RI ESG Briefing, December 8: CalPERS, Hermes, Trillium, LAPFF, RIAA, women on boards

Environmental

The California Public Employees Retirement System (CalPERS), the US public pension fund, will reportedly start to engage more companies on climate change. Reuters quoted the fund’s Director of Global Governance Anne Simpson as saying on the sidelines of the COP21 event in Paris that it wants the underlying companies in its portfolio “to be aligned with the transition to a low-carbon economy”.

French President François Hollande has promised that his country would invest billions of euros in Africa over the next five years to expand renewable energy and widen access to electricity. “The world, and in particular the developed world, owes the African continent an environmental debt,” said Hollande at the COP21 climate summit in Paris. There was however confusion over the exact level of investment. One report said it was as much as €8bn, while the TV channel France 24 said it was just €2bn.

German energy giant RWE AG plans to spin-off its renewable energy business via an initial public offering (IPO) next year. In a statement released after a meeting of its management board, RWE said it would sell around 10% of the business, currently known as Innogy, to investors. The new shares will be created through a capital increase, and RWE said it may sell additional stakes in Innogy in the future. Launched in 2008, Innogy operates wind, biomass and hydropower facilities which have a combined capacity of 2.8GW. Announcement

Export Development Canada (EDC), a trade finance agency, has announced plans to issue a second green bond, hoping to raise $300m (€276m) in the process. In a statement, EDC said the bond, which will begin trading after December 8, has a maturity of three years and pays a coupon, or interest rate of 1.25%. The bond’s underwriters are Bank of America, Crédit Agricole and Morgan Stanley. EDC said the proceeds from the issuance would be used to boost its lending in the areas of renewable energy and climate change mitigation. EDC’s green bond programme has been endorsed by CICERO (Centre for International Climate and Environmental Research) in Oslo.

Social

Nearly 30% of institutional investors in the US are considering ESG (environmental, social, and governance) factors when investing, up from 22% in 2013, a new survey from investment consultants Callan Associates reflects. The investors that relied on ESG the most were foundations and endowments (39% and 37%, respectively). The Callan survey further reflected that public pension funds doubled their use of ESG, rising to 27% currently from 15% in 2013.

Hermes Investment Management, the £29.8bn manager that’s owned by the BT Pension Scheme, has published a look at ESG in emerging markets. In the paper (ESG in emerging markets: Challenging the dominant investment paradigm), Gary Greenberg, Head of Hermes Emerging Markets, discusses how investment incentives for fund managers, based on maximising returns over a three-month to a three-year time horizon, currently make investing incompatible with solutions to the real problems we face as a civilisation – such as extreme inequality, pollution, water scarcity and climate change.h6. Governance

US SRI specialist Trillium Asset Management recently submitted its formal comments in support of the U.S. Environmental Protection Agency’s (EPA) proposed methane rule for new and modified sources in the oil and gas industry. It joins members of the Interfaith Center on Corporate Responsibility (ICCR) who are engaging the oil and gas industry to promote more sustainable practices.

New York City Mayor Bill de Blasio has urged the city’s pension funds to divest their holdings of firearms manufacturers in the wake of the latest mass shooting. “I call on all government pension funds in New York City and across the country to divest immediately from funds that include assault weapon manufacturers,” de Blasio said in a statement.

The Responsible Investment Association Australia (RIAA) has called for minimum ESG (environmental, social and governance) standards for “default” investments made by Australian pension funds. According to the RIAA, the standards are necessary, as the average Australian already assumes that his pension fund did not do harm when investing. Indeed, “this understanding has led to a rapid divestment from around 30 super (pension) funds in the last two years from tobacco,” RIAA said in a discussion paper. The association did not, however, define what minimum ESG standards it believes should apply to default investments.

The Local Authority Pension Fund Forum in the UK has ramped up its efforts to change the way companies report, according to reports. Reuters said the group has asked the boards of the biggest 350 listed firms to disregard certain guidance from the accounting watchdog the Financial Reporting Council. The issue relates to what LAPFF reckons is an error in the way the FRC advises companies to interpret company law, in a spat that has now lasted for two years.

US-based proxy adviser Glass Lewis has joined peer ISS in recommending that investors in Telecom Italia (TI) reject a proposal by Vivendi, TI’s biggest shareholder, to enlarge TI’s board. According to Reuters, Vivendi wants TI to enlarge its board by four seats and occupy those seats with its own officials. The French media group currently owns 20.1% of TI. Glass Lewis and ISS oppose Vivendi’s move on the grounds that it would give the French firm too much power at TI. TI’s shareholders are to vote on Vivendi’s proposal on December 15.

Companies with more female board directors have delivered a 36% better return on equity – since 2010 – than those with less board diversity, according to a study by MSCI cited by the Financial Times. MSCI, the FT said, examined the 1,643 companies in the MSCI World index and found those with “strong female leadership” delivered a 10.1% return on equity, compared with 7.4% for those firms without it.

Just 57% of companies on the UK’s FTSE 350 comply with all the standards in the Financial Reporting Council’s (FRC) UK Corporate Governance Code, according to a survey by professional services firm Grant Thornton quoted by CityAM. The report added the findings represent a fall from the 61% who met all the standards of the code the year before.