RI ESG Briefing, February 2: Legal & General seeking partners to ‘re-equitise’ the UK

The round-up of the latest ESG developments

Environmental

OPTrust, a C$18.4bn Canadian pension fund, is calling on other pension funds and market players to join it in developing standardised climate disclosure models. The moves comes as the fund publishes a report titled Climate Change: Delivering on Disclosure, which details its own approach to managing climate risk. Mercer has also provided OPTrust with a report on the subject, which assesses the firm’s exposure to carbon. “Climate change impacts, and policy responses to these, will undoubtedly have repercussions on capital markets and our investment portfolio,” said CEO Hugh O’Reilly. “While these impacts continue to grow, the investment industry has yet to develop a common approach to measure, model and mitigate these risks.”
Rathbone Greenbank claims to have reduced its carbon footprint by 25% since 2015, compared with just 6% across the overall FTSE350. The ethical investor said that – based on the carbon exposure of each £1m investment – its footprint has fallen by a quarter, and was 53% lower than its benchmark. The data refers only to the equity portion of Rathbone Greenbank’s portfolio, which accounts for 35% of its total assets under management. The firm attributes the decrease to a combination of changes to its own investments, and changes to the carbon footprints of existing holdings. It has a significant holding in utility SSE, for example, which has slashed its carbon emissions by 48%.

Social

Investment consultant Willis Towers Watson is having “serious discussions” about incorporating gender diversity as part of its due diligence of fund managers, according to Luba Nikulina, Global Head of Manager Research at Willis Towers Watson. Nikulina, speaking at an MSCI event on the subject of women in finance, said good data on the issue was vital to be able to research links between gender diversity and investment performance.
A Seattle City Council committee voted this week to pull $3bn of funds out of Wells Fargo because it is involved financing the controversial Dakota Access Pipeline. The construction of the oil pipeline is expected to contaminate drinking water and destroy Native American burial sites. On Wednesday, the Affordable Housing, Neighbourhoods and Finance Committee of the city backed legislation to find a “more socially responsible bank”. If the legislation is passed on Monday, when it goes to a full city vote, the Council will put out a tender for another bank. The council member who proposed the move was Kshama Sawant, who wrote in her City Council blog: “Last night I was asked by a reporter to respond to a claim by Wells Fargo that they could not legally pull out of their contractual obligations to invest in the DAPL. Of course, this is absolute nonsense: If they can find a way to defraud two million customers, they can find a way to terminate their contracts with the DAPL!”
Meanwhile, Dutch bank ABN Amro has said it will end its financing to Energy Transfer Equity – the majority owner of the Dakota Access Pipeline – if further violence is used in relation to ongoing protests. ABN Amro, which has provided $45m in debt to Energy Transfer Equity, said “an acceptable non-violent solution [must] be found among all parties impacted by the construction of the DAPL…. If such a solution is not achieved, the ultimate consequence will be discontinuation of the relationship. In the meantime, ABN Amro will not pursue any new business with ETE until there is clarity regarding the situation and an acceptable outcome has been achieved”.Nigel Wilson, CEO, Legal & General, has said it is seeking to create an equity culture in the UK and is looking for partners to go on the journey with it. Wilson, speaking at the Social Stock Exchange Investor Conference in London this week, said UK firms, especially SMEs, were starved of equity finance, hindering their growth and damaging productivity in the UK. He said re-equitising the UK would only happen if people stepped up and invested real capital. He also said local social stock exchanges and social investment would have a part to play. Recently, Wilson chaired a UK-government backed review of mission-led businesses that called for social and environmental impact investment funds and social pension funds.

Governance

The Council of Experts Concerning the Follow-up of Japan’s Stewardship Code held a meeting to discuss its revision where Kerry Waring, ICGN Managing Director, gave a presentation, according to industry sources from Japan. It is expected that one or two more meetings will be held before publishing the revised Code this Spring, building upon recent recommendations issued by the experts.
The application of Nigeria’s Corporate Governance Codes was suspended by the President of the Federal Government Muhammadu Buhari. The Financial Reporting Council of Nigeria had recently released three separated codes: one compulsory for the private sector; a comply-or-explain one for not-for-profit entities; and a third code for the public sector, a relevant player in the Nigerian economy. The board of the FRC has been dissolved. Daniel Asapokhai, a partner and a financial reporting specialist at PwC Nigeria, was named executive secretary replacing Jim Obazee. Adedotun Sulaiman, former managing partner/director of Arthur Anderson (later Accenture) was appointed FRC chairman. The codes were dismissed as “business unfriendly” and “inimical to further investment” by some investors in the country, as reported by Nigerian media.
London-headquartered telecom company BT Group faces a class action over alleged accounting irregularities of its Italian business, which could have violated US securities laws and damage shareholders with misleading information. According to Robbins Geller Rudman & Dowd LLP, one of the claimants’ law firm, “the price of BT Group American Depositary Receipts fell 21%, to close at $19.38 per ADR, on extremely heavy trading volume.” The law firm added that BT said on January, 24 that it expected to write down approximately £530 million, while in September 2016 said such an amount would be £145 million due to “certain historical accounting errors” at its BT Italia division. The class action was filed in the United States District Court for the Southern District of New York captioned as Hollister v. BT Group plc, et al.
Standard Life Investments voted at 1,569 shareholder meetings and cast its vote on 19,051 resolutions during 2016 — of which 964 were against management recommendations. According to its recently published Governance & Stewardship Annual Review for 2016, the reasons for voting against management recommendations were because of remuneration and share schemes (42 per cent), pre-emption/dilution matters (26 per cent), board matters (12 per cent) and other issues (20 per cent). Euan Stirling, Head of Stewardship & ESG Investment, said: “The original shareholder spring of 2012 was replayed in 2016, with widespread dissent in shareholder ranks against excessive pay for management. The UK binding vote on remuneration policy is now in its third year. During 2017, many companies will need to seek authority for a new remuneration policy.”