RI ESG Briefing, February 14: HSBC turns its attention to sand mining

Environmental

Unsustainable rates of sand mining in the construction industry could have devastating environmental and social impacts, researchers at HSBC have warned. While one fifth of the earth is desert and 20-30% of deserts are sandy, sand scarcity is a concern for the construction industry as its sand must meet specific size requirements. It is mainly sourced from southeast Asian countries, where it is dredged from rivers and lakes. This ‘mining’ activity can cause significant harm, including environmental damage, water scarcity and illegal trade. Transportation is a significant contributor to these costs, the report added.

Columbia University has been awarded a new research grant by the Norwegian Finance Initiative (NFI) to study the effect of technological and regulatory changes on market structure and transparency across equity and fixed-income markets in the US and Europe. The three-year study aims to identify the effects of various regulatory changes and innovations on market quality, price discovery and liquidity. The study is funded under the NFI Research Programme, which has the objective of facilitating financial economic research in areas of relevance for the long-term management of Norway’s sovereign wealth fund.

European green bond investments will reach a key milestone this year as nine funds, with combined assets of about €1bn, are set to reach their three-year point. Fitch estimates in a report that at the end of 2017, Europe-based green bond funds totalled about €2.8bn, up nearly 40% from the previous year. Shared EU regulatory classification of green bonds, anticipated to be announced later this year, could spur further growth, according to the report.

A new report on palm oil from Fitch concludes that the EU is behind rising sustainability in the industry, with high consumer and NGO pressure prompting corporates to commit to sustainability and triggering EU lawmakers to enact legislation. End-users in the main Asian markets are less likely to have a preference for sustainable palm oil due to limited environmental awareness and a high degree of price-sensitivity, the report says. Incentives to improve sustainability are high for large palm oil producers that are able to spread the costs associated with compliance and, in turn, receive better access to developed markets and premiums for certified products.

The Climate Bonds Initiative has published a study of Nordic and Baltic public-sector green bonds, in coordination with the UK Foreign & Commonwealth Office. The report finds that the regions saw 70% growth in issuance between 2016 and 2017, and nearly half of all deals have come from the public sector. The report comes on the back of a recent government inquiry into the potential of the green bond market in Sweden, led by former AP4 CEO, Mats Andersson.h6. Social

The US Congress has passed the Bipartisan Budget Act of 2018, which includes the Social Impact Partnerships to Pay for Results Act (SIPPRA). The enacted legislation allows for a $92m fund to be housed at the Department of Treasury as a standing pool of capital to support outcomes-based financing. There is a wide range of causes which are eligible for the programme, including child and maternal health, homelessness, youth employment and recidivism. A request for proposals from states and localities will be made in the next year.

Taiwan’s $124bn Bureau of Labor Funds (BLF), the supervisory body for the country’s labour pension funds, has selected FTSE4Good TIP Taiwan ESG Index for a five year $1.4bn passive mandate. The FTSE4Good TIP Taiwan ESG Index – launched in December 2017 by global index provider FTSE Russell – was developed in partnership with Taiwan Stock Exchange’s wholly-owned subsidiary, Taiwan Index Plus Corp (TIP). Last year , BLF awarded a $2.4bn passive ESG mandate in four tranches to Northern Trust, State Street, BlackRock, and Deutsche.

Remington Outdoor has announced plans to file for bankruptcy after reaching a deal with its creditors, which include Franklin Templeton Investments and JPMorgan Asset Management, to write off about $700m in debt in a debt-for-equity swap. The company has a total debt load of $950 million. Remington will receive an additional $145 million as a result of the restructuring, which will be used to finance its bankruptcy filing. Cerberus Capital Management LP, the private equity firm which own Remington, had earlier unsuccessfully tried to divest ownership in the company after the Sandy Hook school shooting, which had involved the use of a Remington rifle.

Nestlé USA has reportedly been threatened with a class action law suit in Massachusetts federal court, which alleges that the food and beverage giant failed to inform consumers that chocolate products are sourced from areas in West Africa which are known for using forced child labour. The complaint states that consumers would not have bought Nestlé chocolate, or be willing to pay as much, had it been known that the company buys chocolate from the Ivory Coast and Ghana. The two countries are the largest producers of cocoa in the world.

Governance

Eskom, the state-owned South African electricity utility company, is to receive a R5bn (€68m) bridging facility from the Public Investment Corporation on behalf of the country’s Government Employees Pension Fund. The facility, which is backed by a government guarantee, will be used to fund the cash-strapped company’s operations during the month of February 2018. The move has been slammed by the Public Servants Association (PSA), which said it felt “betrayed” due to a prior agreement that no state-owned enterprise “will be bailed out until all parties are satisfied that governance [has] improved”. Eskom has been the target of corruption allegations, resulting in a parliamentary enquiry into its affairs. Three unnamed commercial banks have also agreed to extend credit facilities to Eskom as part of its short-term borrowing requirements.

Reporting by Khalid Azizuddin