RI ESG Briefing, May 21: Generation publishes long-term capital allocation white paper

The round-up of the latest ESG news

Environmental

The University of Washington (UW), which has an endowment worth $2.8bn (€2.5bn), has become the latest US institution of higher learning to divest from fossil fuels. In a statement, UW said its Board of Regents had voted to sell the university’s holdings in thermal coal by the end of 2015. Said Bill Ayer, the Board’s Chair: “That we decided to divest from coal companies reflects the seriousness of the climate change problem.” Other notable US universities divesting from fossil fuels include Stanford, the University of Dayton in Ohio and the New School in New York City.

Staying with fossil fuel divestment, Oxford University, which has a £2bn (€2.7bn) endowment fund, says it will continue to avoid coal companies or those that extract oil from tar sands. Oxford Vice Chancellor Andrew Hamilton said that while the endowment fund’s purpose was to support the university’s academic mission, its managers also took global risks like climate change into account. As a result, the fund’s managers had decided to shun coal and tar sands, Hamilton said.

CalPERS, the $308bn (€276bn) California-based pension giant, is reportedly looking to sell part of its timber portfolio, which has a total value of $2.3bn. According to the Wall Street Journal, CalPERS wants to sell around 300,000 acres of forest based in Louisiana. This represents around one-fifth of all the forest CalPERS currently owns. The WSJ said poor performance of the timber portfolio – minus 0.4% over the last five years – was the reason why the pension fund wanted to begin selling the holding.

Social

Global Islamic funds under management are expected to reach $77bn by 2019, from $60bn now, according to a new report from news and data giant Thomson Reuters. It added that demand for Islamic funds is projected to reach $185bn by the same date. The information comes in the firm’s new Global Islamic Asset Management Outlook, presented at the World Islamic Funds Conference in Bahrain.

Thomson Reuters has also released new research – Global 500 Greenhouse Gas Report: The Fossil Fuel Energy Sector – revealing greenhouse gas (GHG) emissions data from 32 global energy companies. The report, written in collaboration with global sustainability consultancy BSD Consulting, is the second in a series of GHG reports designed to create transparency and enable sound management of global GHG emissions. Link

Graduate students at Princeton University have voted in favour of the university divesting from companies doing business in the disputed West Bank of Palestine. According to the student movement “Princeton Divests,” graduate students voted 417-292 in favour of divestment. Counting April’s vote among Princeton undergraduates, a majority of students (1382 versus 1359) favour divestment, the movement said. Princeton Divests said it would now present the results of the votes to the university’s administration. At around $19bn, Princeton’s endowment is the third largest of US-based universities. Link. Governance

The Generation Foundation, the advocacy initiative of Al Gore and David Blood’s fund management boutique Generation Investment Management, has published a new white paper called Allocating Capital for Long-Term Returns. This paper builds on 2012’s Sustainable Capitalism report and there are three main suggestions: 1) Assess carbon risk and price carbon in all capital allocation decisions 2) Use sustainability analysis to enhance investment frameworks, and 3) Uphold the “full remit” of fiduciary duty.

Collective action by investors can have a measurable impact on corporate governance, according to a new study from the University of Toronto’s Rotman School of Management. The new paper Can Institutional Investors Improve Corporate Governance Through Collective Action? uses data on the private communications of a coalition of Canadian institutional investors to find that private engagements influence firms’ adoption of shareholder democracy measures, say-on-pay advisory votes, improve compensation structure and disclosure, and influence CEO incentive intensity. “Spillovers from engaged firms to non-engaged firms through board interlocks and informal regulation through definition and dissemination of performance relative to best practices, suggest a broader impact,” it adds. The 55-page study was co-written by professors Craig Doidge and Alexander Dyck with two ex-doctoral students and is available here.

The Institute and Faculty of Actuaries (IFoA), the UK industry body, has published a review looking at the link between environmental sustainability and the financial system. It reviewed the existing research on the potential risks to long-term environmental sustainability the financial system could pose and found a “number of issues that need to be addressed”. The IFoA review, entitled Sustainability and the Financial System, consisted of a systematic search of 125 top rated journals and 355,000 articles and found that “surprisingly” only 40 research papers addressed how the financial sector related to the issue of sustainability.

Four East Asian exchanges have expressed their commitment to the UN-backed Sustainable Stock Exchanges (SSE) initiative. They include the Korea Exchange, the Stock Exchange of Thailand and the Hanoi (Viet Nam) and Malaysia exchanges. It means there are now 23 partner exchanges to the initiative, which is convened by the UN Conference on Trade and Development (UNCTAD), the UN Global Compact, the UN Environment Programme’s Finance Initiative (UNEP-FI) and the Principles for Responsible Investment (PRI).

The Securities and Exchange Commission (SEC), the US financial regulator, says it has charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored the attendance of foreign government officials at the Summer Olympics. It added the company agreed to pay a $25m penalty to settle the charges. An SEC investigation found that BHP Billiton failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing.