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RI ESG Briefing, Aug. 2: Finland’s OP Financial Group makes major responsible investment commitment

The round-up of the latest ESG developments.

Environmental

JP Morgan has announced that it will facilitate $200bn in clean financing by 2025 – in what it says is the largest such commitment by a global financial institution to date. As of 2016 the firm claims to have financed $15bn in clean financing. The bank, which was the active book-runner on Apple’s $1.0bn green bond offering in June 2017, also announced a commitment to power its own operations with 100% renewable energy by 2020. 

The economics of renewable power could soon make it the world’s most affordable energy source, according to latest research by Morgan Stanley. Despite changing political climes – most notably in the US – market forces are now making clean, renewable power a competitive lower-cost reality, so says the US financial giant. Stephen Byrd, who leads the firm’s North American power, utilities and clean energy industries, said “[n]umerous key markets have reached an inflection point where renewables will have become the cheapest form of new power generation by 2020, a dynamic we see spreading to nearly every country we cover”.

Sweden’s SEB Group has started reporting (May 2017) how much carbon dioxide its equity funds emit in relation to their benchmark indices, according to an announcement on the firm’s webpage. The recently developed tool enables investors to see the carbon footprint of SEB’s funds for the first time. The Bank also announced a partnership with Swiss consulting firm South Pole Group to produce similar reports for its fixed-income funds in the future.

Ireland’s First Minister for Climate, Denis Naughten, has reportedly approved oil exploration off Ireland’s west coast – despite no official announcement being made by the Government. Drilling operations – searching for an estimated five billion barrels of oil – have already begun according to Irish oil and gas exploration firm Providence Resources PLC. Naughten also recently threatened to delay EU-wide implementation of the Paris Agreement on Climate Change by arguing that the 20% greenhouse gas targets for 2020 that Ireland itself signed up to are now “too onerous”.

California Insurance Commissioner Dave Jones has responded to 12 US oil state attorney generals threatening legal action over his Climate Risk Carbon Initiative. Jones’ Climate Risk Carbon initiative requires insurers over a certain threshold to publicly disclose their fossil fuel investments and asks them to voluntarily divest from thermal coal. His letter to the attorney generals says he will not be deterred by their threats and that his initiative is a “sound regulatory endeavour that is grounded in financial risk analysis, consistent with the state-based system of insurance regulation. Sound regulation of the insurance industry includes consideration of climate related risks”.

Social

New Zealand has seen a 2650% increase (A$42.7bn) in negatively screened funds since 2015, according to the latest report on the country by the Responsible Investment Association Australasia (RIAA). The report claims the increase is primarily due to the introduction of screening by the majority of New Zealand’s KiwiSaver providers after it emerged (August 2016) that the pension schemes had been investing in controversial weapons such as cluster bombs and mines.

New guidance on ISO 26000, the seven-year-old international standard for social responsibility, has been published. The new International Workshop Agreement – IWA 26, Using ISO 26000 guidance on social responsibility in management systems – helps organizations reap even greater benefits from the standard using the management systems standard (MSS) approach. Staffan Söderberg, Chair of the technical committee that created IWA 26, said the extra guidance it provides will be a welcome aid for anyone implementing a social responsibility programme. Link. Governance

OP Financial Group has announced its intention to participate in thousands of AGMs globally over the next three years – aiming to become an “international forerunner in terms of responsible investment”. The wealth management arm of Finland’s largest financial services group has hired proxy advisory firm Institutional Shareholder Services (ISS) to assist with company meetings outside of Finland. The firm also announced that its OP Fund Management Company will renew its ownership policy concerning Finnish and foreign companies in early autumn. The new policy will take better into account responsibility viewpoints, such as preparation for climate change and sustainability.

S&P Dow Jones Indices has announced that companies with multiple share classes will barred from its S&P 500 index, FT reports. The move comes a week after rival index provider FTSE Russell decided to restrict entry to companies who offer non-restricted shareholders at least 5% voting rights. Investors’ concerns surrounding companies’ increasing use of multiclass shares have been growing, most recently in response to social media platform Snap’s decision to sell shares with no voting rights.

The Non-Compliance with Laws and Regulations (NOCLAR) standard issued by the International Ethics Standards Board for Accountants (IESBA) came into effect on July 15. The standard applies to all categories of professional accountants, from auditors to accountants in businesses and government. NOCLAR advises on how they should proceed when they discover breaches of laws and regulations while performing their work. Anne Molyneux, a member of the Governing Board of the International Corporate Governance Network, said: “We are pleased with the NOCLAR initiative because it reminds all accountants of their accountability to the public interest. Too often in the past we have seen standards or regulations ignored. And I think of, for example, when an auditor may quietly resign without saying what the issue is in the business. We need to know that information as investors.”

NYC Comptroller Scott M. Stringer has called for Wells Fargo Chairman Stephen Sanger to be replaced in the wake of yet another scandal at the beleaguered US banking group. In response to the emerging insurance scandal – which is now reportedly the subject of a class action – Stringer said: “We need accountability and we need it now. Investors have long said this board needs to change, and these new revelations only reinforce that urgency… Investors, as well as consumers and everyday Americans, have waited too long for accountability. This board needs to be overhauled — now”.

The Sustainability Accounting Standards Board (SASB) has published its 2017 Technical Agenda, moving “one step closer to our goal of finalising our standards,” said Dr. Jean Rogers, Founder of SASB and Chair of the SASB Standards Board. The Technical Agenda, which sets SASB’s priorities and research areas, highlights human capital management, cyber security, water risk, and climate risk as “cross-cutting items”. In addition, SASB said it is integrating the TCFD recommendations as appropriate. A consultation, beginning in September, will address proposed changes to SASB standards across all 77 industries, before their codification early next year for use in SEC filings.

MEAG, the asset manager of German insurance firms Munich Re and ERGO, is set to expand its commitment to sustainability. The €258bn manager has announced that it will work with MSCI ESG Research to identify a range of sustainable investments in the near future. MEAG’s General Manager, Philipp Waldstein stated in relation to the announcement that “[s]ustainability is a part of risk management and company culture at Munich Re and MEAG.”

Halliburton has announced a settlement of $29.5m to end an investigation into its operations in Angola and Iraq. The US oil services giant was being investigated by the US Securities and Exchange Commission (SEC) and the Department of Justice following allegations of violations in relation to the US Foreign Corrupt Practices Act (FCPA).