RI ESG Briefing, October 11: Closure could save Chinese coal power stations $390bn

Environmental

A new impact investment instrument to conserve cloud forests – tropical rainforests that form along high-altitude mountainsides regularly immersed in low-lying cloud cover – has launched. The Cloud Forest Blue Energy Mechanism will aim to restore and conserve degraded cloud forests by attracting investment through their role in increasing volume and flow regularity to hydropower reserves. FMO, the Dutch development bank, is the anchor funder in the initiative developed by Conservation International and the Nature Conservancy. It has raised $1m for pilot projects across Latin America.

Environmental Justice Australia has announced that it is filing an updated Federal Court claim against the trustees of the A$50bn ($35.5bn) superannuation fund, REST, for breaching its duties on climate risk. This is the first time that the legal duty to be “a prudent superannuation trustee” has been tested. The case asks the courts to affirm the responsibility of asset owners to take into account climate change risks when managing the money of investors.

Carbon Tracker has found that the closure of loss-making Chinese coal power stations in line with the Paris Climate Agreement could save its owners nearly $390bn, based on an assessment of satellite imagery to assess the profitability of the facilities. According to the report, released today, 40% of coal power stations in China are already losing money, while onshore wind farms will be comparatively cheaper to build and operate by 2021. Additionally, China’s National Energy Investment Group, the world’s largest power company, risks losing half its total capital in stranded assets – $66bn – on a business-as-usual trajectory.

The European Central Bank (ECB) has a legal obligation to take into account environmental protection concerns when designing and implementing its policies, according to new legal research from Dr. Javier Solana of the University of Glasgow. It comes amidst political and NGO pressure on the ECB to align its bond purchasing programme with the Paris Agreement.

Social

Sir Richard Branson, Unilever’s Paul Polman, World Economic Forum Founder Hilde Schwab and UBS are backing a new award programme from ESG asset manager Alquity to bolster sustainability in emerging markets. The Transforming Lives Awards will be aimed at charities and SMEs in Africa, Asia and Latin America, and winners will receive grants, debt or equity to help pursue and scale projects.

The China Global Philanthropy Institute (CGPI) is working on developing China’s first impact investing policy and doing research into social impact bonds. Wang Zhenyao, President of CGPI, announced the initiative ‘Honey Lake Consensus Guild’ at China’s 2nd Global Finance Forum. The Guild will be based in Futian and also have the objective of developing 120 ‘consensus institutions’ nationwide.

The Near East Foundation (NEF), a NY-based nonprofit, is reportedly planning the first tranche of a $14.9m development impact bond next April to fund an NEF livelihood programme over three and a half years aimed at developing home-based businesses in Lebanon and Jordan. There are expected to be 5500 beneficiaries, of whom 75% will be women and 50% refugees. Depending on the achievement of the “developmental impact” and 8% internal rate of return, investors stand to be reimbursed fully, partially or with an additional return at the conclusion of the programme.BNY Mellon Investment Management has released a report looking at the latest developments within ESG investing agenda with contributions from The Boston Company, Newton IM, Standish, Walter Scott and Insight Investment. Among the themes covered are the increasing prominence of ESG factors within fixed income investing, the rise of millennials and its implications for SRI and the electric vehicle (EV) revolution. The report can be accessed here.

Governance

The Global Unions Committee on Workers’ Capital has “called”:httphttps://www.workerscapital.org/press-release-cwc-report-calls-for-cost-transparency-at-pension-funds-across on asset managers and regulators to improve the disclosure of data on costs and fees. Sharon Burrows, General Secretary of the International Trade Union Confederation, said: “It is troubling to think that two workers in a similar industry with similar wages might find themselves in vastly different situations at retirement because of opacity around fees and the impact of fees on the net returns of their pension funds.” It comes as new research from Toronto-based CEM Benchmarking finds that transaction costs for global pension funds with $2.6trn in assets account for 24% of all investment costs. In this, around 49% of costs were asset management fees.

New research from NEST, the workplace pension plan set up by the UK government to manage its auto-enrolment initiative, finds 73% of their members think it is important their pension scheme considers environment, society and corporate behaviour when investing their money. At a roundtable event announcing the results, NEST says it suggests storytelling around social and environmental issues could be a tool to engage with members. NEST already adopts a responsible investment approach for its £4bn in assets including allocating £624m so far to a bespoke climate aware fund.

An analysis of the sustainability profiles of Morningstar’s 46 country specific equity indexes finds Colombia is the world’s highest scoring non-European market for sustainability, led by companies like Bancolombia and Grupo Sura. It also finds European markets set the global standard when it comes to corporate-level sustainability. Portugal scores the highest on environmental criteria, Denmark on social, and the Netherlands on governance. Meanwhile, the United States is a middling performer on sustainability. Report author Dan Lefkovitz, strategist, Morningstar Indexes, says controversy is one factor; another is poor governance scores for companies like Facebook, Alphabet, and Amazon.

Goldman Sachs, JPMorgan Chase and four other banks are reportedly facing an antitrust suit by investors due to allegedly stifling competition in the stock lending market valued at nearly $2trn. The banks are accused of maintaining a monopoly of the nearly $2trn market, charging excessive fees to investors, and have four weeks to answer the complaint filed by the Iowa Public Employees’ Retirement System; California’s Los Angeles County Employees Retirement Association, Orange County Employees Retirement System and Sonoma County Employees’ Retirement Association; and Torus Capital LLC.