RI ESG Briefing, Jan. 15: Stewardship still a “box-ticking exercise” says UK watchdog

The round-up of environmental, social and governance news

Environmental

Dutch pension giant ABP has made another investment in Norwegian hydropower, via its APG Asset Management captive manager and fund firm Aquila Capital. Aquila announced it has completed the acquisition of Norsk Grønnkraft AS, an operator of 33 small-scale facilities located in central and southern Norway. Aquila Capital is looking to add further generating facilities to the Norwegian hydropower platform. ABP stated: “ABP is pleased with this second investment in hydropower infrastructure within six months after the start of the partnership between APG Asset Management and Aquila Capital.” The Dutch civil service fund has committed €250m to the venture.

Climate change is an “investment play for today” according to asset manager AXA Investment Managers. “It is often said that climate and carbon themes are not financially material risk factors in the short to medium term,” said AXA’s Luisa Florez. But she pointed to reputational risks, prices (economies of scale in the renewable sector) and diversification. She went on: “In our view, the asset management industry has an important role to play in supporting clients’ transition to a low carbon economy.”

Swedish bank SEB (Skandinaviska Enskilda Banken) gained the top spot of the 2014 Green Bonds Underwriters League Table according to figures from industry advocacy group the Climate Bonds Initiative. The news follows the announcement that $36.6bn green bonds were issued in 2014 – the biggest year yet for green bonds. SEB says it was involved in $3.8bn of green bond deals, just ahead of second placed BAML in second and Credit Agricole “in a close third”. Climate Bonds Initiative CEO Sean Kidney said he believes the market can reach $100bn this year, sending “a powerful message about investors and issuers driving change to governments at the UN Climate Conference in Paris in December”.

Social

The Principles for Responsible Investment (PRI) has published a report summarising the progress that PRI signatories have made in implementing the Principles for Investors in Inclusive Finance (PIIF). “The results are encouraging and show that investors are committed to responsible investment in inclusive finance,” the PRI said. The 20-page report identifies areas of improvement and steps that fund managers and asset owners can take in order to maximise the impact of their investments. PIIF was launched by a group of institutional investors in 2011. The PIIF are housed within the PRI Initiative and provide investors with specific guidance on responsible investment in inclusive finance. Link

The Wellcome Trust, at £18bn the UK’s largest charitable foundation, has priced €400m of bonds due 2027. Bank of America Merrill Lynch, J.P. Morgan and Morgan Stanley acted as joint lead managers of the issue. The trust said final coupon (interest rate) of 1.125% is “the lowest ever” for a Aaa/AAA rated corporate in the euro bond market and the lowest ever coupon in the euro bond market for a corporate issuance with a tenor of longer than 10 years. “The initial order book was seven and a half times over-subscribed,” it added.h6. Governance

The UK’s now four-year-old Stewardship Code remains a “box-ticking exercise” for many signatories, according to the Financial Reporting Council watchdog. It admitted it is “concerned about state of commitment” to the code and said independent assurance “can provide some comfort” to clients that signatories are following through on their stated practices. In 2015, the FRC would “undertake greater scrutiny” of adherence to the code. The body, in an annual review, said it would also look at the role of proxy advisors. It said: “Increasing levels of concern have been expressed by companies and investors about the role of proxy advisors, particularly in terms of a perceived lack of engagement with companies and a box-ticking approach by them and investors.”

And in a separate sign of continued regulatory scrutiny on proxy firms, the Securities and Exchange Commission (SEC) has announced the sector is among the priorities for its Office of Compliance Inspections and Examinations’ (OCIE) in 2015. “We will examine select proxy advisory service firms, including how they make recommendations on proxy voting and how they disclose and mitigate potential conflicts of interest. We will also examine investment advisers’ compliance with their fiduciary duty in voting proxies on behalf of investors.”

US shareholder advocacy group As You Sow says it has already filed shareholder resolutions at over 25 companies on a range of issues for the 2015 annual meeting season. They include a proposal at ExxonMobil to return capital to shareholders rather than continue investing in “high-cost, high-carbon, high-risk projects”. At Kraft Foods, it is s asking the company to address the issue of non-recyclable CapriSun drink pouches. It said: “Our shareholder resolutions push companies to become better global citizens, to steer in a direction that benefits consumers, investors, and all stakeholders.”

The Interfaith Center on Corporate Responsibility (ICCR), the US group which represents more than $100bn in invested capital, is reportedly withdrawing a shareholder resolution calling for Bank of America to install an independent board chair. Reuters quoted ICCR Chair Seamus Finn as saying the bank has agreed to produce a report on its corporate culture and business practices. The ICCR earlier persuaded JPMorgan Chase & Co to complete a similar review.

The Nathan Cummings Foundation and SRI firm Trillium Asset Management have submitted a resolution to communications firm Verizon on “net neutrality” calling on it to report on the business risks arising from the company’s opposition to open Internet and network neutrality principles. A similar proposal last year won 26.4% of the shareholder vote – representing $30.6 billion of Verizon shares. Trillium Senior Vice President Jonas Kron said: “Mutual fund shareholders and pension fund beneficiaries can take this opportunity to speak up in support of net neutrality.”