RI ESG Briefing, Sept. 1: Morningstar signs up to Principles for Responsible Investment

The round-up of the latest ESG developments

Environmental

RI can reveal that the Industrial Bank of India (IDBI) is preparing to issue its first green bond. According to a document published on the bank’s website, it has created a framework ahead of issuance, outlining appropriate projects for a “green bond portfolio”. Proceeds will be used to lend to new and existing projects that support emission reduction, resource management and sustainable transport, the document said. Eligible renewables sectors include solar, wind, biomass, small hydro (less than 25MW), run-of-the-river hydro and renewables transmission infrastructure. Energy efficiency, energy storage, water and waste management, low-carbon transport and sustainable land use are also identified as eligible categories. Until the proceeds are fully allocated, they will be invested in money market instruments and government securities. The IDBI will reporting annually on its investments under the green bond programme, and this will be assured by an independent assurance firm. A third-party review is also slated, to provide an opinion on the greenness of the transaction.

Chinese wind turbine manufacturer Goldwind has also returned to market, this time with a RMB1.275bn asset-backed green bond, listed on the Shanghai stock exchange in six tranches. According to reports from the Climate Bond Initiative, the deal was issued via the Agricultural Bank of China – which has a strong track record in the market – but the originator is Goldwind, as it provided the underlying wind assets. Interestingly, the second-party opinion comes from DNV-GL – a provider that’s been popular in Europe, while in Asia issuers have generally favoured one of the large mainstream financial services firms.

Investors are increasingly lending their support to climate change-related shareholders proposals as global temperatures have risen, EY research has revealed, with the average environmental proposal gaining 29% backing in 2016, up from 7% in 2011. Proposals filed in May at Exxon and Chevron that tackled climate reporting were the most well-supported, while further analysis by Bloomberg finds that those supported by management were the most likely to receive backing. Bloomberg’s research also found that proposals calling for sustainability reporting and a limit on greenhouse gas emissions were the most supported by shareholders (with 41% and 31% backing respectively), while efforts to link executive pay to company actions related to climate were the least supported at 4%.

The CDP (formerly the Carbon Disclosure Project) has announced a new partnership with Ramboll Environ, an environmental and health consulting firm, in order to help investors and companies reduce corporate carbon emissions. The agreement was signed, a press release from CDP reads, in the wake of the recent pledges made by companies at COP 21 to reduce carbon emissions and a need for organizations to be better prepared to change their practices. Ramboll’s employees will help investors and companies alike “identify, evaluate, plan and implement meaningful carbon reduction projects”.

Social

Fund research giant Morningstar has become a signatory to the Principles for Responsible Investment (PRI). It comes after the firm introduced sustainability rating of funds using research from ESG house Sustainalytics. It has also said it is planning to build on this by launching environmental, social and governance (ESG) indices with Sustainalytics. Other new PRI signatories include Bpf Bouw Stichting Bedrijfstakpensioenfonds voor de Bouwnijverheid of the Netherlands, South Africa’s Consolidated Retirement Fund for Local Government and BNP Paribas Securities Services.

Several US pension funds are poised to divest from companies that operate private prisons, reports suggest, following exits already made by Columbia University, the United Methodist Church and Pershing Square. A campaign dubbed End Prison Industrial Complex, lead by activist Randy Credico, aims to urge New York City Comptroller Scott Stringer to follow their lead and divest each of the city’s 5 pension funds from for-profit corporations who manage US prisons. Another campaign, called Enalnce, is coordinating a national effort to push private prison divestment. Link. Governance

New “anti-grafting” laws set to come into effect in South Korea from September 28 will prevent the country’s corporates from entertaining business colleagues, government officials and journalists with extravagant dinners, golfing weekends or pricey food items. The practice of entertaining stakeholders, known locally as “jepodae”, sees South Korean companies spend a total of $8.4bn annually, often leading to lax supervision or illicit favours. It was brought under the scrutiny of the Korea Chamber of Commerce when ties between market regulators and the shipping industry were exposed during the 2014 Sewol ferry disaster, which saw 302 students and other passengers die off the coast of Jeju amid calls of special regulatory treatment. Link

Investors have criticised the Singapore Exchange (SGX)’s announcement that it would allow companies with multiple classes of shares to list their initial public offerings, on the back of a report issued by the bourse’s Listings Advisory Committee, an independent body of bankers, lawyers and CEOs. It specifically mentions companies with dual-class share structures will be able to list on the SGX, but that a one-share-one-vote structure would remain the default for new listings and that any rule changes would be precluded by a public consultation. David Smith, Head of Corporate Governance at Aberdeen Asset Management, told Reuters that he was concerned that the change would “fire a starter pistol on a race to the bottom”, and that other exchanges in the region might follow SGX’s example.

Investors in UK companies kept their engagement on a relatively even keel in the 2016 AGM season, according to Glass Lewis’ annual Proxy Season Review, with executive pay issues proving to be the most fiercely contested battlegrounds. In what the proxy advisor describes as “a reprise of 2012’s shareholder spring”, four FTSE 350 issuers had pay proposal voted down while a “surprising” number of pay proposals were approved with less than 90% shareholder support. Large payouts at energy companies such as BP despite declining financial performance were of the most concern, the report suggests, while director elections attracted relatively little attention.

NZX, the group which operates New Zealand’s capital markets, is seeking feedback on the latest round of proposed changes to its corporate governance best practice code for companies listed on its exchanges. The update to the guidelines, which aims to bring listed companies’ practices in line with those upheld by Australia’s Financial Markets Authority, comprise a code of ethics, rules about share trading and continuous disclosure and a call for more transparency over board appointments and CEO pay. The NZX has said that as part of this initiative it will encourage companies to report on ESG and health and safety issues, working alongside the Sustainable Stock Exchange Initiative for specific guidance in this area. Submissions are due by October 14.

The IFC has announced that it is working with the State Securities Commission of Vietnam (SSC) to create a corporate governance code for listed companies in the country. With its launch expected by mid-2017, the code will fit into a larger effort to boost regulatory compliance in South-East Asian countries and to promote investment in Vietnam. The IFC is also helping Chinese market regulators gain a better understanding of recent regulatory and sustainability developments ahead of the publication of a revised corporate governance code for Chinese companies by the end of the year.

The Association of Chartered Certified Accountants (ACCA) has launched a report looking at how integrated reporting < IR > is perceived by its members – and found some mixed views. Familiarity with < IR > was patchy; and some respondents expressed concerns over the measurability and connectivity of its capital models.