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RI ESG Briefing, May 25: PGGM’s investments in climate, water, food and health ‘solutions’ reaches €9bn

The round-up of the latest ESG developments

Environmental

Many leading U.S. insurance groups are significantly invested in oil & gas and other fossil fuel industries, even as these sectors face growing pressure from the global clean energy transition and physical impacts associated with climate change, according to a report from sustainability advocacy group Ceres and consulting firm Mercer. The report analyzes fossil fuel holdings of the top 40 U.S. insurance groups, whose collective investments in coal, oil & gas and electric/gas utilities are worth $459bn. It’s hoped the report will provide a roadmap for insurers and regulators to better manage climate risks and seize opportunities from the energy transformation.

The Institutional Investors Group on Climate Change (IIGCC), on behalf of 122 European institutional investors managing nearly £13trn of assets, has written to UK Prime Minister David Cameron asking that the UK government adopt the fifth carbon budget at the level of 1,765 MtCO2e [million metric tons of carbon dioxide equivalent] for the 2028-2032 period proposed by parliamentary group the Climate Change Committee. In the letter, the IIGCC says such a level will be the minimum necessary to ensure current and future investment flows into the right technologies and to minimise stranding of capital investing in high carbon assets.

The UC San Diego Academic Senate has called on administrators at the University of California (UC) to divest from fossil fuel-related companies after the proposal received popular support from faculty. According to the proposal’s supporters, UC’s $91bn retirement, endowment and working capital fund has already divested from companies dealing in coal and tar sands, but reserves the right to reinvest in these industries and acquire investments in other fossil fuels. Professor Eric Halgren, who leads the UCSD Fossil Free movement, said: “We must build a global consensus behind becoming fossil-free in the next 20 years”.

The Environmental Risk Integration in Sovereign Credit (ERISC) project, a joint collaboration of UNEP Finance Initiative (UNEP FI) and Global Footprint Network, has released a report summarizing the second phase of ERISC, which looks specifically how environmental risk affect food production and food prices and how this in turn can have material macroeconomic impacts. It was developed in collaboration with S&P Global Ratings, HSBC, French sovereign fund Caisse de Dépôts, First State Investments, development bank KfW, Kempen Capital Management and Cambridge Economics.

Social

Dutch pension investor PGGM says it invested €1bn in ‘solutions’ last year – that’s to say investments that not only yield a competitive financial return, but also have a tangible impact in the areas of climate, water, food and health. Total investments in this category reached €8.9bn at the end of 2015. It added that it has set up a team that specifically invests in solutions on the equities market – with the expertise developed in-house to be available to “further upscale these investments”. PGGM said: “In 2015, we also developed an index that enables clients to significantly reduce the carbon footprint of their equities portfolios. Both the CO2 index and the investments in solutions are already being applied in clients’ portfolios.”h6. Governance

US labor pension fund advisor CtW Investment Group has written to T-Mobile US majority owner Deutsche Telekom asking it to investigate whether the wireless provider manipulated earnings and inappropriately compensated executives as a result. CtW has filed repeated complaints with the Federal Communications Commission about T-Mobile. “Our concerns about T-Mobile emerged after recognizing the turnaround of a rapidly growing company,” CtW Investment Group researcher Rich Clayton said. “While not everything about the turnaround is the result of a change in accounting practices, it could have had an impact.” Link

The majority of the 20 largest Swiss pension funds do not fully consider long-term environmental risks, such as climate change – according to a survey from campaign groups WWF Switzerland and ShareAction. They said that all 16 of the funds that participated do consider the topic of responsible investment, and 13 of those funds also have a relevant policy. However, the survey does show that there is still some way to go before Swiss pension funds exemplify international best practice.

Daniel Godfrey, the former head of UK investment fund manager body the Investment Association, is reportedly teaming up with ShareAction chief executive Catherine Howarth in order to tackle incentives structures in the asset management industry. Money Marketing reports that the pair will research the fundamental structure of pay schemes and remuneration policies and investigate the pay agreements made between pension funds and asset managers. Howarth said: “We want to see a truly responsible investment system where investors are focusing on long-term company performance, including how the companies interact with customers.”

Shareholders at NextEra Energy have rejected a shareholder resolution asking the US clean energy firm to report on the risks and costs that may arise should sea levels rise, with 65% of shareholders voting ‘no’. The proposal was submitted by shareholders Alan Farago and Lisa Versaci, who want NextEra to account for the effects of changing sea levels as projected forward to 2100. Farago said he was pleased to get 35% of the vote in support, and added that the issue “isn’t going away” any time soon.

US labor-union federation the AFLCIO [American Federation of Labor and Congress of Industrial Organizations] is reportedly calling on the Securities and Exchange Commission to investigate whether asset managers OppenheimerFunds and Franklin Templeton Resources adequately valued their Puerto Rico bond holdings as the island’s fiscal crisis worsened. Bloomberg was citing a letter by Heather Slavkin Corzo, the AFLCIO’s director of the Office of Investment. The report quoted an Oppenheimer spokesperson as saying it is transparent with investors regarding its funds’ valuation practices while a Franklin Templeton spokesperson was quoted saying it uses a “rigorous pricing process” in line with regulations.