RI ESG Briefing, September 12: UN Secretary General backs overhaul of Global Compact

Environmental

An annual survey of banks in six ASEAN countries has found that while the region is “particularly vulnerable to climate change”, not enough is being done to manage risks and capitalise on investment opportunities. The report, from WWF and the National University of Singapore, is an update of a pilot survey from last year, looking at 34 banks in South East Asia. There has been a major increase in the number of banks recognising the financial materiality of climate risk over the past year – up from 12 to 19 – says the report, but only four of those assessed has senior management oversight of climate risk and opportunities – and none provided evidence of risk management at portfolio level. WWF called on the banks to develop and disclose more robust ESG policies and procedures.

Poland’s planned Ostrołęka C power station presents an “obvious financial risk” for investors in Energa SA and Enea SA, the two Polish state-controlled companies behind the project, a new report has found. According to a financial model made by Carbon Tracker, investors risk losing €1.7bn as the plant will be “permanently unprofitable without out-of-market revenues in the form of capacity market payments”, which it says “are extremely uncertain”. Read the full report here.

The Irish Catholic Bishops’ Conference is to divest its €3m-€4m holdings in fossil fuels, pledging late last month to remove investments in the top 200 oil and gas companies within the next five years. The move from the leading Catholic charity comes a month after Ireland became the first country to commit to fossil fuel divestment and builds on Pope Francis’ commitment to combat climate change. Other recent commitments, including from Caritas India and organisations located in Kenya, Fiji, Pakistan, and the US, bring the total number of Catholic institutions to pledge to go fossil free to 120.

UK and EU leaders must include a comprehensive Climate and Energy Chapter in Brexit negotiations, CEOs from ten leading energy firms and trade associations are reported to have urged. Unilever, EDF and trade associations Energy UK, Renewable-UK and WindEurope were among signatories to a letter sent to Jean-Claude Juncker and Theresa May this week [4 September] which read: “The continued implementation of the Paris Agreement on climate change is essential to provide clear, long term and stable signals to guide business investment in low carbon infrastructure.” The letter comes amid doubts about the UK’s commitment to international climate policies post-Brexit.

Australia’s top 100 companies are failing to act on climate risk disclosure, a new study released by environment finance group Market Forces has found. The report – titled ‘Investing in the Dark’ – found that of the 74 “high risk” ASX100 firms analysed, only 11% have disclosed detailed scenario analysis consistent with a 2 degree policy pathway, as set out under the Paris Agreement. Only 55% identify climate change as a material business risk and 81% do not have a plan to reduce greenhouse gas (GHG) emissions.

APG, Robeco, Legal and General Investment Management and Green Century Capital recently signed an investor statement calling on global food companies to halt deforestation in Brazil’s Cerrado Savanna. The Cerrado Manifesto is co-ordinated by the FAIRR Initiative and has support from investors managing over $2.8trn in assets.

Energy Transfer Partners (ETP), the US firm behind the controversial Dakota Access Pipeline, has filed an amended version of its complaint against Greenpeace to include protests at other pipelines in Louisiana and Pennsylvania. The environmental NGO claims that the amendment is “effectively thumbing its nose” at an order by US Federal Judge Billy Roy Wilson that the pipeline company revise its original complaint, reportedly, because it failed to make “simple, concise and direct” allegations. In July, the same judge dismissed Dutch finance campaign group, BankTrack from the case stating that ETP “failed to state a plausible RICO claim”.

Japanese financial institutions have provided $92bn in financing to fossil fuel and nuclear power development since the Paris Climate Accord was reached, a report by 350.org Japan has revealed.

Investors must step up action around the SDGs to plug a $7trn annual funding gap, a new report has urged. The massive global funding gap – estimated at $5trn-$7trn – was identified by the Global Impact Investing Network (GIIN) in its report titled “Financing the Sustainable Development Goals: Impact Investing in Action”.h6. Social

ASA International, the international microfinance institution providing socially responsible loans to low-income female entrepreneurs in Asia and Africa, has reported its net profit is up 28% compared to the previous year – a performance it says is above expectations despite higher than expected currency depreciation in major operating countries. It also reports a 30% increase in clients and a 21% increase in total branches, year-on-year.

Ontario-based Sisters of the Holy Names of Jesus and Mary has filed a shareholder proposal at American Outdoor Brand Company requesting a report on the company’s activities related to gun safety measures and the mitigation of harm associated with gun products. Its annual meeting is being held on September 25. In recent months the company has bit hit by a fall in firearm sales.

MSCI has completed the integration of its ESG indexes, ratings and data across its risk and portfolio management systems in what Managing Director and Head of Analytics Remy Briand has said “represents the next step in the evolution of MSCI’s support of ESG investing”.

UK Labour MP Frank Fields has called upon the Archbishop of Canterbury, Justin Welby to use the Church of England’s investment funds to buy the loan book of collapsed payday lender Wonga and prevent it falling into the hands of debt recovery companies that will exploit customers, the Times reports. Wonga, which the Church embarrassingly was found to be indirectly invested in 2013, was put into administration this month following the number of misselling claims filed against it.

US wealth managers are increasingly playing a role in driving ESG among retail investors, according to Cerulli Associates, who found that the market is no longer dominated by the asset management industry. The Boston based research firm also found that both asset and wealth managers cited demand from younger investors as the reason for creating ESG investments.

Emerging markets veteran Mark Mobius is looking to raise at least £200m by listing an EM vehicle “with a focus on ESG” on the London Stock Exchange. The Mobius Investment Trust (MMIT) will use MSCI research to help it identify stocks that perform poorly on ESG and where there is little perceived potential for improvement via engagement. Mobius has said that it may invest in tobacco, gaming, and oil, if certain conditions are met. The fund will be managed by Mobius Capital Partners – which Mobius founded with Carlos von Hardenberg and Greg Konieczny.

Governance

The UN has recommended an overhaul of the Global Compact in a report published over the summer. A note from the Secretary General addresses a report by the UN’s Joint Inspection on private sector partnerships in the context of the 2030 Agenda for Sustainable Development. The report recommends a “revised mandate for the Global Compact” on the basis that it needs “a clearer role… at the global and national levels, in effectively engaging the business sector to support the implementation of the 2030 Agenda”. The response to the recommendation stated: “Organisations agree that the Global Compact Office could play a major role in enhancing system-wide coherence and bringing partnerships together. However, the Joint Inspection Unit should note that this is a huge undertaking and that the Global Compact Office may require additional resources in order to implement this recommendation.”

Executives at Danske Bank’s Estonian division are facing scrutiny after the revelation the small branch handled around $30bn of Russian and ex-Soviet money in a single year, according to a media report in the Financial Times. An independent investigation into Danske’s eight-year long money-laundering scandal (2007 to 2015), found that its Estonian branch [housed] up to $30bn in non-residents’ cash in 2013, when misconduct was thought to be at its peak. One person close to the investigation said: “It’s a truly breathtaking amount for such a small branch. You can’t have that amount flowing through without it raising questions.”

“The ambiguity of the current data privacy environment is unsustainable, and investors need to understand how social and governance issues like data privacy impact company performances,” says John Wilson, head of research and corporate governance at Cornerstone Capital Group that has just published new report “The Data Privacy Puzzle”. The report, commissioned by the Investor Research Responsibility Institute, analyses how companies whose business models rely on increasing quantity and scope of consumer data are at risk if public ambivalence about data privacy turns to opposition.

Note: This article was amended to clarify that MSCI’s ESG updates apply to its ratings and data services, as well as its indices.