RI ESG Briefing, May 4: Investors back introduction of a modern slavery act in Australia

The round-up of the latest ESG developments.

Environmental

Swiss pension funds and insurers have been offered the opportunity to test their equity and corporate bond portfolios’ compatibility with 2°C warming scenarios, IPE reports. The offer, which is supported by the Swiss occupational pensions trade body, ASIP, was been made by the Swiss Federal Office for the Environment and the State Secretariat for International Financial Matters. The tests will be carried out by climate change think tank and research organisation 2° Investing Initiative. The 2°C global warming threshold was set in 2015 at COP21, the international climate change agreement reached in Paris.

ESG intelligence firm RepRisk’s new report ‘Benchmarking Report: DAX’ has identified the financial sector, followed by the automotive industry, as the most ‘controversial’ and adversely affected by ESG related issues in 2016. The report, based upon data derived from German DAX 30 market index listed companies, highlights the “serious” reputational, financial, and legal consequences ESG issues can have for companies.

The Australian Council of Superannuation Investors’ Chief Executive Louise Davidson has reportedly spoken, in the wake of Australian bank Westpac’s decision not fund Queensland-based coal projects, in support of companies making “common sense” investment decisions based on ESG factors. Westpac has faced criticism from Prime Minister Malcolm Turnbull’s government over its decision.

UK headquartered oil and gas firms SOCO International and Cairn Energy have reportedly stepped up their climate reporting following regulatory complaints by law firm ClientEarth to the Financial Reporting Council (FRC) watchdog.

New York’s Riverside Church, built by oil magnate John D. Rockefeller, Jr and whose $140m endowment was seeded by the Rockefeller family, has announced it is divesting from coal, oil, and gas.

Social

The Calvert Foundation has created a new business that will pool capital to fund fixed-income opportunities in the impact investment space. Dubbed the Capital Aggregation Investment Business, it has been created to address the lack of scale and cost-effectiveness for impact investors and investees seeking fixed-income deals. “As both impact investors and impact markets have matured, we see a need for the facilitation of larger, broader flows of capital that can supplement our own investment appetite and are aligned with our investment objectives,” said Jennifer Pryce, President and Chief Executive Officer of Calvert Foundation. “Calvert Foundation is uniquely suited to catalyze capital flows to meet the growing capital needs of the global communities we serve. Our Capital Aggregation business essentially creates a one-stop solution by structuring and administering investable transactions for mission-driven organizations that ease the associated capital raising process by connecting them with a syndicate of investors who seek exposure to high-quality, risk-appropriate deals that generate social, environmental and financial returns.”

The International Transport Workers’ Federation (ITF), the international federation of transport workers’ trade unions, latest report reveals that a third of European pension funds, representing €900bn in assets, make no reference to international standards on labour rights. The report highlights the UK, which has the largest pool of retirement assets in Europe, as the biggest laggard accounting for two thirds of the funds in this group by number, and four fifths by assets (€684bn).h6. Governance

Investors with a combined US$2.13trn in assets under management have come out in support of establishing a Modern Slavery Act in Australia. “As investors,” they wrote, “we believe human rights issues can present potential financial impacts through reputation damage and operational risks to our portfolio companies. We therefore welcome a Modern Slavery Act which would improve transparency on how companies operating in Australia are managing modern slavery risks in their operations and supply chains.”

A resolution asking oil and gas company Santos to disclosure on climate secured 7% support from shareholders at the Australian firm’s AGM today. The resolution was filed by some 100 retail investors and backed by SRI fund firm Australian Ethical. It asked Santos to report in line with recommendations from the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure. Santos did not support the resolution. Campaign group Market Forces said the firm’s Chairman, Peter Coates, also announced at the AGM that Santos was planning its business model based on a ‘4°c’ climate pathway – significantly higher than the 1.5-2°C limit accepted at COP21.

UK based global asset manager Aviva Investors’ poll of 39 asset managers, representing combined assets of over £4tn, has found that despite 92% of respondents agreeing that teams and businesses that are more diverse are more successful only a “handful of respondents have 30% of women on the executive board”, with some boards having no female representation whatsoever. The 30% target for female representation on boards is a figure embraced by the 30% Club, a gender initiative which receives the support of Warren Buffett and Larry Fink. Aviva’s third biennial survey of global asset managers on ESG issues also found that on the investment floor only “5% of respondents reported that over 40% of their investment managers are female”.

Canadian fund manager OceanRock Investments, in collaboration with advocacy group SHARE, has filed a gender diversity shareholder proposal with Canada based fast-food company Restaurant Brands International (RBI) for the second year running. The proposal has been re-filed in advance of the company’s 2017 annual shareholders meeting as changes made by the company in response to the first shareholder proposal (2016) have not addressed OceanRock’s concerns in any ‘meaningful’ way.

The International Corporate Governance Network (ICGN), the global association of governance professionals with a membership collectively responsible for assets in excess of $26tn, has urged ‘caution’ to its members over the risks and challenges associated with ‘share buybacks’. The ICGN has identified critical questions that should be asked by shareholders and boards before making the decision to use share buybacks.

Hermes Asset Management, the £28.5bn fund-manger wholly owned by the BT Pension Scheme, has pulled its investments in scandal hit Brazilian meat processing company JBS amid allegations of bribery and the fraudulent selling of rotten meat. Speaking with Mitch Reznick, Co-Head of Credit and Head of Credit Research at Hermes, RI was told that the divestment came at the end of a lengthy engagement process with the company dating back to Autumn 2015.

The Interfaith Center on Corporate Responsibility (ICCR) has released new report Best Practice Guidance on Ethical Recruitment of Migrant Workers. The report explores practical tools to address challenges in hiring migrant workers often at risk of forced or bonded labour. Best company practices showcased in the report include companies having a forward-facing public recruitment policy and including recruitment practices in all audits.