RI ESG Briefing, June 15: World Federation of Exchanges releases ESG survey

Environmental

France’s Engie, formerly known as GDF Suez, has had its green bonds removed from the MSCI/Barclays green bond index after methodological changes. 
Following a consultation period with investors, MSCI and Barclays conducted an annual review of the index’s methodology, expanding the eligible use-of-proceeds categories and changing reporting rules. 
As a result of the amendments, Engie had its two green bonds excluded. Issues from Anstock II, Iberdrola and BRF have also been made permanently illegible for inclusion. Boston-based asset manager State Street has a fund that tracks the MSCI/Barclays green bond index. Other firms, including Mirova and Amundi, use it as a benchmark or reference index. 




A “proliferation” of standards has caused confusion for investors and issuers in the green bond market, and could hamper its growth, according to WWF. 
Nicole Clucas, a Sustainable Finance Specialist for WWF UK, called for “vigorous, credible, fully-developed and widely-accepted industry standards” for the asset class, adding that currently, “not everything labelled ‘green’ fulfils its promise”. 
In a report titled Green Bonds Must Keep The Green Promise!, WWF points out that “most [green bond] frameworks and guidelines currently only look at the potential environmental impacts prior to issuing a bond, instead of assessing the actual environmental benefits of projects throughout the lifetime of the bond”. 



Region Ile-de-France’s latest sustainability bond has seen a massive increase in non-French investors, with demand reaching €1.1 billion. 
Its fourth transaction attracted 74% foreign buyers, compared with 45% last year on its third sustainability bond. Region Ile-de-France attributed the leap to its roadshow, which it this year expanded to cover more countries. 
As a result of high investor demand, which came from 73 accounts, the bond was upped from €500 million to €650 million. 55% of investors on the deal were asset managers, while 21% were insurance and pension funds.

Social

Aviva Investors has welcomed the International Development Committee’s recommendation for the creation of more international benchmarks to help foster the delivery of the United Nations’ 17 Global Goals for Sustainable Development. Steve Waygood, Chief Responsible Investment Officer, said: “International benchmarks – or performance league tables – publicly ranking companies against specific SDGs [Sustainable Development Goals] are potentially transformational.” He added that individual investors could reward companies that perform well against sustainability goals, “creating a clear commercial and reputational incentive for businesses to improve their sustainability credentials – a race to the top.”

ORIX Business Center Okinawa Corporation, a subsidiary of Robeco owner ORIX, has been granted “Eruboshi” company certification by the Minister of Health, Labour and Welfare, in accordance with the Act on the Promotion of Women’s Participation and Advancement in the Workplace. This is the first such recognition for corporations in Okinawa. The certification was established on April 1 this year where the government recognizes companies, based on set criteria, that have implemented general employment action plans and have reported its implementation, and demonstrated superior performance to aid in the participation and advancement of women in the workplace.h6. Governance

More than 90% of responding exchanges have an ESG, or sustainability, programme in place, primarily focused on education initiatives for issuers and/or investors, but also including products such as ‘green bonds’. That’s according to the World Federation of Exchanges’ second global ESG survey. It found that nearly 100% of respondents believe they should monitor the long-term sustainability of their listed companies, and actively participate in developing better ESG reporting metrics. And a growing number of respondents (over 50% compared with 30% in 2014) are including ESG disclosures as part of their own reporting framework.

CEO misbehaviour can have long-standing effects on share price and remain lodged in public perception for up to 5 years, according to research published in the Harvard Business Review. A study of 38 incidents of questionable – but not illegal – executive activity found that incidents were cited in an average of 250 news stories, with references made up to an average of 4.9 years after initial occurrence. Share prices at such companies declined by a market-adjusted 3.1% in the three days following a scandalous event.

Calvert Investment Management, the US SRI firm, has partnered with Professor George Serafeim of the Harvard Business School to publish The Financial and Societal Benefits of ESG Integration: Focus on Materiality. This study, the second in a series, explores how systematic analysis of material environmental, social and governance (ESG) data may be able to help portfolio returns without adding additional risk. The paper finds in a market environment that increasingly precludes alpha generation based purely on an analysis of financial metrics, the proper integration of ESG information into investment analysis can uncover risks and opportunities that markets have not yet valued.

With broad support from the institutional investor community, an ‘amicus curiae’ brief has been filed with the United States Court of Appeals for the Third Circuit in North Sound Capital LLC v. Merck & Co., Inc. The “friend of the Court” brief – which was supported by 55 public and private pension funds from throughout the United States and internationally with total assets under management exceeding $1.5 trillion, along with the National Conference on Public Employee Retirement Systems (NCPERS) – details the severe adverse consequences to institutional investors of overturning the established class action “tolling” doctrine.

EU commissioners have been meeting with representatives from fossil fuel companies six times as often as they do with those with interests in renewables or energy efficiency, Corporate Observatory Europe analysis has found. Spain’s Miguel Arias Cañete, commissioner for climate and energy, and his subordinate Maros Šefčovič met with seven lobbyists from the fossil fuel industry on more than two occasions in the past 12 months, including Statoil and Iberdrola, but only matched the tally with one renewable cause (the European Wind Energy Association).

A new report from the CDP has found that of the 12 global cement companies analyzed, the worst performers face a potential earnings hit of 114% of earnings before interest and tax (EBIT) – even at a low $10 carbon price. The report finds that the majority of the companies’ forward-looking emissions reductions targets are set to expire within the next few years. Tarek Soliman, Senior Analyst, Investor Research at CDP said: “This is the first piece of major research to break down how major players in the cement industry are meeting the challenge of reducing emissions in line with the science called for by the Paris Agreement.”