RI ESG Briefing, June 13: Tokyo Stock Exchange addresses cross-shareholdings

A round-up of the latest ESG developments


The Governor of California Jerry Brown has called for increased transparency in the reporting of emissions and the progress toward meeting verifiable emissions reduction goals. He said: “Tracking and reporting carbon pollution keeps governments and businesses accountable.” Together with Mahindra Group CEO, Anand Mahindra, Gov. Brown is co-chairing the Global Climate Action Summit this September, which aims to showcase ongoing climate action globally to give world leaders confidence to double down on climate commitments, ahead of COP 24 in December. Link

UK-based Standard Chartered Bank has committed to no longer finance or lend to any projects that may damage UNESCO World Heritage sites, according to environmental non-profit WWF. It has also committed to no longer provide financial services to clients who have operations that adversely impact upon such sites. The move follows Barclays’ announcement last month stating that it has “no appetite” for financing projects in UNESCO World Heritage Sites and Ramsar Wetlands.

FTSE Russell has released a detailed analysis of the global sustainable or “green economy”, estimating it at 6% of the market capitalisation of listed companies or worth approximately $4trn. According to the report, the “green economy” is the same size as the fossil fuel sector and continues to grow, is diversified across company size, geography and sector, and has outperformed the global equity market over the past five years. The growth is backed by concerted global efforts to combat climate change and other environmental challenges.

Climate-data house Four Twenty Seven has published new guidance to help shareholders engage on physical climate risks in their portfolios. The report ‘From Risk to Resilience – Engaging with Corporates to Build Adaptive Capacity’ claims to provide “tools for both investors and corporations to identify targets for corporate engagement on physical impacts of climate change”.


In the wake of the #MeToo movement, two public pensions in California are taking a hard line on sexual misconduct, urging asset managers to disclose their history of harassment cases and settlements rather than wait for such stories to surface on their own. In May, CalPERS said it would ask managers associated with the fund to report all such settlements to the board. Its investment policy now includes sexual harassment as a form of misconduct and urges companies to recoup the pay of executives involved in such cases. The $56bn Los Angeles County Employees Retirement Association (Lacera) also plans to start asking its asset managers about past harassment cases and may update its investment management contracts to refer to sexual misconduct risks, according to CIO Jonathan Grabel.

Responsible Investment Association Australia (RIIA) has found that Australia’s largest superannuation funds are ramping up responsible investing activities for the purposes of improving financial performance, reduced risk and to better meet the expectations of members and beneficiaries, based on a survey of Australia’s 53 largest superannuation funds. According to the RIIA’s 2018 annual Benchmark Report, 60% of super funds have a least one negative screen across the whole fund, up from 34% in 2016, with tobacco and armaments the most popular exclusions. The report also found that up to a third of trustee boards do not factor in climate risk despite its increasing materiality. Read it here.h6. Governance

The Tokyo Stock Exchange (TSE) has revised its Securities Listing Regulations to incorporate revisions made to Japan’s Corporate Governance Code, which came into effect on June 1. The revisions to the code, made three years after the last amendment, addresses the long-standing practice of cross-shareholding between listed companies in the country. Japan’s strategic shareholding ratio is estimated at 30% of the market compared to around 5% in the US. Companies are reluctant to offload stocks as they fear it will damage business relationships. The revised code will require companies to disclose how they plan to reduce cross-shareholding and supplementary guidelines prohibits threats against companies which choose to sell cross-held shares.

A shake-up in board of director nomination processes could boost outcomes and tackle corporate governance issues, new research has suggested. According to the paper, a flexible application of internal and external nomination committees may help to address many corporate government issues associated with free-riding and conflicts of interests, as well as promoting sustainable wealth creation for a company and its shareholders.

Universities Superannuation Scheme (USS) and the BT Pension Scheme (BTPS) will be asked to pay some of a £120m (€136m) penalty levied on Thames Water, according to media reports. The fine, which comes after the water regulator, Ofwat, criticised the firm for a lack of oversight and control of its leakage performance, will be picked up entirely from Thames Water’s stakeholders. The £120m total is comprised of £55m (€63m) of automatic penalties and £65m (€74m) repayment to around 15m customers. USS took an 11% stake in Thames Water last year, while the BTPS purchased its 13% stake in the water company in 2012. According to Thames Water, its stake was 8.7% as of 12 January this year. Thames Water chief executive Steve Robertson said: “We met our leakage targets for a decade but our recent performance has not been good enough. We let our customers down and for that we’re sorry.” Link

Aon has announced that it has signed the PRI, becoming the first risk advisor and broker to do so. According to the company, the decision represents the company’s commitment as a “responsible and socially and environmentally aware business”, demonstrated by recent initiatives including the recently launched Aon Weather & Climate Risk innovation network which allows clients to evaluate climate risks. According to Butch Bacani, leader of UN Environment’s Principles for Sustainable Insurance Initiative (PSI), insurance brokers play a “fundamental role” within the industry’s value chain and Aon’s decision demonstrates the industry’s support to the building of sustainable communities and economies.

Aviva, The People’s Pension, Royal London, Scottish Widows, Aegon, and Standard Life have no policy to prevent investments in companies profiting from chemical and biological weapons, a survey by responsible investment watchdog ShareAction has found. The pension providers – six of the nine largest in the UK – do not exclude firms that produce toxic components of harmful weapons for their default funds, where the vast majority of savers’ pension pots are invested. The survey, which nine out of ten auto-enrolment providers in the UK responded to, ranked providers on responsible investment, including on their response to climate change risk, ethics, and proxy voting and engagement with companies, as well as on engagement with their own members. NEST, the UK’s largest auto-enrolment pension provider for six million workers, headed up the leaderboard, 30% above the second highest scorer.