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RI ESG Briefing, Jan. 24: Integrated reporting a “value-creating catalyst for asset owners” – Keith Ambachtsheer

The latest ESG market developments

Environmental

Dutch financial institutions, managing €4.3trn in assets, have a €97bn exposure to the “most water-scarce regions” and a €56bn exposure to the “most critical raw materials”, according to a new sustainability report by the DNB, which calls on the country’s financial bodies to “live up to expectations and deliver on their promises in the area of sustainability”. The Dutch central bank’s paper, called ‘Values at Risk’, aims to provide insight into the relationship between environmental and social issues with financial risks. Link
PGGM, the Dutch pension fund manager, has formed a consortium with Shell to participate in the auction of Dutch sustainable energy company Eneco. In a recently published open letter, the consortium emphasised their Dutch heritage and aspirations for developing “renewable energy, specifically in North West Europe”.
The global green and ESG loan volume quadrupled in 2018 to a total of $59.9bn, compared to the 2017 total of $14.5bn, according to data firm Refinitiv. Over 83% of 2018’s total was raised in Europe, the Middle East, Africa (EMEA) region, increasing nearly sixfold compared to the previous year.

Social

Fixed income giant PIMCO has teamed up with the United Nations Global Compact in a call to action on the Sustainable Development Goals (SDGs). Speaking at Davos, PIMCO’s Chief Investment Officer Scott Mather said: “Financing the Sustainable Development Goals will require that we all work together — the public sector, private finance and civil society.” He said innovations such as SDG Bonds can “help mainstream impact investing strategies to deliver returns and positive social and environmental outcomes”.
Y Analytics is a new, independent impact investment research organization backed by U2 rock star Bono and TPG’s the Rise Fund and be led by CEO Maryanne Hancock. Bono said: “To persuade the biggest institutional investors to commit their funds to tackling some of the world’s most urgent challenges we need to be as confident about the impact returns as we are about the financial returns – fuzzy thinking just won’t cut it. We need cold hard facts – that’s what Y Analytics has been created to provide.” The initiative is supported by investors such as Sweden’s AP2.
Japanese financial group Resona Holdings has banned lending to firms developing, making or possessing nuclear weapons, in a policy that has been called the “first of its kind by a major Japanese banking institution” for its scope and specificity. A spokesperson for Resona, which has never lent to nuclear weapons companies, said the group introduced the policy “because we thought it important for providers of funds to make such efforts toward a sustainable society”.h6. Governance

Leading pension academic Keith Ambachtsheer says asset owners should adopt Integrated Reporting. In his latest KPA Advisory Letter to clients, he writes: “While its original application was in the corporate sector, as asset owners are stewards, its application there is even more important. Asset owner stewards need to be seen taking the lead in integrated reporting.” He goes on to show adopting it “can be a value-creating catalyst for asset owner organizations, their stakeholders, and the common good”.
Swedish fund AP7 and the office of New York City Comptroller Scott Stringer have filed a shareholder resolution at General Motors over the US cargiant’s lobbying activities, particularly its membership to trade body the Alliance of Automobile Manufacturers, which has “questioned climate science and lobbied to weaken [US] fuel standards”.  Both funds also filed a similar resolution at Ford.
Five firms have agreed to revisit their executive pay policies after $207.4bn New York State Common Retirement Fund tabled shareholder resolutions with the companies on the issue. Microsoft, CVS Health, Macy’s, The TJX Companies, and Salesforce agreed to review CEO and executive pay and adopt policies taking the compensation of the rest of their workforces into account, causing the New York state retirement fund to withdraw its resolutions. Link
A new forum aimed at helping European businesses champion sustainable finance and impact investing has reportedly launched, founded by 16 firms spanning the utility, transport and finance sectors. It’s called the Corporate Forum on Sustainable Finance initiative.
Maxine Waters, the California Democrat who is the new chair of the House Financial Services Committee, has reportedly proposed the creation of a financial services diversity subcommittee and mandatory reporting of board gender and racial composition in a bid to improve diversity among US corporate management.
Germany: Investors have been critical of wide-ranging corporate governance proposals, the Financial Times reports. The country’s corporate governance commission in November proposed overhauling a long-standing code, targeting opaque bonus schemes and excessive pay packages for top managers. But Hans-Christoph Hirt, executive director of advisory firm Hermes Equity Ownership Services, was quoted saying the plans were “too prescriptive and rigid”.
The Palestine Solidarity Campaign (PSC) has won the right to challenge an earlier decision which upheld the UK government’s right to restrict local government pension schemes from divesting contrary to UK foreign policy. This restriction would have prevented ‘townhall pensions’ from divesting companies involved in the illegal occupation of the West Bank.