RI ESG Briefing, May 25: Finland’s Varma updates ownership policy

The round-up of the latest ESG developments.

Environmental

There was 46% shareholder support for a climate resolution at US utility The Southern Company yesterday, calling for it to report on how it plans to align its business operations with a 2 degrees Celsius global warming scenario. The proposal was filed by the Sisters of St. Dominic of Caldwell and eight co-filers from the Interfaith Center on Corporate Responsibility. Sister Pat Daly of the OP of the Sisters of St. Dominic of Caldwell, who moved the resolution, told RI it was the “most support I’ve seen in decades of work with the company (and with other companies)”. But campaign group Preventable Surprises blogged that the 56% of investors voting against transition planning exposed their beneficiaries “to undue risk as coal-fired generation plants become stranded assets”.

The Swiss Government is set to provide billions of dollars in subsidies for renewable energy after winning a binding referendum (with 58% of the vote) on its proposed Energy Strategy 2050 last week, Reuters reports. The new strategy includes a ban on new nuclear plants, financial support for the country’s struggling utilities sector, and will also entail a four-fold rise in solar and wind power by 2035.

The number of governments facing climate change related litigation has tripled since 2014, according to a joint global review by UN Environment and Columbia Law School’s Sabin Center for Climate Change Law. The study ‘The Status of Climate Change Litigation: A Global Review’ highlights the rising global trend of organisations and citizens attempting to hold governments accountable to the climate based commitments they have agreed. The US is also cited as having almost three times the number of climate related cases compared to the rest of the world combined.

Social

The Universities Superannuation Scheme, the UK academics fund, has acquired the PINE unit trust, a portfolio of 32 children’s nurseries and one special educational needs school from private equity fund manager Epiris for £95m. PINE is a property portfolio with assets across the UK, let to a range of different tenants on long term index-linked leases including four of the top ten nursery operators and a leading provider of special needs education, nationally. It follows the £100m launch earlier this year of the ‘Supported Housing Investment Limited Partnership’ (SHIP) – a joint venture between USS and Morgan Sindall Investments, providing purpose built housing for vulnerable people with physical and learning disabilities.

The UN Environment’s Principles for Sustainable Insurance (PSI) and ICLEI – Local Governments for Sustainability have announced the ‘Bonn Ambition’ which aims to “shape a resilient and sustainable urban future” through the collaboration of insurers and cities.

UK retail bank NatWest’s annual social enterprises survey has found strong growth within the sector, with combined profits just shy of £1bn in 2016. The NatWest SE100 Data Report also suggest that there is room for scope in social enterprises: the average annual turnover of social enterprises aged 10-years or more is £8m compared with £634,000 as the average for those aged under 3-years.h6. Governance

Varma Mutual, Finland’s largest pension insurance company with assets of €42.9bn, has updated its ownership policy setting out its expectations of companies in which it is a major shareholder – including the expectation that companies report on climate related impacts. Varma’s CIO, Reima Rytsölä also announced that from next year it will make public voting decisions that are made at shareholder meetings.

Japan’s Asset Management One (AMO) has appointed Hermes EOS to provide a range of engagement services on the firms’ ¥4.7 trillion worth of global holdings (ex Japan) across a variety of environmental, social and governance (ESG) issues. AMO, whose responsible investment department was set up in October 2016, is one of the largest asset managers in Asia with more than $456bn in assets under management. It was formed by parent companies Mizuho Financial Group and Dai-Ichi Life Holdings. The appointment follows the Pension Fund Association (PFA) of Japan, which became the first Japan-based client for Hermes EOS in March 2016.

Norges Bank Investment Management has developed its own database that lets it assess non-financial risks across the 9,000 companies in its portfolio, according to a report in Top1000 funds. It said the facility allows it to make more in-depth decisions about companies’ sustainability.

ESG research house Vigeo Eiris says it has “significantly downgraded” the scores of European listed tobacco sector companies. The average score of this sector fell from 46/100 in 2015 to 38,3/100 at the end of April 2017, with the firm saying it reflects their low level of ESG performance “in terms of their capacity to adapt their economic model to reduce their negative impacts on health, the environment and on society particularly in developing countries, and on their capacity to manage reputational and legal security risks in particular”. It means they are now not eligible for inclusion in Vigeo Eiris’ indices of excellence. The move was welcomed by Dr Bronwyn King, CEO of campaign group Tobacco Free Portfolios who said: “‘Best of sector’ is a nonsense concept for tobacco companies as they all make products that kill their own customers.”

US investment giant BNY Mellon has announced that it is to partner with the CFA Institute, the global association of investment professionals, to develop research on social investing, diversity, and inclusion in a bid to promote the highest standards of professional excellence within the industry.

Global index provider FTSE Russell’s Smart beta survey shows a record adoption of Smart beta strategies by asset owners in 2016. The 4th annual survey shows a 10% rise in asset owners reporting an existing smart beta allocation (from 36% to 46%). The survey also shows that over 41% of those asset owners anticipate applying ESG considerations in the future.

A group of investors have released a new white paper, Impact Investing in Sustainable Food and Agriculture across Asset Classes: Financing Resilient Value Chains through Total Portfolio Activation. The paper was prepared by Croatan Institute with the guidance and close collaboration of Iroquois Valley Farms, Maine Organic Farmers and Gardeners Association (MOFGA), Organic Agriculture Revitalization Strategy (OARS), Root Capital, RSF Social Finance, and Trillium Asset Management.