RI ESG Briefing, March 7: Beyond Ratings, SEB, CFA, Insurance Europe, Soc Gen

Environmental

Insurance Europe, the European federation of insurers, has come out in support of the EU’s plans for a sustainability taxonomy, ESG standards, and engagement with the private sector through workshops and seminars. It has also called for a greater supply of sustainable investment assets, and expressed its full support for the European Commission’s work on tackling climate change in Europe. The statement comes in response to the Commission’s consultation on the EU’s Adaptation Strategy 2013. Click here for the full response.
French sustainability-ratings house Beyond Ratings has been licensed as a credit ratings agency, making them the first in Europe with a dedicated mission to address environmental, social and governance (ESG) factors alongside financial performance. RI covered the story last year, explaining that the methodology – which will focus on SSA issuers – will assess the physical impact of climate risk on sovereign debt and the cost of restoring a country’s ecosystem.
An Italian support scheme for the production and distribution of advanced biofuels, including advanced biomethane has been approved by the European Commission. A budget of €4.7bn will be used to subsidise the higher production costs faced by biofuel producers, and will run from 2018 until 2022. The scheme aims to contribute toward reaching energy and climate change goals while limiting distortions of competition. It will also incentivise farmers to produce biofuel from manure and other farming activity residues to power agricultural machines and vehicles.
There is a lack of support for high-profile climate change initiatives and climate-related financial disclosures from eight of ten of the world’s top investment consultants and asset managers, according to research by campaign group Preventable Surprises and research group Sustainix. The analysis reportedly examined the signatories of three initiatives: Climate Action 100, the Ceres G20 letter and the Task Force on Climate-related Financial Disclosures (TCFD). Investment consultants have said that this does not indicate a lack of commitment as there are many other initiatives which have been endorsed.
A leaked draft report suggests that the University of Cambridge in the UK is planning to reject calls by university campaigners to divest its £6.3bn endowment fund, the largest outside the US, from oil companies. Instead, the report recommends that 10% of its indirect assets be moved into an ESG fund that is “consistent with a carbon neutral future”. The decision has taken place amid concerns that divestment will negatively impact research funding which have come from oil companies.
A ruling by the Federal Administrative Court in Leipzig, Germany has affirmed cities’ rights to impose bans on heavily polluting diesel cars. The decision is credit negative for car manufacturers according to a Moody’s report, due to costs associated with the devaluation of diesel cars, reducing the emissions of existing older cars and potential legal claims from car users. However, the decision is credit positive for auto suppliers as it could increase the use of emissions-reducing components. EU Directives have set certain limits for air pollution which are frequently exceeded in 70 German cities.
Société Générale’s exposure to the US shale gas industry has been criticised in a report by Friends of the Earth France. The report accuses Société Générale of having a key role in advising and funding the sector’s leading companies in the development of their liquified natural gas export terminal projects, which facilitate the commodity’s export to the EU. Between 2014 and 2016, Société Générale has provided more than $2.4bn (£1.7bn) to companies developing these projects in North America, according to the report. France banned the extraction of shale gas by fracking in 2011.
The Chartered Financial Analyst (CFA) Institute Research Foundation has published its Handbook on Sustainable Investments in English. The guide is available for free download and is aimed at providing institutional asset owners with “background information and practical examples” of managing ESG topics in investments.h6. Social

The Global Alliance has launched a guide on how the private sector can support SDG16 – the UN’s Sustainable Development Goal for “the promotion of peaceful and inclusive societies for sustainable development, the provision of access to justice for all, and building effective, accountable institutions at all levels”. The report looks at how businesses can provide the data necessary to advance SDG16, showing how businesses have supported the collection and release of data relating to peace and good governance.
With the UK’s Soft Drinks Industry Levy (‘Sugar Tax’) set to become law in early April, the outlook for soft drinks producers like Coca-Cola and Pepsi has become a concern for some investors. Financial services company Sanlam has pointed out that the global earnings won’t necessarily be significantly impacted, as the companies generate only a small amount of their profits in the UK. However, Sanlam acknowledge that taxes on sugar-filled drinks are becoming a global trend.
Growth prospects in the UK social infrastructure sector have cooled, spurred on by negative sentiment after the collapse of Carillion, according to Quaero Capital, a specialist fund management firm. The firm has announced that its Infrastructure Securities strategy exited social infra in January, saying the downfall of the UK construction giant “creat[ed] negative sentiment for the entire social infrastructure sector in the UK”. The proceeds have been redirected into Airports, where allocation has tripled from 5% to 15% of the strategy, despite the sector remaining flat at the start of the year.
A letter has been sent to a number of major bond issuers in the UK water sector by Kames Capital, a specialist asset manager, warning that the negative public perception of tax structures could hinder the investment required to continue delivering clean water. The use of offshore tax structures has become a political issue, with the Labour Party calling for nationalisation to prevent tax avoidance.
A new alliance of 18 prominent universities including Oxford, Cambridge, LSE, Columbia and Yale has been announced. The Global Research Alliance for Sustainable Finance and Investment (GRASFI) aims to promote academic research on sustainable finance and investment. The alliance will be organising its inaugural conference at Maastricht University School of Business and Economics from the 5th – 7th September 2018 and has put out a Call for Papers.

Governance

Asset managers accused of overcharging investors by ‘closet tracking’ are to pay out £34m in compensation, according to media reports, with more fines in the pipeline. The development comes after city watchdog the Financial Conduct Authority (FCA) commenced a crackdown on widespread closet tracker funds – funds which charge investors for active management, but in reality deliver passive fund performance by simply mirroring an index. The move to compensate is not part of any official FCA-backed scheme. Andy Agathangelou, Founding Chair of the Transparency Task Force, said: “Whilst it’s a case of ‘better late than never’, the FCA deserve great credit for chasing down this issue so tenaciously.” He added: “It is clear that the killer combination of courageous campaigning and robust regulation is going to clean up the parts of the asset management sector that need sorting.”
Campaign group Global Witness has flagged up social and governance issues around South Sudan’s state-owned oil company, the Nile Petroleum Corporation (Nilepet). The firm, which is privately registered, is accused of funnelling millions in revenues to “brutal security services and ethnic militias” having fallen under the control of its President, Salva Kiir. The Global Witness report says the secrecy afforded to the firm as a private company has allowed it to fund military operations and arms transfers to ethnic militias.
BrownFlynn, a US-based corporate sustainability and governance consulting firm, has been acquired by ERM, as the latter makes a push into North America. ERM is a global consultancy firm specialising in environment, health and safety, risk and social consulting. BrownFlynn’s expertise in stakeholder engagement is expected to complement ERM’s strengths in data management and technical solutions, it said.
Nordic banking heavyweight SEB has for the first time published its annual sustainability report as part of its broader annual report. Besides the report, SEB also publishes highlights, ambitions and results in a sustainability overview of 2017.