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RI ESG Briefing, August 3: Sumitomo, SEC, Hermes, Regnan, PKA

The round-up of the latest ESG news

Environmental

Sumitomo Corporation will take a 12.5% investment in the UK’s Galloper offshore wind farm, via a partnership with Macquarie Capital. The £1.5bn, 336MW site is slated to become operational in 2018. It is owned by RWE Innogy, Siemens Financial Services, the UK’s Green Investment Bank and Macquarie Capital. Sumitomo also has investments in Belwind, Northwind and Nobelwind offshore wind farms – all in Belgium. The deal is due to close in coming months.

The US Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) has criticised growing investor pressure for the Securities and Exchange Commission (SEC) to require ESG disclosure from listed companies. In a “letter”:
http://www.centerforcapitalmarkets.com/wp-content/uploads/2016/07/2016-7.20-Chamber-Reg-S-K-Comment-Letter.pdf the CCMC, which advocates on behalf of American businesses, claims such disclosures would not meet materiality standards set out in Federal securities law, and that many of those calling for improved reporting are aiming to achieve a social or political goal. It continues: “These goals, if met, would in many cases contribute to an environment that makes it more difficult for businesses to innovate, compete and grow.” It also reminds the SEC of its “tripartite mission” to serve investors, create orderly markets and promote capital formation, above all else.

Pension funds and other infrastructure investors have backed 130MW of wind assets in the first half of 2016 – more than a quarter of new European offshore wind farm projects – according to statistics from industry body WindEurope. Danish pension fund PKA was the largest institutional investor on such projects, accounting for just over 11% of all investments made into expanding connected offshore wind capacity, while other big backers include fellow Danish institution Industriens Pension, and Global Infrastructure Partners. WindEurope also estimates that the offshore wind industry attracted a record €14bn of new investments over the same period, with investors in the UK accounting for nearly three-quarters of this figure. Giles Dickson, WindEurope’s CEO, said: “We expect installations will pick up significantly in 2017 but there are a lot of challenges out there still on offshore wind, not least the uncertainty over future volumes and regulation in many key markets for the period after 2020.”

Investors have agreed to take Chinese renewables heavyweight Trina Solar Limited private, delisting it from the New York Stock Exchange. The deal – which will see the firm’s ordinary shares cancelled in exchange for $0.232 each, and all American depositary shares (worth 50 shares each) cancelled in exchange for $11.60 each – values Trina Solar at $1.1bn. Remaining investors will include the company’s CEO, Jifan Gao, Shanghai Xingsheng Equity Investment & Management Co, Shanghai Xingjing Investment Management Co, Great Zhongou Asset Management, Liuan Xinshi Asset Management Co, “and/or their respective affiliates”. The transaction is slated to close early next year.h6. Governance

The UK’s Institute of Directors (IOD) has joined a chorus of voices demanding a reform of corporate governance guidelines for private companies in the wake of the BHS scandal. Oliver Parry, the IOD’s Head of Corporate Governance, told the Sunday Telegraph that “unlisted companies are a neglected sector for corporate governance in the post financial crisis world”, and that recent cases at BHS and HBOS have proved that “one strong individual” at a private company can overpower even experienced board members. Though there are currently no regulations surrounding the behaviour of private company directors in the UK. The IOD has also written to the country’s Prime Minister, Theresa May, to ask for more checks on unlisted firms.

Japanese firms are set to make further headway on corporate governance, according to an investment note from Hermes Investment Management. The note claims that a recent victory by Prime Minister Shinzo Abe’s ruling coalition – which gives it a majority mandate from Japan’s upper house – “signals further progress in the area of corporate governance”. It also claims there have been improvements at board level already, pointing to an increase in the number of independent directors at Japanese corporates. However, Hermes highlights current “doubts about the strength of commitment to change”, adding that “it is feared some corporates are just paying lip service to greater accountability”, with cross shareholdings between companies continuing to be significant.

Corporate directors who suspect managers of wrongdoing are given conflicting incentives to act, a University of Virginia study has found, with directors likely facing negative press attention and worse outcomes later in their career if they reveal executive misconduct. The authors of ‘Do Independent Directors Face Incentives to Monitor Executives’ found that when considering the stock option backdating scandal unearthed in the mid-2000s, directors at firms that were investigated were 6% more likely to lose their board seats, received 7% more withheld votes and were 10% more likely to receive a recommendation to withhold votes from ISS, compared with directors who made no disclosure.

Australian ESG research and engagement firm Regnan has reported that 80% of the companies it has actively engaged with have demonstrated “progress” in some way across a suite of ESG metrics. In its latest annual report Regnan also revealed that it has started many more discussions related to climate change, human capital and ESG disclosures than in any previous year, totalling some 90 campaigns on 42 Australian stocks. The group also advocates “deep engagement” and two-way conversations with investee companies for the most effective results. Regnan’s engagement and advocacy is undertaken on behalf of investors who manage around A$82bn in S&P or ASX200 companies.