meet this demand, we have entered into a partnership to offer integrated financial and technical services for the projects,” the three firms said in a statement.

Reform of the EU Emissions Trading System (ETS) could take place from January 1 2019, according to a Reuters report citing a proposal from Latvia, current holder of the rotating EU presidency. It said the idea is for a “Market Stability Reserve” for surplus carbon allowances to be set up in 2018 and for it to begin working at the start of the next year – 24 months earlier than the European Commission’s original proposal.

Social

There is nothing in the European Commission’s ambitious Capital Market Union (CMU) plans about the “social role of financial markets, the way the market are ruled, the risk of accentuating the short-termism by strengthening the role of markets”. So argues Philippe Zaouati, CEO at Mirova, the responsible investment arm of France’s Natixis. “This project of CMU is presented as if it was completely independent of the other major European strategic trends, including Energy Union, fight against climate change and development of the social economy,” he writes in a blog posting.

Erste Asset Management, the Austria-based fund firm with €54.4bn under management, says it is “beyond question” that a fundamental change in working conditions in the textile industry in Asia and Africa is only possible with the cooperation of the major apparel companies. Marking the two-year anniversary of the Rana Plaza disaster, it said it is combining its activities with engagement partner, GES – “which is able to exert the greatest influence on the companies, thanks to the larger fund volumes which it represents”.

South Korean car firm Hyundai has reportedly responded to foreign investors’ requests for it to establish a director-level committee protecting outside investors’ interests. The Financial Times said it was an attempt to placate “unrest” over last year’s controversial $10bn land deal.h6. Governance

The Principles for Responsible Investment (PRI) has launched a survey to align credit rating agencies and investors on ESG. The objective is to find out how fixed income investors are using ESG analysis and to gauge demand for ESG to be integrated into credit ratings. “We often hear requests from our signatories to engage the credit raters,” says PRI Managing Director Fiona Reynolds. “Obviously it’s up to the rating agencies to work out how to value and weight material ESG criteria – some already are – but we believe investors want them to be more systematic and transparent about this.” The survey closes on May 5.

Beleaguered UK wealth manager Alliance Trust has come to an agreement with activist hedge fund investor Elliott Advisors on a board shake-up – just hours before its AGM. The 127-year old trust has agreed to appoint two independent non-executive directors proposed by Elliott, meaning the hedge fund will withdraw resolutions on three proposed non-exec directors. Alliance Trust said Elliott had agreed not to call a further general meeting or “seek to agitate against the company, its board or management publicly until after the company’s 2016 AGM at the earliest”.

Exactly 30% of shareholders in Credit Suisse rejected the executive compensation report for 2014 during a non-binding vote at the Swiss bank’s annual general meeting on April 24. The report was approved with 67% of shareholders voting in favour and 3% abstaining. But shareholders approved (87% support), Credit Suisse’s proposed compensation for its board and management for the next 12 months. As a result, the bank will pay out a maximum of CHF12m (€11.5m) for board directors and CHF71.1m in base salary plus bonuses to bank managers.

Ratings agency Moody’s Investors Services has revised its outlook on proxy advisor Institutional Shareholder Services (ISS) from ‘stable’ to ‘negative’ on $260m of rated debt. Moody’s says the change in outlook reflects a deterioration in ISS’s credit metrics and liquidity following its spin-off from MSCI in early 2014. All ratings, including Corporate Family Rating and Bank Credit Facility Rating, were affirmed. (Amended to reflect ISS’s outlook was revised, not downgraded.)

Calvert Investment Management, the US-based socially responsible investor, has co-filed a shareholder proposal at online retail giant Amazon asking the company to compile a sustainability report – to include greenhouse gas emissions – within the year. Calvert states that compared with peers like Target and Google, Amazon provided much less information on how it handling environmental issues like climate change. Amazon’s board rejects the proposal, saying the firm already has a vibrant sustainability strategy. As an example, it cited its support of a new wind farm in the US that will power some of its datacentres.

The National Center for Public Policy Research, a conservative US political lobby, has filed a shareholder proposal for Google’s AGM asking its board to publish a report listing the business risks associated with its reliance on government subsidies for renewables. To support its proposal, the lobby states that as those subsidies are being challenged at the state and federal level, Google’s shareholders must be able to evaluate the risks of their possibly being rolled back. Google’s board rejects the proposal, noting that the firm is already publishing enough information on its renewable energy strategy.