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RI ESG Briefing, May 2: Social and sustainability bond issuance up 93%

The latest ESG developments

Environmental

SCOR and AXA have tightened their coal exclusion policies. SCOR committed to no longer provide stand-alone coverage to new coal plants, updating its 2017 policy, which excluded direct reinsurance for new coal mines and new and existing lignite plants and mines, but not new hard coal plants. AXA committed to apply its 2017 divestment policies to all third-party assets managed by AXA IM by the end of the year, and committed to consider strengthening its exclusion of coal plant developers. Neither SCOR nor AXA committed to follow Allianz’s 2018 commitment to fully phase out coal underwriting and investment by 2040.
86% of fund managers are calling on oil companies to align their businesses with the Paris goals, according to a new survey from the Climate Change Collaboration and UKSIF. The survey quizzes 39 fund managers responsible collectively for $10trn in assets. It finds just 18% believe oil companies will be good investments if their business is still focused on fossil fuels in five years’ time, but 68% believe they will still be attractive if they adopt business models aligned with the Paris targets. The survey also focuses on fund managers engagement on climate change and finds only 18% have set deadlines for oil companies to take action and most (57%) have not decided what action to take if oil companies do not meet their demands.
The Global Reporting Initiative (GRI) has opened consultation for its waste standard, which “recognises the importance of the transition to a circular economy” and includes a “fundamental shift in the perception of waste – from an unwanted burden to a source of valuable materials”. Provide feedback here.
Nedbank Limited has issued a green bond for renewable energy in South Africa. The bond was planned for ZAR1bn, but after attracting bids of ZAR5.4bn, Nedbank issued ZAR1.66bn.
A 100% renewable energy system could be cheaper than the current fossil and nuclear-based system, according to a new scientific study which simulates a total global energy transition in the electricity, heat, transport and desalination sectors by 2050. The new study by the Energy Watch Group and LUT University is the first of its kind to outline a 1.5°C scenario without carbon capture storage technologies. The Energy Watch Group and LUT University will now develop national roadmaps for the transition.
EY has released an analysis of climate disclosures from 34 Dutch companies based on the Task Force on Climate-related Disclosures (TCFD) recommendations, which found that while the majority of recommendations were addressed, there was often a lack of detail. Only one out of seven companies received a quality score of 50% or higher, and the Netherlands received a lower overall ranking relative to other European countries. EY released a similar report last year assessing the disclosures of 500 companies globally.
The Sierra Club, an environmental campaign group, has warned banks and oil companies of potential reputational risk if they participate in plans to drill for oil in the coastal plain of the Arctic National Wildlife Refuge. The Trump administration is expected to hold the first lease sale in the coastal plain as soon as this summer despite the potential for environmental damage and destroying the livelihood of the native Gwich’in people.
Banks in the Philippines will be expected to conduct scenario analysis over various ESG-related scenarios under guidelines expected to be published by the Philippines’ central bank in June this year. Chuchi Fonacier, Deputy Governor of the Bangko Sentral ng Pilipinas, said the bank was looking adopting a ‘comply or explain’ approach, mentioning possible “higher expectations” in the future.ACTIAM, KBI Global Investors and the Brunel Pension Partnership have joined the Business Benchmark on Farm Animal Welfare (BBFAW) Global Investor Collaboration on Farm Animal Welfare. The initiative sees investors engage with companies on the benchmark to strengthen their farm animal welfare approach, management and reporting.
Aviva Investors is a member of the UK’s new Environmental Justice Commission, launched by think tank the Institute for Public Policy Research. Chaired by UK politicians Ed Miliband MP, Laura Sandys and Caroline Lucas MP, it aims to set out an ambitious reform programme to tackle the dual problems of climate change and socio-economic injustice.

Social

A new report from SDG-focused investment house 17 Asset Management says the SDGs are “an improvement over ESG frameworks”. The report presents a process for building an investment strategy aligned to the SDGs, highlighting early adopters of such as Aviva and the Intentional Endowments Network.
Social and sustainability bond supply is up 93.3% year-on-year so far in 2019, boosted by demand for bonds linked to the SDGs, according to a new report from HSBC Global Research. The current pace of supply indicates a potential $60bn of social and sustainability deals for 2019. According to the paper, SDG 11 (sustainable cities) enjoys the most funding from social and sustainability bonds. Read the full report here.
A recent conference at The Museum of Modern Art (MOMA) ended with an appeal to MOMA board member and BlackRock CEO Larry Fink to divest from private prisons which are said to be “responsible for over 70% of all immigration detention including families separated at the border”. MOMA’s own pension fund manager is a major owner of prison stocks, whose operations were criticised as “racist, violent and routinely (violating) human rights”.
South Korean brokerage firm Mirae Asset Daewoo has reportedly issued a three-year SRI bond and five-year senior notes simultaneously. The total value of the bonds are $600m and proceeds will be used to fund projects for eco-friendly buildings, housing for low-income families and support for small and medium enterprises, according to the firm.

Governance

The Local Authority Pension Fund Forum (LAPFF), a network of UK local authority pension schemes, has conducted a survey to gauge UK companies’ reaction to a new government requirement for worker representation on boards. 73% of respondents said they would appoint a designated non-executive director, while only 5% said a director would be directly appointed from the workforce. According to LAPFF, the most common reasons for rejecting a worker director or a workforce advisory panel was size, with large companies saying a global workforce is difficult to represent and small ones saying their workforce was too small.
State Street Global Advisors has announced the launch of its proprietary ESG scoring system for companies. R-Factor builds on data from Sustainalytics, ISS-Oekom, Vigeo-EIRIS and ISS-Governance and incorporates the Sustainability Accounting Standards Board (SASB) Materiality Map. A paper on R-Factor says in building the ESG scoring system it sought transparent frameworks and an approach that takes into account differences in market expectations and business practices across geographies.
First State Super has signed the Australian Asset Owner Stewardship Code, becoming the eighth Australian super fund to do so in the past year.